What's the difference between trader and portfolio manager?

I'm up against a similar situation myself...

I have 0 professional finance experience, no finance degree, I am a self study and I want to ultimately trade for my own account. Now its natural that trading for yourself is a business, and as with any entrepreneurial effort you are taking all the risk on yourself for success. The risk here is not much different from any other entrepreneurial activity.

My personal thoughts were that it might be better to go work at a sales and trading position just to learn the ropes better, to be around professionals and to get exposure to other traders, soak in some knowledge and get a flavor of how to read the market better. I figure why not get paid and learn at the same time, saving up your stake in the process?

Of course, timing couldn't have been worse - all the desks got hit and experienced employees are out on the street. Someone like me with no finance degree or experience is going to be up against recent red brick MBA grads who are willing to get coffee for free as interns.

I could always make money doing something else in order to save up my stake, but I find the idea of working in the business a good way to soak in the knowledge - even if the pay was bad.

I really like the idea of clerking at the NYMEX, but how do you get through to those gigs? Is it possible to get if you have no finance experience?
 
I'm certain I will get flamed to high hell around here for saying this, but here goes: in my opinion, trading for yourself (in the sense usually used around this forum) does not make economic sense. The risk and reward isn't there(*). If you take it as a business

(*) There are some exceptions, of course. But, like any other business, you don't judge the prospect by looking at the highest, most visible earner.

The typical individual trader who wants to trade for a living are like this:

(1) self taught in the most narrow sense; They learned a bit about a very niche topic of dubious value - technical analysis of very liquid markets; They don't have the background knowledge; The usual discussions in the econ forum is pretty indicative of that.

(2) trades in the most competitive, liquid markets around. What's the point? There's few inefficiencies left. In fact, most strategies around here are all about taking gap risks for insurance fee (which is basically what scalping is).

(3) there's no viable venue of career progression. you trade your own capital, but you can't really go big. Other people's money will never be avaliable to you in size (I think a few guys around here worked up to 5-10MM; those are usually the low-handle on any institutional accounts).

(4) You get to work for yourself, which apparently lots of people love and cite as a reason. But if that's the case, why not own a business in whatever you actually have background in doing? I suspect the rate of success for a grocery store is no worse, and probably better, than day trader over the long cycle.

Finally, it sucks that a lot people realized late in their careers that they want to do finance. The door for institution is closed for them. There's no real way to get around that. There might be some jobs in back/middle office around, but to progress from a 35 year old middle office reporting guy 1 year on the job to an analyst is not a typical one.

Look at it this way: you want to be a doctor, you HAVE to go med school. You want to be a lawyer, you HAVE to go the lawschool. You want to professor, and while there are some who teach without a PhD, as a rule, you pretty much HAVE to go to PhD.

Institutional finance is the same. The days of hiring "street smart" hustlers is over. Modern portfolio management is specialized, takes a lot education and experience. Even the older generation of senior PMs within the business itself is getting left behind because they aren't up it.

So, I know what I'm saying is probably not something you want to hear. But my view is, if you are individualistic and want to run your own business (which is great, btw), find something that's got a better chance of working out than day trading. To do so is not to be brave or courageous, but to be bad at making business decision.
 
Quote from sjfan:

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i do and do not agree with your last post. you clearly has some experience but that does not make you experienced.

for young guys it is certainly a good idea to learn first, i.e. good university, enter the industry, learn the ropes, trade someone else money, maybe do some management etc. surely if you are good after few years you make high 6 / low 7 figures - all very well.

but as your career progress it is highly likely that you are going to get bored by details which working for an institution entails; all that routine, almost no time for travelling/family, daily commuting, bullshit at work etc. you may start to think about how to live your life better - and with means. trading for yourself is an obvious way out for those who can do it. the fact is that almost nobody from the sell side can do it (and even less from the buy side).

p.s. i couldn't start a grocery shop - i would not know how to do it...
 
The term trader is used with a broad brush. It is different things to different people.

Examples of people who are called traders:

Execution traders (sit and execute orders all day)
Sales traders (sales people who execute orders)
Market Makers/Specialists
Floor brokers/and locals
Many Hedge fund managers
Private individuals with short time horizons (place trades not long term investments) daytraders, swing traders, etc.
Bond and other fixed income or capital markets participants (structured products, CDO, Credit Default Swaps, MBS, Muni, etc.)
Currency dealers

Virtually all of these people call themselves (and others that I have not mentioned) traders.
 
My point exactly. You wouldn't start a grocery business unless you know how to. Yet, judging from the usual thread around here, people seem to jump into "trading" without any idea of what trading or finance is. Now, I'm a big fan of self-teaching and continued education, but to jump into a highly liquid and extremely competitive penny bid/ask market is like jumping into running a corner grocery store that survives on tiny margins without having any experience running any stores at all.

I think there are people who can do well as individual traders (or rather, individual investors). These are probably people who have already run successful businesses or were in finance/portfolio management or related professions.

Moreover, it's entirely possible for someone, I think, to work very hard and take years of learning to get to the level of someone in the business (and taking on all the explicit and implicit costs of that education that would otherwise be taken on the firm). But, with the same effort, that person have a higher chance of doing well doing something else; running some other kind of business.

In my personal view, the risk/reward for a "career" as an individual trader - especially for the young guys - just isn't there.

Quote from dhpar:


p.s. i couldn't start a grocery shop - i would not know how to do it...
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I think that its certainly possible to switch careers midstream and do quite well. Others have done it. There are many people in finances who started as English teachers or reporters, who are now hedge fund managers.

In the end the boss wants someone whom they can trust is going to do a good job. There are many recruiters who have blinders on and only look for a specific category of people, but if someone tries hard enough I'm sure they can surpass that obstacle. It's just that it will take more work than it normally might, which is what usually tests your dedication. There are lots of hungry guys out there swimming with you these days, which is what makes it extra hard.

Also, there's nothing like networking when it comes to getting a job - anyone who's worked for someone else can see how connections can override job qualifications at times :)

In the end, retail trading has several uniquenesses over other professions.

First, it is a very independent business. I don't know of a single business where you don't need to do some level of sales.

Virtually every single profession that there is requires the offer of goods and services to others in exchange for value. A farmer who harvests crop has to sell to someone, be it a supplier or from a farm stand. An ebay business who buys low and sells high has to deal with customers, including the occasional whackjob who will give you a hard time. You don't need to go looking for customers and do promotions, as long as the market is open the customers are all there waiting for you.


Trading is just you and the market. Sure, there is someone on the opposite side of your trade, but you never see that person or deal with their personality issues. Either you're right or they're right. No sales, no negotiations, no frivolous lawsuits, you either win or you lose the trade - and even then, the one you buy from may have a different timeframe so its even possible that both win in their own way (or lose, hehehe).

The only people you need to interact with is your brokerage's customer service department. Once in a blue moon some trader will get screwed by their brokerage and they have to take it to court, but that happens more rarely than the usual nonsense that goes on between suppliers and business owners, or between two other business owners.

As long as you send the IRS a check for the right amount and on time, they won't be paying you any visits either. If they do and your books are in order, there's nothing they can do to you.

You also don't really need any expensive insurances, outside of your own medical insurance and disability. SPIC insurance is already provided by your brokerage.

Trading as a profession faces no systematic risks outside of regulatory (i.e. excessive taxation, or a communist takeover). If that happens, you can always go to a nice Greek island and trade the London FX session from 9 am to 5 pm Greek time :)

As far as non systematic risk is concerned, trading is all about working around that problem.

Finally, trading is extremely mobile. You can do it from anywhere. Its very flexible too - trade as much as you need to trade. You earned your profit goal in the first hour of the market, the rest of the day is yours to do with as you please.

I think when you put all these perks together, it makes it a very appealing profession. Those people who want that kind of a business badly enough will find it worth the suffering and struggling it will take. Others will prefer to go back to clock punching or run the business they're familiar with and that they can rely on.

As usual, the person who thinks they're going to become very rich overnight is going to be disappointed REGARDLESS of what that profession is. I calculated that if you averaged a steady daily 1% return on your daytrading you can turn $1000 into $3.7 M after taxes in just 5 years. Seems like a small goal but if it were so easy, everyone would be doing it :)
 
I can't agree with this statement. Unless you trade every asset in the world, you certainly face systematic risk. If you trade swaps, for example, and the equity market drops 50%, swaps liquidity will dry up and all of a sudden you experience a shift in your market that may very well be the end of your strategy.

I am with the camp that don't think a good swaps trader can become a good equity trader or a futures trader over some short term. It's not a matter of skills, but a matter of information. Different things drive markets different, despite degrees of integration.

Quote from Georgii:


Trading as a profession faces no systematic risks outside of regulatory (i.e. excessive taxation, or a communist takeover). If that happens, you can always go to a nice Greek island and trade the London FX session from 9 am to 5 pm Greek time :)
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sjfan's point is well taken. Being an outsider myself, even though I work hard on self-study, I do consider going back to school or take some examination(CFA, FRM..) to have some formal credential to get into the business. This seems to be the more logical way to switch career. As you said, doctor and lawyers go to school to perfect their profession. Finance should be the same.

Another thing I have heard is that just build a good track record on your own retail account and use that performance to get in. While there are certainly people who have done it, I think the odds are so against "building a good track record" to begin with.
 
I agree with you on this. Having decent personal trading performance is a good signal that you are interested in the market, but it in itself doesn't help. Certainly, no one in a respectable buyside or sell side shop will hire a trader/analyst/pm because he made a living trading his own account. In fact, I'd argue that it's a point against - the person is probably too confident in how he wants to do things and not interested in the job that actually needs to get done.

Moreover, prop desks and funds are probably not using the same strategy you are trading, so that makes it even less applicable.

It's possible to go from having a stellar personal record to being seeded by some niche fund; but the hurdles there are obviously huge. Aside from all the obvious issues, people usually miss the considerations around capacity. If your strategy can't handle more than a few million, what's the point.

Quote from ezbentley:

Another thing I have heard is that just build a good track record on your own retail account and use that performance to get in. While there are certainly people who have done it, I think the odds are so against "building a good track record" to begin with.
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Quote from sjfan:

If you trade swaps, for example, and the equity market drops 50%, swaps liquidity will dry up and all of a sudden you experience a shift in your market that may very well be the end of your strategy.
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I guess if you think that you need to be married to only one asset class, you can get screwed.

I should have used a slightly different term, I apologize.
 
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