If all professional traders at banks/FIs are making money, who is losing?

M

metatrader54

I often hear that big banks, like GS JP CS MS and such making money trading or hedge funds or such. They are all making money consistently trading right? By trading I mean speculation, not market making or things like that. If they are all winning, who is losing? It takes years and years to become a profitable trader but how come every recruitment period, new people from the Ivies of OxCam are able to make money? I know a few young guys that just graduated working on trading desks, yet when I talked to them they were absolutely rubbish at trading, and I am confident that they would take a few years at least to reach profitability.

Could someone explain to me what trading is like in the professional level? How many really makes money? How many just sell articles and advice compiled from their bloomberg terminals? I'm not sure but I make money using my charts and an economic calendar on a laptop, what's the need for all those fancy equipment, access to order flow, having daily morning market update meetings?
 
Most bank traders are market makers. Very few take directional risk. Except for prop trading desks at i-banks. But those were all shut down when the Volcker rule came into action. There are no more prop trading desks at banks. All traders at banks are now market makers.

In fact, it's mostly machines and algorithms. Very few human traders left except in non electronic markets. Even non-electronic markets are getting their own electronic exchanges.
 
trader99 said:
All traders at banks are now market makers.
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Or derivative salespeople who call themselves traders.
 
trader99 said:
Most bank traders are market makers. Very few take directional risk. Except for prop trading desks at i-banks. But those were all shut down when the Volcker rule came into action. There are no more prop trading desks at banks. All traders at banks are now market makers.

In fact, it's mostly machines and algorithms. Very few human traders left except in non electronic markets. Even non-electronic markets are getting their own electronic exchanges.
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Is volcker worldwide based or exclusively US? Why so many financial market departments then? If mostly are market making?
 
metatrader54 said:
Is volcker worldwide based or exclusively US? Why so many financial market departments then? If mostly are market making?
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Volcker Rule is U.S. based. But prop trading is basically dead at banks. Hedge funds are the ones that take the big directional bets nowadays. Trading desks all over the world are run by machines, quants, and engineers. Of course, there are also salespeople as the OP mentioned. Salespeople bring in the order flow.
 
trader99 said:
Volcker Rule is U.S. based. But prop trading is basically dead at banks. Hedge funds are the ones that take the big directional bets nowadays. Trading desks all over the world are run by machines, quants, and engineers. Of course, there are also salespeople as the OP mentioned. Salespeople bring in the order flow.
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So what does "trading" or financial markets in banks consists of? Besides market making and sales? I can't understand why there's such a HUGE amount of people and departments working in the banks dealing with financial markets, when I infer from you are only those 2 things mentioned.

Can't other countries like the UK still do prop or speculation in banks? Be it manual or algo based.
 
metatrader54 said:
I often hear that big banks, like GS JP CS MS and such making money trading or hedge funds or such. They are all making money consistently trading right? By trading I mean speculation, not market making or things like that. If they are all winning, who is losing? It takes years and years to become a profitable trader but how come every recruitment period, new people from the Ivies of OxCam are able to make money? I know a few young guys that just graduated working on trading desks, yet when I talked to them they were absolutely rubbish at trading, and I am confident that they would take a few years at least to reach profitability.

Could someone explain to me what trading is like in the professional level? How many really makes money? How many just sell articles and advice compiled from their bloomberg terminals? I'm not sure but I make money using my charts and an economic calendar on a laptop, what's the need for all those fancy equipment, access to order flow, having daily morning market update meetings?
More...

Not sure if you've seen these:
https://www.elitetrader.com/et/thre...-in-the-current-very-long-bull-market.334613/

https://www.cnbc.com/2019/07/29/how...ame-streets-winner-take-all-battleground.html
 
metatrader54 said:
Could someone explain to me what trading is like in the professional level? How many really makes money? ... what's the need for all those fancy equipment, access to order flow, having daily morning market update meetings?
More...

if you take a look at the IB-spun out prop trading desks' financial statements via UK's companies house, they have disclosed P&L statements for the prop desks of SocGen, BNP, etc

basically their returns were <10% per annum for a few years when they spun out

they also reportedly lost something like $30 million last year, before being dismantled

some observations:
1) the superstar prop traders who made $60-$100mm personally at i-banks seem to mostly be from the 2006-2007 era, bet right on the short pockets of opportunity, then got big payouts. the hedge funds that they started after leaving the i-banks hadn't been very spectacular, often single digit per annum returns, so maybe they were in the right place at the right time

2) the biggest money nowadays in the form of payouts to individual employees arent at ibanks, w/ increased regulatory scrutiny on pay and changing business focus. most front office ppl dont get much more than 350k all in due to bottom-heavy structures, maybe a few global division heads get much more than 1 mil, and their tenures in office are usually just a few years due to constant reshuffling, etc. most of them seem to be managed out by 40s/50s, and they seem to spend just as much time analyzing internal business restructurings as they do the markets- just sayin'

3) ultimately many 'skills and talent' in this industry is quite fungible, in the sense that everyone had similar backgrounds re math, stats, quant finance, etc, so the training is comparable, not that much different on orders of magnitude. probably what translates to orders of magnitude difference in terms of career would be being in the right seat at the right time, or vice versa. eg. if you were in commodities, and your college roommate is in fixed income, no points for guessing who prob came out ahead these past few years
 
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