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dnl.kjr


Total Posts: 5
Joined: Jan 2016
 
Posted: 2016-01-22 13:58
Please excuse the disgustingly noobish nature of the following question.

I am a student of probability theory and my goal is to work as a rates exotics trader. I am also in a dilemma.

I have been offered the following junior roles in the same tier 1 / tier 2 bank:

(1) Bond trader. [EM eurobonds + something structured.]
(2) Desk quantitative analyst. [Curves + liquidity modelling + trading tools for exotics desk.]

Which one of the above offers might have the best transition opportunities into rates exotics trading?

Thanks in advance.

mtsm


Total Posts: 220
Joined: Dec 2010
 
Posted: 2016-01-22 14:48
Rates exotics have been kind of defunct for about 7 or 8 years now. It's not a very active field, and I don't think it's coming back, at least I hope not.

Who told you this is a good idea? I mean how come you would be interested in this in 2016?

There are many reasons why these are stupid and scam products, which were making fairly big money at a time, it's true.

Most of the stuff is legacy now. There is a small market for callable debt, which might come back somewhat. Then there is a small market for leveraged CMS products, but it's not very interesting.

Anyway, feel free to ask questions...

dnl.kjr


Total Posts: 5
Joined: Jan 2016
 
Posted: 2016-01-22 18:36
I was under the impression that there was an active demand for products such as Bermudan swaptions, conditional trigger swaps, ratchet caps, etc.

Maybe I thought my competencies in mathematics could give me an edge. Maybe it's just a fetish I've had for no reason.

I won't lie, no one told me rates exotics was a good idea.

mtsm


Total Posts: 220
Joined: Dec 2010
 
Posted: 2016-01-22 20:31
There is always some demand, but it's marginal compared to pre-2008 levels. It's true that this was good business in the past for some of the big fixed income franchises, although a lot of the players got burned very heavily in 2008. Search the forum, there are some threads that discuss various 9 figure losses.

I guess that straight bermudans (callable zeros and bullets) will come back more actively at some point if/when rates rise. It's hard to see how more creative exotics could come back given that it has already become quite expensive to run a flow business, but who knows.

What is a little disturbing for overly exotic products was/is the business rationale. A lot of these derivatives were sitting on the back of notes that were effectively marketed by big investment banks to smaller commercial banks for end distribution in the form of structured investment for the supposed yield pick-up they were offering. It's not really a "natural" business in this sense. But then what is natural in finance you might argue? But in any case, you may not like the idea of being in that line. To a lot of people these products were unnatural and scammy and existed only because somewhere down the line someone was stupid enough to buy them.

As to competencies in mathematics, there are likely a lot more modern topics in finance where you can get an edge. Rates exotics is really not that hot.


dnl.kjr


Total Posts: 5
Joined: Jan 2016
 
Posted: 2016-01-23 12:01
Thanks again for your reply.

I am contemplating now whether more vanilla (and not-so-scammy) rates options desks are good career choices. But these desks might, if rates exotics isn't hot, be lukewarm at best.

I am eager to hear your input about more modern topics in trading where competencies in mathematics (i.e. probability theory) can give me an edge. Also how this relates to the two offers mentioned in the original post.

My worries are that if I accept an emerging markets eurobonds or structured credit trading job, I will have zero quantitative work, spend too much time with MBA-know-it-alls with too much gel in hair, and therefore fairly quickly lose my “quantitative abilities”. On the other hand, a desk quant job doesn't get me any experience trading.

akimon


Total Posts: 566
Joined: Dec 2004
 
Posted: 2016-01-23 16:47
Hi dnl.kjr

To simply answer your question, my view is that it is much easier to become another trader once you have been a trader, and it is rather difficult to move from a quant to trading. Even a structurer to trader is more common. Since you have the technical background in probability theory, it won't be difficult to pick up rates-options theory on the job.

But to expand even further on mstm's response, it's not just rates exotics, but who told you that even getting into finance is a good idea? I mean how come you would be interested in this in 2016? Wink

I'm sure you are a smart guy, and you will be able to work at these tier 1/2 banks as a trader in a product of your choice, but is this what you want to do? There are so many more interesting fields out there these days, in 2016. If I were a new grad coming out of school, I would not even consider hedge funds, banks, asset management, etc.

(I'm the main book-runner of the combined rates vanilla+exotic books in one of the major currencies at the 'best' investment bank)

dnl.kjr


Total Posts: 5
Joined: Jan 2016
 
Posted: 2016-01-24 13:30
Thanks for sharing your point of view.

It's true that there are a lot of other interesting fields out there as well.

Let me briefly answer why I am interested in finance in 2016:

I find that financial services - buying and selling volatility of options, in particular - provide an interesting and challenging playground. In running a vanilla/exotic rates book, my hope is to be able to use as many of the mathematical tools available to me as possible. Pricing products and hedging dynamically, spending the day discussing positions, deciding which ones will perform well and which won't is what makes it interesting.

That said, money (i.e. the opportunity cost of other career choices) is also important.

Follow up questions:

Why it is easier for a trader from a different desk than for a quant to move into trading the product he/she is modelling? And also, are you comfortable with sharing how you transitioned into your role running the vanilla and exotic rates book?

Patrik
Founding Member

Total Posts: 1355
Joined: Mar 2004
 
Posted: 2016-01-25 12:41
Don't take this the wrong way - but from my experience trying to "use as many of the mathematical tools available" tends not to be how most successful traders are wired. I'd say more the minimum amount of tools - any tools, not just mathematical - to get the job done. If the mathematical side really is super important to you, then be aware that trading may not be the most fulfilling prospect.

I often fall into the trap of tools for the sake of it myself, it's easily done for many engineering/maths type personalities.

Why it's hard to move from quant to trading role is probably hard to pin-down objectively. But if you start with the assumption that traders are at the top of the pecking order of these organizations, then you can see that by allowing moves you risk opening the flood gates and having a whole desk of folks hired to do X but all seeing the future in doing Y. Not a good way to build teams and culture in part X. So there can be some organizational reasons. Then I'm sure it's also up to individuals how successful they've been with people moving from X to Y, if it's net been a positive or negative. In terms of moving roles AND companies at the same time, you can see why it may not be an easy sell to the new company. Why hire someone without direct experience (but with some other related experience) that will be more expensive, when you can get a grad to mould for less money sort of thing. So one falls between chairs often if not making a move within the same company.

Doesn't mean all sorts of moves don't happen, just that it can be very hard depending on your situation.

Capital Structure Demolition LLC Radiation

akimon


Total Posts: 566
Joined: Dec 2004
 
Posted: 2016-01-25 15:13
a formula one driver has more in common with a jockey on a horse racing track than with his mechanic.

Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2016-01-25 19:01

"a formula one driver has more in common with a jockey on a horse racing track than with his mechanic"

Pretty good analogy, actually. He certainly has more in common with other race car drivers (NASCAR, carting, rally) then with his mechanics and engineers.


I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

katastrofa


Total Posts: 458
Joined: Jul 2008
 
Posted: 2016-02-06 23:31
Ever thought about moving into quant trading?

aickley


Total Posts: 37
Joined: Oct 2008
 
Posted: 2016-02-08 13:01
akinon:
> There are so many more interesting fields out there these days, in 2016. If I were a new grad coming out of school, I would not even consider hedge funds, banks, asset management, etc.

Are you so sure about that? Do you really believe there are more interesting fields now than X years ago when you were choosing what to do?

Furthermore, the grass is always greener on the other side. Imagine you were starting in one of these "more interesting fields". Are you convinced that you won't be giving the same exact advice after spending the same amount of time in this field as you did in finance?

dnl.kjr


Total Posts: 5
Joined: Jan 2016
 
Posted: 2016-02-08 17:08
Thanks to everyone who participated in this thread. I chose to work as a jockey on a horse racing track.

@aickley: I also found the discrepancy between the F1 driver-analogy and statement “there are so many more interesting fields [than finance] out there these days, in 2016” quite conspicuous.

@katastrofa: Yes, I've thought about moving into algorithmic trading. But I really can't be bothered with the “100 arithmetic tables for children in 100 seconds” most proprietary algorithmic trading firms require in the hiring process. It's not worthy of serious attention. [I am, however, using my own money to trade option volatility statistically.]

Jurassic


Total Posts: 161
Joined: Mar 2018
 
Posted: 2018-07-01 10:47
> There are so many more interesting fields out there these days, in 2016.

@akimon What would you consider?
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