Hey guys,
I searched a while and couldn't find any good threads so I just made the post. Why choose S&T over prop trading? It seems pay and general work is much more competitive at prop trading roles yet I see a lot of people shift over from prop trading roles into bank trading roles. What are the main reasons?
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Cause it looks good on the resume. I'd seriously consider going into prop if you can get in! If you can make it, you can earn big bucks + it just looks good on CV.
Hmm maybe my perception is naive but why would resume matter if you're at a top tier prop firm? Aren't you able to retire fairly early if your edge remains and you don't get washed up? (I know big assumptions).
Yes but what if you want to move to a hedge fund or something? It looks good and you can make a move. TBH, if you go prop, you learn how to trade which is worth more than anything. Indeed it can result in early retirement. It depends what you want to do right? Some people love trading at a prop firm...you are trading someone elses money and work around others. Others want to trade alone. I am in the second group - dont work and trade my own account @ 31, worth close to $1MM.
I think there's a few reasons, each of which comes down to the personality (and, to some extent, the innate competence) of the person themselves:
Banks (especially the core BBs) tend to have a larger reputational profile than even the very best prop trading firms (e.g. Optiver, Jane Street, DRW). You'd honestly be surprised how many people in the industry don't know, say, DRW simply because it's not within their market's immediate sphere of concern. Working for one of these top IBs gives your CV sheen that is difficult to cultivate elsewhere.
A lot of these prop shops also don't "trade" in the same way that banks do. By this, I don't mean the distinction between being a market-maker or a market-taker, but rather the fact that a lot of these prop shops (e.g. Jane Street, Jump) rely heavily on the application of technology and, as a result, that the role of a "trader" is less hands-on that it would be on a bank's trading floor.
There's also the matter of job security. Working for an institutional firm like Goldman Sachs, no matter how aggressive or meritocratic the environment, will always have better job security than working as a P&L only trader at a prop shop. Sure, at the prop fund you may make an absolute killing in your early 20s and retire early, but this is unlikely: a bank gives you a ladder and a management structure to climb an, to some extent, protect you.
Finally, there's the matter of education. While getting into one of these shops out of uni is extremely competitive, and very often only the best and brightest do, there's often a lack of formalised learning when on the inside that, sadly, leads to a lot of people floundering. Conversely, a bank provides a very clear structure and, more often than not, places an emphasis on collegiate development. It may well be the case that you get into a top prop shop, have no support, and so try to lateral to a bank in order to gain some degree of mentorship and help (regardless of how intellectually brilliant you may hypothetically be).
Fantastic response!
Especially about the point describing the differences between trading style at a prop (very tech-driven, usually very quant-minded individuals) vs a general trading desk at a bank that isn't an EMM/SMM/AMM/eTrading type desk.
Another good point: business flow.. large banks have an established reputation and scores of salespeople to drive flow to their desks that you won't find as much at a prop.
Great reply, thanks for sharing. How do you see prop trading activities in London? Tbh I am not able to spot any firm except the usual 4/5 you mentioned
There are a few lists compiled online, however these can range from a few years old to almost a decade old. A cursory Google found this list which is relatively up to date.
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There's also the question of scale. It might surprise you how small some of the books/desks are at prop shops. If you want to transition into the hedge fund world and set yourself up for a huge payday, your experience making single digit MM (avg decent prop shop desk pnl) per year isn't really going to cut it, even if the risk-adjusted returns are stellar. Even post Dodd-Frank some of the big banks swing big in certain asset classes.
The other aspect would be that prop shops are extremely disciplined (at least the top ones that are highly systematic/automated and certainly in the HFT space). While this is great for the firm, it means that it is going to be very hard for you to implement something novel or slightly tangential to the core strategy. However, if you're in a trading seat at a bank there is going to be more wiggle room in terms of deploying your own discretionary ideas in small size. This comes with the caveat that you have to be on a principal risk desk, so most likely in FICC. If you're a Sales Trader in Cash Equities this isn't going to happen.
Another factor might be your skill set. An investment bank's hierarchy rewards more political players. In a prop shop you 're either contributing to improving strategies or not, it's quite clear. This is no mean feat - you need serious intellectual chops. However in a bank there are many different ways to add value. If you're astute and good with people there are many opportunities to make a fortune, either by trading, bringing in clients or solving problems for the desk. The downside is that if you're not a political animal you will hate it at a bank.
Finally, at the start of your career it can be beneficial to be exposed to lots of people, both inside and outside the firm. As a prop trader, particularly in the quant shops, you don't interact with the market a great deal, so you don't really see what the rest of the investment/trading world is doing. If you're on a flow desk at a bank the upside is you get to speak to and meet a broad cross-section of the market and hear/share ideas, even if you might not be putting on positions yourself.
great answer.. scale is oft overlooked
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Salt and Tepper
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