Compensation for traders at top firms?

I made a couple of calls today, just to inquire about specifics of "trading positions" at two major firms.

I won't note exact firms, but they are two of the biggest Street names, "old and reputable."

I asked

1. Do you have pure, full discretionary trading positions within your firm?

(After discussion, A said "only a handful" and B said, "oh no, absolutely not, our trading mangement is very closely scrutinized"). This led me to believe that the trading is more based on position hedging and simple offsets from order flow, rather than trading.

2. How are these positions compensated?
A said that there is a salary plus bonus (made up of stock mostly). The salary ranged from $36,000 - $80,000 per year, and they will not be hiring for at least 6-12 months.

B responded with something to the effect of "...we promote from within, our entry level positions are just that, entry level. Our salaries are posted, and bonuses are only paid on overall Firm profits, not individual performance.

There seemed to be an overall push to "financial services" (advising clients, etc.) as opposed to any trading of positions. This is understandable except for the fact that they have recently laid off most of the "brokers."

3. I asked both if they had "million $$ bonuses" to employees in 2001, both declined to comment noting "executive salaries are confidential."

My feeling is that the people who have been involved for some time are being taken care of (gee, who woulda thought?), and that the "training" of traders is not a focus at this time.

I will contact a couple of others, and if anyone has a contact person, I would be glad to call them. This may make a good article for the magazine....and it's always nice to gauge how the industry is doing overall.
 
Originally posted by nitro


:confused: What's your point?

nitro
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No point, just pissed off at the state the country has been allowed to deteriorate to. And these old and reputables have played a significant role.

And Don, these guys are known liars, just look at their trades, or business tactics.

old and reputable, makes me laugh, lol
 
I remember one ex-market maker I spoke with who said more of the firms like Susquehanna (sp?) are going towards a firm wide discretionary profit instead of percentage. All this just screams politics to me. I mean who the hell has the discretion at these firms. And why would you need discretion when everybody's p&l statement is right there? Speaking of market makers...Don you're friends w/ Blair Hull right? Do you have any info on what top Hull traders make? Or is everybody compensated there the same as Goldman (they were bought out right?). I still say it would be interesting to see numbers from Echo, Lieber and Wiesmann, and Van Buren. Just to see how they stack up against Worldco.
 
Originally posted by liltrdr
I remember one ex-market maker I spoke with who said more of the firms like Susquehanna (sp?) are going towards a firm wide discretionary profit instead of percentage. All this just screams politics to me. I mean who the hell has the discretion at these firms. And why would you need discretion when everybody's p&l statement is right there? Speaking of market makers...Don you're friends w/ Blair Hull right? Do you have any info on what top Hull traders make? Or is everybody compensated there the same as Goldman (they were bought out right?). I still say it would be interesting to see numbers from Echo, Lieber and Wiesmann, and Van Buren. Just to see how they stack up against Worldco.
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Blair has always been "frugal" (but fair) and paid his people primarily a base salary as I remember it...since he did not want anyone to be "thinking" or making any real decisions....more of a breathing robot in the pit.


As far as numbers go, this is a totally individual sport....with the exception of support and payouts, etc.

There is certainly no need to "stack up against WorldCo" - ?? I haven't seen any numbers from WorldCo management...and although we all love Hitman, we cannot judge their overall performance based on his "team"...A good ball player can do well with any team, in our business we just look for 100% payouts and low costs...the rest is up to the trader.
 
Originally posted by Don Bright
...This led me to believe that...
...There seemed to be...
...My feeling is that...
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You seem to have concluded from a couple of snipets that the two companies (or at least the specific departments you talked to - which may or may not have been the most representative department) are engaged solely in hedging (do you mean arbitrage?) and order flow scalping - rather than trading (although since arbitrage IS a kind of trading, presumably you mean they just don't do the kind of trading promoted by Bright). And yet one of them apparently DID say they had a handful of your "pure, full discretionary trading positions".

Now assuming their interpretation of your meaning was the same as yours (which is by no means a given - see below), since you don't know how many "a handful" is nor what % those represent of the whole, you can't conclude anything meaningful (e.g., a "handful" my be five and there might only be 10 trader positions in the department - so 1/2 are "full discretionary" (presumably meaning unsupervised) while the other traders are being supervised (i.e., not "fully" discretionary)). Since you don't know the details, it's impossible to draw a reasonable conclusion - especially about what or how they trade.

Also, you asked about "pure, full discretionary trading" and one of them said "absolutely not, our trading management is very closely scrutinized" - that could just as easily mean "are you kidding, of course not, we're running an enormous book and don't let any trader go completely cowboy and trade our money unsupervised by the seat of his pants".

This is at least a reasonable interpretation since for all they knew you were a reporter skulking around for some company to slam ("hey, Goldman's got a bunch of guys they let trade by the seat of their pants - could they be another Barrings or LTCM waiting to happen").

That's not to say there aren't a limited number of equity trading jobs out there and that the style of trading done by most of them do NOT engage in the style of trading that so many equity prop firms promote.

The largest number of folks that I've seen running their own books/desks for a trading company were in the futures, options, and forex sectors and most of their trading are at least intraday swing trades and more often a combination of directional multiday swing/position and arbitrage.
 
My initial inquiries were prompted by the recent slew of people looking for trading positions with larger institutions (as if there were a big number of these opportunities). I just wanted to know if I was missing anything that was going on, and it seems that I haven't missed much. I was (an am) under the impression that there are very few traders with these firms.

What you call the "promoted by Bright" style of trading was not my focus, rather I wanted to see who was out there to trade "against".....

Since we are mostly exchange floor traders, we have always been very concerned about the "players" in the game....and we get nervous when there are fewer and fewer people to trade against (this reduces our "edge" considerably). We all know that the "public" participation has dwindled considerably, and I was hoping to see more "discretionary traders" - and yet, just knowing that there are more "institutionalized" traders makes me feel better.

We need other players in the "poker game" or else there is no game. So, I guess we'll have to just be happy that there are Fund Managers, and the like...since we don't have much trouble reading them....so our game seems intact, at least for now.

The "hedging" I was referring to is simply the offset to order flow or customer placements (again, another "edge" for us).

I hope the above makes some sense to you...??
 
Originally posted by blue horseshoe
Do firms like yours offer any benefits like helath insurance or life insurance?
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We offer a health plan at very fair rates to our traders (deductible).
 
ahem!! Gee. I think there's a MAJOR confusion going on here between various players,comp, and what they actually do.

OK. The major Wall Street investment banks are NOT(I repeat NOT) really in the business of "proprietary trading". They are in the business of a middleman! They earn their money with the bid/ask spread. And hedge against customers(institutional buyside firms - i.e. mutual funds, hedge funds, big prop traders). Even in the derivatives areas where they hire tons of phds quant to model and hedge(delta, gamma,vega, rho neutral). They RARELY take on directional , proprietary bets.

Though, Saloman Brothers for a while had a bond arbitrage prop trading division. A friend of mine from the top school I went to worked there for a year before Citigroup, which acquired Saloman, CANNED the group, because Citigroup wants to just serve clients rather than make bets in the market. He later on moved on to "credit derivatives" and now at a hedge fund.
And Goldman for a while had a decent prop trading group as well as Morgan Stanely, but all these are "relatively" small operations i.e. only a few hundred millions rather than the bread-and-butter MARKET-MAKING operations.

If you are a PURIST(which I am), then I wouldn't really consider "market-making" technically "trading" per se. It's more like providing liquidity. Yes, you are "trading" but most of the time you are just providing liquidity to offset fund managers huge positions. I mean if you read Market Wizards, Bill Lipschutz who was the biggest currency trader at Solly even consider what most traders did at Solly to be market making and not "real trading" as he put it. And at that time, the public misconception was that everyone at Solly was a big risk taker(i.e. prop trader). And some of the people from that bond arb group left to form the now infamous LTCM hedge fund.

Anyhows, a side note of compensation. For example, Rob Stavis, who heads the then Solly bond arb group I mentioned, made about $50M in 1997 as published by BusinessWeek. But the average market maker does NOT make even close to those figures. So, don't go around deluding oneself thinking the stupid specialists on the NYSE or NASDAQ market makers at Merrill or Goldman are raking it in. They make middle six figures(150K-500K) after many many years. Starting salary isn't all that great(i.e. MBAs from Sloan, Harvard and Wharton b-school only get about 135K+bonus) In order to really making big money in finance you gotta take risk i.e. make huge bets like hedge funds managers(i.e Soros,etc.). Earning between the bid/ask can only make you so much.

So, if you are "happy" with just making a market and offset customer order flow then you should definitely go work on Wall St.

But if you really really want to learn to trade, then these prop trading firms like Worldco, Bright, ECHO, Schonfeld,etc. might actually be a GOOD starting point actually. You'll learn what real trading is about, but the potential downside is you don't have a salary or benefits,etc. So, that you might go "broke" even before you find a profitable trading style,etc. Haha.

So, I really don't know what's all the big fuss is about. I've been on BOTH institutional sell side and buyside fund managers firms and now doing this prop trading. I can say that prop trading is the way to go in a sense that it offers ultimate freedom. I guess the hard part is making enough money to live on before you get really good and get the 7figures we all talk about. In a sense, it's very close to a hedge fund in that it's active, flexible, and performances oriented.

hopes that clears up some confusion...

my 2cents,

trader99
 
there are a bunch of real big private companies scalping in the UK, mostly in bonds, who are starting to trade emins as there is now a hub in the London, so watch as volume builds - dont know if this will filter back into stocks, but more volume in futures should have a knock on effect in stocks
 
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