Fixed income sell side trading is a dying career

I've done several (5 to be exact) informational sessions with sell side traders that are currently working under the fixed-income division of S&T.

I told them about my plans to pursue S&T as a career and they all told me the same thing - S&T fixed income in the US is getting more and more automated and more restricted : do not enter this field without backup plans. Then they followed up with examples of all the slash of jobs (ex. Citi) within the S&T, and how every trader/salesman were worried about their jobs, although they did mention it was harsher in the equities division than in FI.

All in all, they recommended my not to pursue the S&T path, and one even noted that the traditional IB then PE/HF path may not always be the most exciting, but it's a path that at the very least, will not bring regrets.

What does WSO think of this?

 

You can make the argument that the majority of grunt work for IBD is going to be outsourced as well. And there's no way anyone could make the argument that IBD to PE is going to leave you without regrets at the end. Plenty of people get disillusioned with IBD and leave after a few years and don't necessarily look upon the experience fondly.
At any rate, people get all doom and gloom when an essentially cyclical business is in a trough. As someone noted above, the days of huge bonuses is likely gone. The field will continue to be well-compensated, but for the short-to-medium term at the very least, it's not going to be like it was. There's also always going to be sales done by humans. Sales gets a bad rep, but on the FICC side, it's definitely analytical and it's a lot of fun.

 
s.ratnasw:
You can make the argument that the majority of grunt work for IBD is going to be outsourced as well. And there's no way anyone could make the argument that IBD to PE is going to leave you without regrets at the end. Plenty of people get disillusioned with IBD and leave after a few years and don't necessarily look upon the experience fondly.
At any rate, people get all doom and gloom when an essentially cyclical business is in a trough. As someone noted above, the days of huge bonuses is likely gone. The field will continue to be well-compensated, but for the short-to-medium term at the very least, it's not going to be like it was. There's also always going to be sales done by humans. Sales gets a bad rep, but on the FICC side, it's definitely analytical and it's a lot of fun.

When I talked with the traders, they didn't mean that FI S&T "CAN" be automated - they meant they currently "ARE" getting automated and the effects of BASEL III (with derivatives OTC being pushed to clearinghouses) further substantiates this. Yes a there's always going to be the need for humans in S&T - the concern is that this "need" is slowly shrinking as everything in S&T is getting automated.

I have a friend who's currently an derivatives trader at a BB S&T in New York, and he is worried as heck about the future outlook of BB flow/OTC trading and his career. What he told me is that because his skillset (market making trading) is so niche, that if he gets outsourced to automated systems then he really has nowhere to go.

However, the traders I've spoke with were all in the 1st Year Analyst ~ 1st Year Associate range, so I'd like to get the perspective of other finance professionals. What are your thoughts WSO?

 
bellatrix.:
s.ratnasw:
You can make the argument that the majority of grunt work for IBD is going to be outsourced as well. And there's no way anyone could make the argument that IBD to PE is going to leave you without regrets at the end. Plenty of people get disillusioned with IBD and leave after a few years and don't necessarily look upon the experience fondly.
At any rate, people get all doom and gloom when an essentially cyclical business is in a trough. As someone noted above, the days of huge bonuses is likely gone. The field will continue to be well-compensated, but for the short-to-medium term at the very least, it's not going to be like it was. There's also always going to be sales done by humans. Sales gets a bad rep, but on the FICC side, it's definitely analytical and it's a lot of fun.

When I talked with the traders, they didn't mean that FI S&T "CAN" be automated - they meant they currently "ARE" getting automated and the effects of BASEL III (with derivatives OTC being pushed to clearinghouses) further substantiates this. Yes a there's always going to be the need for humans in S&T - the concern is that this "need" is slowly shrinking as everything in S&T is getting automated.

I have a friend who's currently an derivatives trader at a BB S&T in New York, and he is worried as heck about the future outlook of BB flow/OTC trading and his career. What he told me is that because his skillset (market making trading) is so niche, that if he gets outsourced to automated systems then he really has nowhere to go.

However, the traders I've spoke with were all in the 1st Year Analyst ~ 1st Year Associate range, so I'd like to get the perspective of other finance professionals. What are your thoughts WSO?

I agree with this. I've spent 4 years as an exotic derivatives trader at a BB and will be pursuing an MBA this fall. Although sellside trading will always be around, the opportunities are diminishing rapidly, and i don't see much of a future for me.

 

buy side is also dying down...couple shops closed past month or so.....not much opportunity for Arb. French 10 yr is at 1.8, italy in the 4's.....US obv sub 2, a 5bp move is big deal... I have experience in fixed income shop....but dont take it from me.....i can be of limited use from my experience, reach out to people.

 

Basel 3 and Dodd-Frank have definitely put more capital/ and liquidity requirements on the sell-side. Capital Markets itself is volatile, and is linked aggressively to the business cycle. Don't stop pursuing S&T though, it's definitely not a growing industry; but don't pigeonhole yourself either by just narrowing your skillset to S&T(As bellatrix said the skill set is niche, you can probably only go HF after you get laid off lol).

 

I don't understand this. No self-respecting trader would recommend working in banking. Bankers work twice as many hours for about the same pay, but it's far more mundane and repetitive work. While bankers have slightly more job security, the burnout rate is really high. Who wants to work 180 days in a row?

While it's true that FI is becoming more automated and less-OTC, this will merely change the business, not eliminate it. Sell-side FI will be around for decades.

 
justin88:
I don't understand this. No self-respecting trader would recommend working in banking. Bankers work twice as many hours for about the same pay, but it's far more mundane and repetitive work. While bankers have slightly more job security, the burnout rate is really high. Who wants to work 180 days in a row?

While it's true that FI is becoming more automated and less-OTC, this will merely change the business, not eliminate it. Sell-side FI will be around for decades.

Actually if you were to talk about burnout rate, then it's a lot higher in S&T (especially traders) than in IBD. Keep in mind that most bankers in IBD usually use it as a 2-year stepping stone to further exits (ex. HF/PE, corporate development etc.), whereas most traders in S&T are usually looking to stay. Consequently, what happens most of the time is that bankers leave voluntarily after 2 years, and traders usually have to maintain a certain level of PnL or risk being "weeded" out. Forgetting to add a comma in slide 52 will get you yelled at by the VP in IBD whereas one miscalculated trade (or just out of bad luck) can cost one's job in S&T.

And yes Sell-side FI will be around for decades, the same way plain vanilla cash equities will also be around - the only difference is they will be operated most via machines, with the head count in every major FI/equities division shrinking.

 
bellatrix.:
justin88:
I don't understand this. No self-respecting trader would recommend working in banking. Bankers work twice as many hours for about the same pay, but it's far more mundane and repetitive work. While bankers have slightly more job security, the burnout rate is really high. Who wants to work 180 days in a row?

While it's true that FI is becoming more automated and less-OTC, this will merely change the business, not eliminate it. Sell-side FI will be around for decades.

Actually if you were to talk about burnout rate, then it's a lot higher in S&T (especially traders) than in IBD. Keep in mind that most bankers in IBD usually use it as a 2-year stepping stone to further exits (ex. HF/PE, corporate development etc.), whereas most traders in S&T are usually looking to stay. Consequently, what happens most of the time is that bankers leave voluntarily after 2 years, and traders usually have to maintain a certain level of PnL or risk being "weeded" out. Forgetting to add a comma in slide 52 will get you yelled at by the VP in IBD whereas one miscalculated trade (or just out of bad luck) can cost one's job in S&T.

And yes Sell-side FI will be around for decades, the same way plain vanilla cash equities will also be around - the only difference is they will be operated most via machines, with the head count in every major FI/equities division shrinking.

You're conflating burnout and job security.

Also, if you're young, the changeover in FI is a good thing. Just learn the new way and make lots of money.

 
bellatrix.:
justin88:
I don't understand this. No self-respecting trader would recommend working in banking. Bankers work twice as many hours for about the same pay, but it's far more mundane and repetitive work. While bankers have slightly more job security, the burnout rate is really high. Who wants to work 180 days in a row?

While it's true that FI is becoming more automated and less-OTC, this will merely change the business, not eliminate it. Sell-side FI will be around for decades.

Actually if you were to talk about burnout rate, then it's a lot higher in S&T (especially traders) than in IBD. Keep in mind that most bankers in IBD usually use it as a 2-year stepping stone to further exits (ex. HF/PE, corporate development etc.), whereas most traders in S&T are usually looking to stay. Consequently, what happens most of the time is that bankers leave voluntarily after 2 years, and traders usually have to maintain a certain level of PnL or risk being "weeded" out. Forgetting to add a comma in slide 52 will get you yelled at by the VP in IBD whereas one miscalculated trade (or just out of bad luck) can cost one's job in S&T.

And yes Sell-side FI will be around for decades, the same way plain vanilla cash equities will also be around - the only difference is they will be operated most via machines, with the head count in every major FI/equities division shrinking.

Well, seems like you have your mind set... enjoy your non S&T career.

 
runthetown:
I worked in S&T (trading) before I left. You have to know programming if you want to be a trader in the future. Also, the job is so niche that your exit opps will be very limited. Keep those in mind as you enter trading.

I'm kind of coming to the same conclusion as well. I thought about getting an MFE to specialize in programming and math and there is a glut with that as well. GETCO recently reported a huge loss in revenue and HFT is down, business just doesnt need that many MFE's and that many traders.

I'll be investing so much capital and time into a degree or career that may just change under neath me

 

The trend has been clear for years that trading is becoming more automated. Regulators are pushing for transparency and exchanges are trying to innovate into the area, and with the proliferation of all the alternative trading exchanges, dark pools, and ECNs, there’s no way for desk traders to manage all the myriad of liquidity pools while competing against other computers. What you’ll see often time is that traditional cash traders working with an electronic trading desk. As an algo trader, I can say that business has been on an upswing, and it’s definitely good to be the automater than the automatee. But, there’s quite a bit of tension with the cash guys, given the cannibalization of the two business.

All in all, desks are shrinking, but will not disappear, (more traditional) clients simply like a warm body on the other side of the phone to speak to and pitch them ideas with. That’s just the human nature of things. Regardless of which desk, if you can get in and stay in, do it.

 
rates fool:
Either you "get" exactly why trading is the only thing you want to do, or you don't in which case you will be someone who quits after a few years to "get out of banking to pursue your dreams" and write articles about it on efinancial. There is nothing good or fun about doing a job you are not passionate about. Exit ops satisfaction.

The first meaningful post here. People who are passionate and want to hit the home run should not care about exit ops. People who would like to live a comfortable life should care about it.

If you are worried about automation, consider illiquidity, as futuretrader1999 mentioned.

 
Best Response

i mean you can maybe make that arguement for flow IG credit/ vanilla rates trading (G10 + swaps) as the systems get better and it becomes more FX like in terms of the trading, but i can tell you first hand (structured side/ in securitized products/ structured credit (CDO's/CLO's) as well as HY/distressed/loans etc... (those markets are nowhere close being automated/ being they are so untransparent in terms of flows and bid/ask ---- ) the relationships are absolutely crucial in this side of the business --- just ask a primary dealer that traded a block to a regional dealer (and which ended up reaching an end acct) -- and then lied about the cover --- in comparison to a penny mkt in equities...

IVY for Life
 

I agree with futuretrader, liquidity is killing the profitability of Sales & Trading, but I would note that HY desks are moving in the direction of IG desks in that they are becoming more automated (TRACE) and dark pools are being developed. Loans are not far behind. The future of the Sales & Trading business is in structuring as this still requires the human mind.

While a job in Sales & Trading is still a great profession, and the pay is still there, with Basel III and the other regulation, prop trading is a fraction of what it used to be. With the lack of prop trading, you no longer have your dominant traders, and the high end for comp has tumbled. Where in the past a prop trader on the sell side could easily transition in a HF trading role (not just execution), that skillset is no longer being developed in a sell side trading role. The exit opps of a S&T role have been limited with the lack of prop trading. S&T is largely an execution role and while not impossible, if you wish to make it to the buyside in a role beyond execution, 1. IB and 2. ER are the way to go as you are gaining the skillset of fundamental analysis. (Of course ER is limited for PE opps).

 
wawawewah:
I agree with futuretrader, liquidity is killing the profitability of Sales & Trading, but I would note that HY desks are moving in the direction of IG desks in that they are becoming more automated (TRACE) and dark pools are being developed. Loans are not far behind. The future of the Sales & Trading business is in structuring as this still requires the human mind.

While a job in Sales & Trading is still a great profession, and the pay is still there, with Basel III and the other regulation, prop trading is a fraction of what it used to be. With the lack of prop trading, you no longer have your dominant traders, and the high end for comp has tumbled. Where in the past a prop trader on the sell side could easily transition in a HF trading role (not just execution), that skillset is no longer being developed in a sell side trading role. The exit opps of a S&T role have been limited with the lack of prop trading. S&T is largely an execution role and while not impossible, if you wish to make it to the buyside in a role beyond execution, 1. IB and 2. ER are the way to go as you are gaining the skillset of fundamental analysis. (Of course ER is limited for PE opps).

You obviously have no idea what you're talking about, and your last sentence proves it.

Because when you're in a room full of smart people, smart suddenly doesn't matter—interesting is what matters.
 

LOL this is a hard question and honestly no easy way to answer it. Most research is biased and crap. New articles are just pumping content for the sake of revenues.

Start with Felix Salmon - but you are kinda fucked if you haven't been paying attention..

 

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