Trading dying a slow death

Thanks for the info.

nitro
Quote from DBN2005:

Where next for equities traders?
By Sarah Butcher
20 Sep 2005
This isn’t a great time to be working as an equities trader. In the past four months, both Goldman Sachs and UBS have slashed US equity trading teams by up to 10%. Recruiters warn of more cuts to come, and lower bonuses.
“There will be further redundancies for equities traders before December,” predicts Joe McCann, chief executive officer of McCann & Company, a New York-based executive search firm with a finance specialty. “When banks like Goldman and UBS make cuts everyone else has to sit up and take notice,” he adds. “By some accounts, there’s a 30% surplus of people trading equities right now: too many people have time to look at screen savers and chit chat about taking holidays”
Paul DeLucia, a partner at the Options Group in New York, is equally downbeat: “If you’re talking about pure execution traders who are responsible for making prices, instead of product development, there’ll be a definite decrease in the need for them,” he agrees. “It’s increasingly hard for these people to add value.”

Ineluctable march of the machines

Equity traders’ travails are symptomatic of changes afoot in the broking industry. Commissions are falling as mutual funds, hedge funds, and other institutional clients squeeze fees. At the same time, automated trading systems are allowing these clients to bypass traditional brokers and execute trades directly. And according to industry pundits, mergers such as those between the New York Stock Exchange and Archipelago, Nasdaq and Instinet, are likely to hasten the spread of automated trading still further by boosting the power of electronic exchanges.

Gavin Little Gill, a senior analyst at TowerGroup, a US market research firm, and author of a report on the spread of electronic trading, says growth is inevitable given the cost savings on offer: “We’re looking at the difference between a penny-a-trade under automated systems compared to upwards of five cents at trade under traditional systems,” he says.

To date, publicity surrounding redundancies has largely focused on the US market. But equities traders are also being let go on this side of the Atlantic. Seven traders were made redundant from Merrill Lynch in February 2005; Mark Horlock, a consultant at recruiter Alexander Mann in London describes it as a harbinger of things to come: “Customers increasingly want a low touch execution service with minimal human interaction.”

According to recruiters, low bonuses will be an important mechanism for lopping surplus equities traders: by paying less than last year banks will aim to communicate that the time’s come to move on. “The bonus norm for equities traders will be 10-15% down in 2006 compared to 2005,” says McCann. “The people who banks want to leave will receive zero or minimal bonuses this year,” forecasts Horlock.

Re-skill or regret it

So what’s a simple equities trader to do? The answer is, re-skill, and soon - no one can say they didn’t see this one coming. “At the end of the day, what was once a relationship game is becoming a quant game,” says Little Gill. “Equities traders are being replaced by people with strong quant backgrounds who can build algorithmic models.”

Not everyone will need a maths PhD, however. While quantitative models take over so-called ‘low-touch’ trades requiring minimal human intervention, ‘high-touch’ trades which are complex and high value, will still need a human somewhere in the mix. But recruiters say the traders who keep their jobs will be a different breed to their predecessors.

“The new generation are multi-asset class aware and customer-facing,” says Horlock in London. “Customers like hedge funds are increasingly interested in talking to traders directly – unlike old-fashioned market makers, the new breed needs to be eloquent and presentable in front of clients.”

McCann advises actively seeking exposure to equity derivatives. “If you’re an equities trader and you don’t have exposure to derivative products, make sure you get it,” he says, “The folks who remain on will be the ones who raised their hands and said I’d like to migrate to a derivatives desk.”

At a push, De Lucia says equities traders who are good relationship builders and salespeople could join the salesforce for quant trading models used by electronic trading systems. He says another alternative could be moving into fundamental research or execution trading on the buy-side.

Some recruiters are pessimistic, however. “At the end of the day it’s going to be a real catch for some people,” said one. “If you don’t have the educational background and mental aptitude to re-skill, the future could look pretty bleak.”
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Quote from wanderer:

Traders having access to global markets shouldn't be complaining... surely there'll always be some market in the world which is trending at any point of time.

Besides, the Trader P/L thread confirms that smart prop traders in the USA are making good money even in present circumstances.

So there's no reason to be overly negative.

just my 2p ofcourse.
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I agree 100%. there is ALWAYS somthing that will make money, not just in the market, not just in the US...but anywhere. Maybe the same old tired stuff we have been trading the last few years is getting boring...but housing has dropped like 20-40% since july. 20% in 4 months is a pretty wicked return.

Keep your eyes open, do your homework...there is something out there for you, i promise.
 
the easy money is long gone. anyone who's been in business for ten or more years is probably not used to not being able to make payments on the house in the Hamptons.
 
Quote from buzzy2:

I congratulate you are extracting money from b*tchy us stock indexes as I am a swing/position trader too and i haven't seen many opportunities since july, because the market has been basically doing nothing but coiling, apart from a few one or two day wonders.

the money right now is elsewhere, bonds, the nikkei, oil gold... unless you've been range trading the YM, or been writing options.
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you have to be willing to buy weakness. that is why i would hate a blastoff. i would sell into strength and never be able to get back in.
 
Quote from sputdr:

Trade hasn't been this dead in a long long time.

I do some recruiting on the side and traders are once again being washed out and looking for work.

Prop, mkt makers and sell side.

Anyone notice anything similiar?
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People always bitch and complain, there are always people behind the 8 ball. In 1999 and early 2000 I saw tons of people complaining about the market, how hard it was and they just wanted to bring back the good old days. Now 1999 and early 2000 is the good old days. The story is the same though.

That said I personally have not too much enjoyed the market the last few weeks and have lost a good chunk of change..but thats the way the game goes.

Brandon
 
Just seems kind of brutal.

This is the second washout in 3 years or so.

Maybe that's the cycle but it seems kind of brutal to me.
 
definitely some type of shakeout. Especially with Refco. Have seen lots of Refco guys come through our firm.

Lots more choices to trade then when I started 6 years ago. When I first started electronically, it was Bund, Bobl, shatz. When I say more choices, I mean both in products to trade and prop firms sprouting up. It can both be good or bad.

Bad--More players=less edge. Futures is the cheapest way to play the game so you are going up against the best of the best. Quote jumping with no strategy doesnt work anymore and the easy money is gone.

Good--More competition=more innovation and cheaper entry. More choices to trade. Learn and different market. Youre right, re-skill or regret.

Stay Positive.
 
I've had a very solid run with equities in the last two months, mostly with 1-5 day holdings. October was my best and most volatile month since I started. Was up 23% on my account at one point for the month and then lost 9% over a 3 day period... Regardless, I think the equities market's are doing just fine.

Threads like these seem to pop up once every 3 months or so since I've been coming to this site. I'm starting to believe this is a basic indication of monthly market cycles.

Mike
 
Quote from steve46:

Hello:

This happens often, and is part of the cyclical nature of the markets. Retail traders go under first, because they have not been able to find an edge, and the account has finally hit a level from which it is psychologically too difficult to recover. Next the prop traders. These folks are the former retail traders who thought that there might be some magic protection to obtaining "proprietary" licenses. Usually they have gone to prop houses where the promotor could care less about training. They are cannon fodder. As soon as they stop generating commish fees they are washed out too. Finally, on both sides the retail and prop traders who found an edge, but that edge was based on historical tendency. As soon as the character of the market changes, they get flushed out because they are unable to figure it out and adapt. A great example of that is seen in the complaining about the way the ER contract has "changed", and when summer hits, another wave will get washed out as seasonal volatility changes hit the S&P (and the equity side).

What you have left are the folks who have a decent background and the intelligence (or luck) to figure it out.

Markets have been this way since day one.

Good luck to you.

Steve
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Great post. I think the problem is, people are unwilling to adapt to changing market conditions. Guys who lived and died by trading econ numbers are now left with nothing. Guys who lined the book and looked for that one tick are left with nothing when that game ends. Firms who require guys to trade only one market basically stick them in a penalty box if that mkt is dead. Personally I watch about 20-30 markets and look for ones that catch my eye, then trade em. When mkts are stuck in tight ranges ya gotta take less profit, and cut your losses quicker. If they break out then adjust accordingly. This isnt rocket science. The problem is, the one trick ponies bitch when their game ends....well.....find a new/edge/game/angle. These people are basically lazy. Like you said, the markets have been like this since day one. I have been trading since 92, and have seen a ton of changes. But trading is trading. Its not dying a slow death...just is not the cakewalk people saw from 1998-2002.....you actually now have to work and put in some effort.
 
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