Sell Side Trading vs Buy Side Execution
Hey all,
I'm having a hard time choosing between two offers.
Offer A is trading on the sell-side at an up-and-coming foreign bank, where I will be trading different index, dividend, and merger arb strategies. The people on the desk are really smart and I genuinely like them. The firm isn't very prestigious (tier 3) but the work is interesting and the pay is standard across the street. Also, the firm is small, so if I do well there is a lot of room to grow.
Offer B is as a trader at a top 10 hedgefund worldwide as ranked by the institutional investor. It has 8b+ AUM. As a junior trader, I'm responsible for executing equity, commodity, and FX derivative trades as well as other 1 delta products. The fund seems like a great place with very smart people and pay is around 50% higher. In this position I would get a lot of experience interacting with the markets from the perspective of someone on the buy side.
Obviously, I'd rather trade on the buy side than the sell side, but in the long run I want to be TAKING RISK and making decisions, and if i take offer B I'm afraid of being pigeonholed as an execution trader (which is something id love to do for a couple years, but not more).
So the question boils down to: which one of these offers best sets me up to be a risk-taking trader in the future? Will taking offer A and working with those different arb strategies better prepare me for that career, or will taking offer B and trading on behalf of PMs and interacting with them teach me more and eventually allow me to transition into an analyst/PM?
I appreciate all input. I'm completely in the dark here..
From what I understand a lot of Execution Traders end up becoming Portfolio Managers. I would say it's a easy choice given the prestige & salary difference to pick the buyside firm.
Bump
if the foreign bank is DB, then no brainer buy side. otherwise, if you like culture of buyside firm, go join bayside. don’t join a buy side firm if you think you will have hard time to fit in.
is DB considered 3rd tier nowadays? lmao...
Insofar as jumping from execution trading to a junior PM type role, I would look at the current PMs and their backgrounds. I think blindly saying buyside execution traders get pidgeonholed is too blanket of a statement, but if the backgrounds/paths of the current PMs don't suggest that move into PM role being probable from an execution seat, id hesitate. I.e. If all the PMs came from the sell side or some research capacity. Gotta be pragmatic with each opportunity set, blanket statements about roles are quoted far too often. Agree that taking risk is important, and I think in trading it's less about what bank you came from, and moreso can you speak to managing/taking risk if you want to lateral out of a role at some future date.
After looking at some of the profiles of PMs/traders that transition does not seem to happen often at this firm.
I’d go to the fund. It doesn’t matter what other paths guys took. Wasn’t it ackman who hired his kids tennis pro or something and guy did well. Early on focus on being the best execution trader you can be. Read in the side to try and understand as much as possible.
If you go on the ib bored they act like funds just higher bankers for real work. Being a smart guy starting out as a trader you might never be able to make the best dcf model. But you can definitely figure out the assumptions in the models and realize what really moves stocks which a banker won’t see for a long time. Taking a trading role sooner will let you see how market cycles play out sooner. Execution trading is fine for that especially if you study in your on. Plus there are execution guys/brokers who pull in the 7 figures without having to take risks.
If the bank is Macquarie might be worth considering.
This was the exact scenario that I had experienced two months ago. One was a FT S&T analyst role at a BB and the second offer was a junior trader role at a hedge fund, approximately 10.2B in AUM.
Not sure how much experience you have in the industry. But speaking from my perspective, I am an upcoming graduate next month. And I have that same exact concern of being so called "pigeon-holed" if I do take a role on the buy-side as an execution trader. Because, ultimately we both want to be a trader that takes risks, rather than just executing trades from PMs and analysts.
Thankfully, I have a large network of traders (sell side and buy side) whom I can consult regarding this conflict. And the response that I've gotten was I shouldn't worry about being pigeon-holed. Given that I will soon be a fresh graduate, I can afford to spend a few years as an execution trader. After all, whether I am on the buy side or sell side, I will learn a great deal of the markets and etc. The second tip was, even as an execution trader, you will still attend meetings with the analysts and PMs. And from those meetings, you can still chip in your ideas or raise questions regarding the analysts' findings. Third, as an execution trader, you will be interacting with sell-side traders. Given these interactions, you can start networking and build relationships with them. Then when one day, if you do decide you want to move to the sell-side, you already have connections who can make that transition easier. I remembered I've read it on this post before, and I find it rather funny. A sell-side trader can only say fuck you after he hangs up, while the buy side trader can say fuck you during the phone call. With that said, sell-side people would love to speak with you.
With all that being said, choose the offer that you want and what aligns with your interest now. I personally have known traders who have moved from buy side to sell side or vice versa. In addition, trading analysts on the sell side won't be able to take risks until a year and a half or after the 2 year program ends. And even if they start trading, they're not taking risks. It's just agency trading. Of course, I do not know how much experiences you have so this situation applies more to me.
Finally, I decided to go with the sell side offer that I've received. That's because I find sell side more suitable for me, in terms of personality and my personal goals. Being in the program, I will have exposure to different desks and thus the ability to learn about different products. That brings me to my other concern which is to be a one trick pony and become specialized in a single product or a group of products if I were to take the equity derivatives jr. execution trader role.
Hope you find this helpful. Although I accepted the sell side offer, I am still networking with buy side people so if one day, I do decide I want to move to the buy side, I will have connections whom I can reach out to for help.
Cheers!
Great stuff, looks like you switched to buyside trading.
Could you provide an update on your time at sellside and your thought process behind the switch?
seconded
Can't believe it has already been 5 years since my comment. Sure, here's a little update on my end. After accepting the sell-side offer and learning on the job for about 3-4 months, I have heard from a connection of mine that there's this commodity hedge fund moving to NY from overseas and that they are trying to scale up their headcount (PMs & Analysts). I expressed my interest and went though the process of learning more about them. Never heard about them before and after going through the interview process, I was impressed with the talent pool over there and felt I could be on a expedited track to become a trader if I am on the buy-side NOW vs. after the 2-year analyst program on the sell-side. Now, why would they pick me up vs. those who already had experiences as an analyst for the products that they trade? It helps to know someone who just got hired there and is part of the recruiting efforts. A fresh graduate like myself with only 3-4 months of working experiences who has never built a S&D model or hell even a price forecasting model does not sound like a marketable candidate. That said, I was able to demonstrate my passion for trading and overall just showing that I am ready to learn. So when the offer came around, they were definitely not going to pay me top dollars. If anything, they actually offer me a lower base vs. my current at the time. My comp package went from a pretty much guarantee 100k+(base + bonus) to I'll be happy if I see 80-90k all-in. And I can take that pay cut due to I was still living with parents at the time and barely have any student debt after graduation (public university).
I am not even joking but I have learned more in my first two weeks at this fund than my couple months on the sell-side desk. I was an analyst on their volatility desk and they were covering soft commodities (cotton, cocoa, sugar, etc.). It was quite overwhelming at first, after the first month on the job I was acting as the back-up to our senior trader covering the book when he's out (e.g. netting our deltas back to zero and hedging the greeks as per his instructions). Meanwhile, also acting as a execution trader for our CIO and lastly working on ad-hoc projects with the Head of Quant. It was literally a dream come true, the ability to wear that many hats and to be that versatile will make me quite marketable to other shops.
Six months later, the upper management decided to shut down the shop and pretty much all of us were told we will put you guys on the payroll for about 3 months for you guys to find a job and for those who stayed here for X years, you will get a severance package of Y. Me being as junior as I was, I won't be getting any severance package. That said, I was able to find a job within 3 months at a trading house covering grains. Was it my ideal role? Not really but I was desperate and was not in the position to just be unemployed and look for that perfect role (remember I took a pay cut to be on the buy-side). The role was to manage the hedging book of our physical business. Quite sizable as well, about notional value of $30-40MM. In short, the job was if a customer wanted to fix a purchase/sales contract (futures + basis), he would essentially tell me the volume and at what price he wanted to fill it at. Next, to make sure we roll our net positions forward before FND as we wouldn't want any potential physical deliveries of the commodity (I was covering KC). After doing this for six months, I was basically looking for a way out given I am not on the right track and no longer involved in any sort of spec trading. Interestingly enough, the PM who was part of the layoff also joined this physical shop but he was on the spec trading team. We acquainted and I basically expressed my interest in becoming his analyst as he could use one. His vision was to explore the route of machine learning and looking for someone to know how to code. Being a finance major, I never had to take a coding course. I told him no doubt, give me some time and I will learn to code. After going through free courses at udemy and etc, I started coding bits by bits. Within 2 months, I was able to run backtests and pretty much familiarize myself with the machine learning package. Had a few price prediction (daily and monthly) models that generated positive p&l. Then he raised the possibility to upper management to have me transfer to being his analyst vs. this hedging/execution role that I was hired to do. Tons of back and forth and ultimately they decided to put me in this hybrid role (30% analytics & 70% hedging). Had asked for a bump in salary too and they gave me like a 7% to my base. Better than nothing I guess. One year later after this hybrid set up, I proposed to transition to analytics full time and then covid came. Worked from home for a year under the same structure as management felt it would have been harder to hire my replacement so as a result just keep me in the role.
I kept on waiting and finally lost my patience. But in the meantime, I gained tons of marketable skills (hedging, execution, coding, etc) and I figured it was time to move on. I moved to a shop that is completely out of my expertise, Power & Gas! It worked out well as they were looking for someone who didn't have a energy background so they can have some new perspectives. It was quite an interesting seat in which I cover all power markets and not limited to just one. Given it is a new product and I am also not from an electric engineering background, power as a product was quite a challenge to learn given all of the physics component of it which was really just the beginning. In addition, each power market is different from each other (ERCOT vs. PJM for example) but that can a forum in of itself. One year later, I caught up and started to ask if I can have my own book. They gave me a small book to manage and thankfully I ended up doing well and now I am managing a larger book and have the flexibility to trade all power markets and mostly all products as long as I can identify opportunities.
In conclusion, not your typical path to become a spec trader and if you had ask me 5 years ago, I would've never guess that I'll be trading power. Staying open-minded and continuing to put yourself in the best position to learn are paramount to get to where I am now. Even if it means taking a pay cut to a place where you will learn a lot more! See you guys in another 5 years :)
hey, I am facing the same dilemma. Mind giving a fresh perspective after 5 years? :)
2nd on Macquarie - they can still prop trade
I’ve been in exact situation. I recommend going to the sell side first. Firstly, it’s very difficult to move from an execution role to a PM role. Secondly, execution roles will always be around. It’s a lot easier to move to a execution trading role after working on the sell side versus doing it the other way around. Thirdly, if you’re looking to take risk/trade discretionally, working on the sell side is good for this as (i) it’s a good training ground to learn how to structure trades/hedge risks/execute hedges for the Desk’s book(s), (ii) you will make contacts with the buy side and (iii) there is more wriggle room as banks tend to be patient with junior traders.
(iv) you can still prop trade, under the guise of “pre hedging”.
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