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Flow or Proprietary trader?
as everyone here i suppose already know the difference between a flow trader and a prop is that a prop trader,trades the company's money whereas a flow trader just executes the trade on behalf of the customer.Thats why we see that all them big bonuses actually go to proprietary traders.Why?because they are the guys that make the decision whether to execute a trade or not.so its fair that someone who takes the potential risk to also take the potential profits.Flow traders(90-95% of total traders in a bank) on the other hand execute whatever the guy on the phone tells them to.they only make money through arbitrage opportunities.My question for those guys that are working in the Trading divison of any IB is:
if a flow's trader job is to EXECUTE whatever the sales team/customers on the phone tells them to,then WHY do IBs want people from the best unis/quant degree and so on.It seems to me that ANYONE could do that.As long as u are mainly the guy that pushes the BUY/SELL button on that computer,whats the big deal about it.Its not ur money therefore u dont need to do analysis/research for a certain stock.as i said.u are the direct executant of different orders.There is no responsability on ur side whether a stock is going down or up,u are not responsiblle for any of that.
This all seems to be WAY TOO EASY.Is there any catch?
I can understand why they would want top notch people in their prop division cause they are the ones that are making the call and its their responsability whether they are making money or losing money.that who takes the risk shall also take the loss/profit.
also how exactly does a flow trader makes money for the IB(i suppose not only from the fees per trade cause IBs arent brokerage houses they are market makers)?this whole arbitrage theory confuses me.
Also is it true that in order to be a prop trader u first need to be a flow trader?
And last question for people that work in derivatives trading
How much MATHS do u actually use when trading.I presume u aint gonna take a piece of paper and price a Black Scholes option.al these formulas are already incorporated in the software programs.u only need to enter the information and voila the options price appears on screen.If everything is AUTOMATIC(pre-set) how ARE U as a quant going to apply all that PHD maths that u know.
Thanks very much
if a flow's trader job is to EXECUTE whatever the sales team/customers on the phone tells them to,then WHY do IBs want people from the best unis/quant degree and so on.It seems to me that ANYONE could do that.As long as u are mainly the guy that pushes the BUY/SELL button on that computer,whats the big deal about it.Its not ur money therefore u dont need to do analysis/research for a certain stock.as i said.u are the direct executant of different orders.There is no responsability on ur side whether a stock is going down or up,u are not responsiblle for any of that.
This all seems to be WAY TOO EASY.Is there any catch?
I can understand why they would want top notch people in their prop division cause they are the ones that are making the call and its their responsability whether they are making money or losing money.that who takes the risk shall also take the loss/profit.
also how exactly does a flow trader makes money for the IB(i suppose not only from the fees per trade cause IBs arent brokerage houses they are market makers)?this whole arbitrage theory confuses me.
Also is it true that in order to be a prop trader u first need to be a flow trader?
And last question for people that work in derivatives trading
How much MATHS do u actually use when trading.I presume u aint gonna take a piece of paper and price a Black Scholes option.al these formulas are already incorporated in the software programs.u only need to enter the information and voila the options price appears on screen.If everything is AUTOMATIC(pre-set) how ARE U as a quant going to apply all that PHD maths that u know.
Thanks very much
Scroll to see replies
Reply 1
I dont know the answers to all your questions.
But what I can tell you is that you dont have to be a flow trader to move into prop trading and prop trading is not limited to IBs only. There are specialists firms and well if your in it for the money and you think your good then these firms are the place to be as trader commisions are as high as 70%.
In terms of needing PhD knowledge to work a computer program, your right you probably dont need it. But as in most jobs these days everything is done by computer but employers still much prefer someone who knows the theory behind what they are using... these people tend to be more successful in their jobs.
But what I can tell you is that you dont have to be a flow trader to move into prop trading and prop trading is not limited to IBs only. There are specialists firms and well if your in it for the money and you think your good then these firms are the place to be as trader commisions are as high as 70%.
In terms of needing PhD knowledge to work a computer program, your right you probably dont need it. But as in most jobs these days everything is done by computer but employers still much prefer someone who knows the theory behind what they are using... these people tend to be more successful in their jobs.
I'll answer what I think I know about. Props are picked from the best of the flow traders, I don't think they're recruited straight from university for IBs.
You CAN become a prop if you join a prop house obviously. But that will require you to have far bigger balls than any IB applicant. Also if you're good I daresay there's a chance of being poached from a prop house to an IB prop desk. But you wouldn't go into your prop house career with that expectation, which many apparently wrongly do.
You CAN become a prop if you join a prop house obviously. But that will require you to have far bigger balls than any IB applicant. Also if you're good I daresay there's a chance of being poached from a prop house to an IB prop desk. But you wouldn't go into your prop house career with that expectation, which many apparently wrongly do.
Reply 3
Yeah to be honest if your going into trading looking for job security then your probably havent done your research :P
And with huge commisions at prop houses I doubt that IBs could do much to attract good traders to them
And with huge commisions at prop houses I doubt that IBs could do much to attract good traders to them
HoodTrader
There are specialists firms and well if your in it for the money and you think your good then these firms are the place to be as trader commisions are as high as 70%.
could u name a few?however i doubt that u will get hired as a prop trader unless u have 5+ years of trading(flow).dont forget u are no gambling ur money,ur gambling investors money.I never heard of firms like the one u mention.The closest thing i can relate to are Hedge Funds which in essence are proprietary firms where only TOP NOTCH traders work and who usually have years of experience of prop trading inside IBs.Take Eric Mindich,Edward Lampert who started their own hedge funds after years of experience in Goldman Sachs famous "Principal strategies group".
andy87
could u name a few?however i doubt that u will get hired as a prop trader unless u have 5+ years of trading(flow).dont forget u are no gambling ur money,ur gambling investors money.I never heard of firms like the one u mention.The closest thing i can relate to are Hedge Funds which in essence are proprietary firms where only TOP NOTCH traders work and who usually have years of experience of prop trading inside IBs.Take Eric Mindich,Edward Lampert who started their own hedge funds after years of experience in Goldman Sachs famous "Principal strategies group".
If you want to know more about Prop firms then this is a good place to start: http://www.trade2win.com/boards/forumdisplay.php?f=142
With a prop firm you are infact trading your own cash, along with the firm's.
I wasn't joking if you want a career with them.... balls. Big big balls.
Reply 6
andy87
if a flow's trader job is to EXECUTE whatever the sales team/customers on the phone tells them to,then WHY do IBs want people from the best unis/quant degree and so on.It seems to me that ANYONE could do that.As long as u are mainly the guy that pushes the BUY/SELL button on that computer,whats the big deal about it.Its not ur money therefore u dont need to do analysis/research for a certain stock.as i said.u are the direct executant of different orders.There is no responsability on ur side whether a stock is going down or up,u are not responsiblle for any of that.
This all seems to be WAY TOO EASY.Is there any catch?
This all seems to be WAY TOO EASY.Is there any catch?
Yes there is a catch!
First of all you're not simply executing whatever the sales team and customers want. A customer will ring up, speak to a salesman who will pass on a pricing request to the trader, the trader will price the deal and this will be passed onto the customer. If it is acceptable then the customer will agree, if not they will argue their case or not and even do business elsewhere. As a flow trader you still have to price any transaction based upon what you think the market can handle and on the fact that you will assume risk by agreeing to a trade because inevitably you will be left long/short on the assest for a period of time, however short. If the asset is particular illiquid, due to its size, undesirability or if it is highly structured, then you may be assuming the risk that you can sell it on for a profit.
Secondly the actual pricing itself is a difficult matter, do you assume more risk by giving a better price giving yourself less leeway for market movements or do you give the customer a shocking price which would leave you with no risk, but also the bank with no client. Your job in principal is to decide how much risk the bank is willing to take on.
The differece between taking on speculative positions with the banks money as a prop trader does, and the taking on inherant risks by agreeing to a trade are often judged merely by timeframe. A flow trader would be happy to clear their books by the end of the day whereas more proprietary desks would more likely assume greater (often illiquid in the short term) positions because they believe a certain security is mispriced.
I hope my limited understanding has been of some help!
Reply 7
www.trade2win.com is where I get a lot of information on prop trading. Prop trading firms have graduate schemes too so they hire people with no experience but these positions tend to be entirely commision based at the start or occassionally a base salary is involved but it is extremely low. This is because of course the company is taking a gamble by hiring someone whose record is not proven.
HoodTrader
www.trade2win.com is where I get a lot of information on prop trading. Prop trading firms have graduate schemes too so they hire people with no experience but these positions tend to be entirely commision based at the start or occassionally a base salary is involved but it is extremely low. This is because of course the company is taking a gamble by hiring someone whose record is not proven.
Some of those anecdotes from the trading pit are hilarious! Made me wish I was a pre-big bang era trader!
bittersweetbloke
Yes there is a catch!
First of all you're not simply executing whatever the sales team and customers want. A customer will ring up, speak to a salesman who will pass on a pricing request to the trader, the trader will price the deal and this will be passed onto the customer. If it is acceptable then the customer will agree, if not they will argue their case or not and even do business elsewhere. As a flow trader you still have to price any transaction based upon what you think the market can handle and on the fact that you will assume risk by agreeing to a trade because inevitably you will be left long/short on the assest for a period of time, however short. If the asset is particular illiquid, due to its size, undesirability or if it is highly structured, then you may be assuming the risk that you can sell it on for a profit.
Secondly the actual pricing itself is a difficult matter, do you assume more risk by giving a better price giving yourself less leeway for market movements or do you give the customer a shocking price which would leave you with no risk, but also the bank with no client. Your job in principal is to decide how much risk the bank is willing to take on.
The differece between taking on speculative positions with the banks money as a prop trader does, and the taking on inherant risks by agreeing to a trade are often judged merely by timeframe. A flow trader would be happy to clear their books by the end of the day whereas more proprietary desks would more likely assume greater (often illiquid in the short term) positions because they believe a certain security is mispriced.
I hope my limited understanding has been of some help!
First of all you're not simply executing whatever the sales team and customers want. A customer will ring up, speak to a salesman who will pass on a pricing request to the trader, the trader will price the deal and this will be passed onto the customer. If it is acceptable then the customer will agree, if not they will argue their case or not and even do business elsewhere. As a flow trader you still have to price any transaction based upon what you think the market can handle and on the fact that you will assume risk by agreeing to a trade because inevitably you will be left long/short on the assest for a period of time, however short. If the asset is particular illiquid, due to its size, undesirability or if it is highly structured, then you may be assuming the risk that you can sell it on for a profit.
Secondly the actual pricing itself is a difficult matter, do you assume more risk by giving a better price giving yourself less leeway for market movements or do you give the customer a shocking price which would leave you with no risk, but also the bank with no client. Your job in principal is to decide how much risk the bank is willing to take on.
The differece between taking on speculative positions with the banks money as a prop trader does, and the taking on inherant risks by agreeing to a trade are often judged merely by timeframe. A flow trader would be happy to clear their books by the end of the day whereas more proprietary desks would more likely assume greater (often illiquid in the short term) positions because they believe a certain security is mispriced.
I hope my limited understanding has been of some help!
101% true. Props (<g>) to you.
Flow traders also take some speculative positions during the day, but close out their positions before they leave.
Ultimately the role of a flow trader, as a market maker, would be to appropriately price a currency/commodity/....
Both the trader and salesman play critical roles in ensuring the receipt of orders by clients. It's the salesman's job to know his customer and appropriately widen the spread as and where necessary. Or to pass on market information and trade ideas.
andy87
if a flow's trader job is to EXECUTE whatever the sales team/customers on the phone tells them to,then WHY do IBs want people from the best unis/quant degree and so on.
It's not simply executing a trade. A bank also advises clients, and makes suggestions to the client. Ultimately, it's the client who says what trade to make, but they need information.
Singh_87
It's not simply executing a trade. A bank also advises clients, and makes suggestions to the client. Ultimately, it's the client who says what trade to make, but they need information.
You'll find that what you've described is usually not the case. They provide updates on market conditions (e.g. liquidity) and simple technical analysis (e.g. support levels0, but most recommendations are made by the research/strategy and sales desks. Traders never have direct contact with clients.
Reply 12
The nature of a flow traders job very much depends on the product. A credit flow trader may have proprietary positions running for months on some ref obs (aftermarket in thin bond issues is not good and closing through an IDB is not cheap), so its not as simple to say a flow trader closes positions out overnight, wheras a prop trader doesn't (some prop trading, such as IPO speculation, may only last a few minutes). Also, the flow trader often *is* the market (market prices don't appear out of thin air, somebody has to be willing to buy and sell at them, and the easiest price to find often comes from the trader).
Reply 13
Why do flow traders need to be intelligent? Tell me hat would you do in the following situation?
Let’s imagine a situation where a salesman has a customer on the phone who wants to buy 1 million shares of company X. The salesman phones the trader and asks how much for the shares. The trader will see the price is at £1 a share and will quote this price to the salesman. The customer agrees to buy 1 million shares at £1 and so costing him £1,000,000.
That is easy. But what happens if as soon as the customer hangs up, the price of stock X increases to £1.02. What does the trader do? Does he now buy the shares at this price costing him £1.02 million and therefore losing £20,000? Or does he wait for the price to fall? Imagine if the price falls to £0.97 a share. The trader can buy the million shares for £970,000 making if a profit of £30,000. Or maybe the price increases further to £1.04 and now the loss if £40,000.
What would you do in this situation? Would you buy at a higher price and learn from your mistake or would you wait and hope that the price falls?
These sorts of decisions are ones that a trader makes on a daily basis, hence the high level of stress and the need for intelligent traders. This is obviously an over-simplification of the role of a trader but hopefully you can see why you IBs recruit the brightest people.
Let’s imagine a situation where a salesman has a customer on the phone who wants to buy 1 million shares of company X. The salesman phones the trader and asks how much for the shares. The trader will see the price is at £1 a share and will quote this price to the salesman. The customer agrees to buy 1 million shares at £1 and so costing him £1,000,000.
That is easy. But what happens if as soon as the customer hangs up, the price of stock X increases to £1.02. What does the trader do? Does he now buy the shares at this price costing him £1.02 million and therefore losing £20,000? Or does he wait for the price to fall? Imagine if the price falls to £0.97 a share. The trader can buy the million shares for £970,000 making if a profit of £30,000. Or maybe the price increases further to £1.04 and now the loss if £40,000.
What would you do in this situation? Would you buy at a higher price and learn from your mistake or would you wait and hope that the price falls?
These sorts of decisions are ones that a trader makes on a daily basis, hence the high level of stress and the need for intelligent traders. This is obviously an over-simplification of the role of a trader but hopefully you can see why you IBs recruit the brightest people.
Reply 14
The first cut is the cheapest. Fill it, get over it.
Reply 15
DTrader
That is easy. But what happens if as soon as the customer hangs up, the price of stock X increases to £1.02. What does the trader do?
That is easy. But what happens if as soon as the customer hangs up, the price of stock X increases to £1.02. What does the trader do?
Err, a bit obvious...when a client places a trade he has a LIMIT...the maximum price he will want to pay. If it bypasses that, you KILL the order...unless if the client is willing to pay more (call the client and find out).
Roll-The-Dice-And-Win
Err, a bit obvious...when a client places a trade he has a LIMIT...the maximum price he will want to pay. If it bypasses that, you KILL the order...unless if the client is willing to pay more (call the client and find out).
You don't know what you're talking about, unfortunately.
Reply 17
Knogle
You don't know what you're talking about, unfortunately.
Care to explain....you have never hurd of FOK orders? If you are placing an order for a large quantity of shares, you place a LIMIT...a maximum price you will pay...so it doesnt matter if the prices rises a bit, as long as its under your LIMIT it will be filled...if its over you kill it.
Roll-The-Dice-And-Win
Care to explain....
When a client hits a bank's bid/offer price, the bank is committed to close the deal at that price, regardless of subsequent market conditions. This is primarily why clients usually have only a couple of seconds (let's give this an arbitrary value of 5) to respond to a quote before he assumes risk and has to obtain a new quote. If market conditions change after the deal has been closed and before the trader executes the transaction, the bank has to bear the risk and necessary consequences. This may work in the bank's favour or otherwise. If the market moves in the bank's favour, it's not obliged to pass on the better price to the client.
Roll-The-Dice-And-Win
Care to explain....you have never hurd of FOK orders? If you are placing an order for a large quantity of shares, you place a LIMIT...a maximum price you will pay...so it doesnt matter if the prices rises a bit, as long as its under your LIMIT it will be filled...if its over you kill it.
Those are limit orders. Entirely different from a regular spot transaction at which you buy/sell at the prevailing market rate.
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