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The execution trading trap

So you want to make a packet working as a hedge fund trader? Just make sure you don’t get stuck in an execution trading job.

Unbeknown to the uninitiated aspiring trader, there are two types of trading role: execution trading jobs and full-blown analyst-style fund manager trading jobs. While execution traders are effectively ops staff who place trades at the behest of other people, analyst traders have the power to make the decisions and place the trades.

Predictably, execution traders are paid less than analyst traders. Even worse, execution traders are often pigeon-holed for life.

“There’s a pay ceiling for execution traders,” says one unfortunate victim who’s trying to escape the execution trap. “It’s all about helping someone to do a job rather than creating value. Effectively it’s a support function.”

Even worse still, it’s a stressful support function. “You’re handling 100 orders at once, of which 10-20 are very important. Two or three fund managers are shouting at you to do their order,” says our disillusioned practitioner. “The question is whether you want to go on until you die of a heart attack.”

Headhunters weigh in against execution traders too. “They’re seen as dimwits,” says one.

Claude Schwab, a partner at Heidick & Struggles’ US hedge fund practice, says median base pay for execution traders with one to two years’ experience is $75k-$100k, with bonuses up to 100%. Base salaries for analyst-style traders are $70k-$200k, with bonuses up to 200%.

Comments (16)

  1. Not worse than being a broker and $70k-$200k, with bonuses up to 200% stays a good bargain…

  2. Execution traders and even some alpha generating trading roles are being replaced by computer Algorithms. May way for the Algorithms! They don’t make mistakes, they don’t leave if they feel their bonuses aren’t big enough and they are quicker than any human. Algorithmic trading and Algorithmic Traders are the way forward.

  3. Can any exececution trader offer their opinion regarding the accuracy of the above report?

    Not sure whether to believe the pessimistic account and numbers provided.

  4. Would execution traders add value by ensuring they get best execution? I would imagine that execution traders for stat arb funds wouldn’t necessarily have PMs shouting at them all the time. I guess execution trader roles vary with different funds. Can anyone else offer any more opinions….do execution trader go on to do other trading roles within the fund?

  5. I have worked on a few execution mandates and whilst there is a ceiling, the new concept of ‘best execution’ coming in means the value added by these traders can be more obvious. Within traditional asset manager the bonus element is highly linked to basic and is relatively close to the numbers above. In hedge funds it is more often about the strategy, infrastructure and size of the fund as to how much value you can add regardless of ability. Dimwits is a touch harsh, many senior traders have moved to dealing desks and executions roles and found all of their previous sell side trading experience as highly useful and relevant. Progession from these roles often depends on how much exposure is gained to complex or esoteric trades which would enrich someones CV compared their peers.

  6. This article isn’t very specific. Yes execution traders are slowly becoming extinct, but many of them ave very important roles within large and small companies and many of them earning large bonuses. Yes, the execution traders of the past are becoming extinct, but now there is a new focus towards execution trading.
    Most execution traders now come from a more mathematical/scientific area. A lot of emphasis is placed on modelling slippage and spreads. Most execution traders at top banks/quant funds are responsible for running quantitative models developed my quants within the firm. So they need to develop a very good understand of the systematic models. The reason why all models can not be executed is because most of the time, have discretion provides better execution, early and better profit taking, and better stop management (i.e. an algo would execute a stoploss straight away, whereas a human trader could judge the current market condition, and have the discretion to leave the position on if he/she feels the market might turn). Most top execution traders have to produce research for clients and senior management regarding market conditions, liquidity reports, flow analysis, etc..

  7. Along side that the above, I have to mention that top execution traders are highly regarded within the trading desk. As an execution trader you are constantly in contact with other traders, hence you have better access to market news and rumours. Most portfolio managers talk to their execution traders on an hourly basis and have a lot of respect for their research and knowledge. Although there has been more and more emphasis on algorithmic and automated trading, human traders will never be extinct. If you want to get into trading and you have no experience, execution trading is an excellent place to start. And after 2-3 years, you probably will also be given your own small trading book.

  8. Article is so very true. Execution traders / sales-traders are seen as the most inferior, sub-human quality people of the ‘front office’. The day to day job is unbelievably intellectual – typing in orders into a computer and working them, and the occasional forwarding out of an email written by someone else to your clients (taking the original author’s name off of course). A glorified Sainsbury’s checkout monkey, handling a bunch of orders. God knows how they haven’t been replaced with computers – which have a much better chance of getting the order done as requested. They are slowly being eroded as clients input their orders directly using DMA/CSA websites.

  9. Hang on. By execution trader do you mean the traders at investment banks who get orders from sales people, create prices, take on the risk and try to make a profit doing do? Confused…

  10. I have worked at an assetmanager for 5 years as an execution fx trader. The view stated above is partly true although the funny thing is the portfolio managers who gave the orders had so little understanding of the market, embarassing most if not all the time. For the part which isn’t true I’m of the opinion an execution trader can and should bring added value knowing where and how to efficiently execute orders and furthermore knowing whats is happening and for what reasons before or when it happens. Salary wise it all depends on the view the company takes on execution trading, how they rate it. Unfortunalty both execution traders and companies lack knowledge most of the times. I do believe a large part of the job will disappear due to sometimes idiot rules (mifid) and/or electronic trading platforms. Also if a company isn’t making use of the value the people provide, they will rapidly disappear or indeed will quickly adjust their service quality towards the low expectations. A trader is still a trader. Happy to receive feeback

  11. Hi Mor,

    I agree with your comments and execution trading does still require a feel of the markets. I have friends who are execution traders for Asset Managers and Trade on the FI at Goldmans, both have their place.

    A question is, how do you get into execution trading, I worked in a variety of roles, have a degree, just passed my FSA and struggling to find any openings? Where do I look for these execution roles?

    Kind Regards

  12. There are a number of ways but probably the one which is best (for anyone) is to ask salespeople. They talk to the execution brokers and they know the client (or at least, they should know their client) and how the company operates. The should be able to judge which company is looking for people and which is good to work for (both structure, colleague and probably pay-wise). These people are also in the right place to launch you (or differently put: Sell you) to their client. However in such a case they are putting their own reputation on the line for you. Hope this helps

  13. a very poor and uninformed article.
    effectively the trader is on risk the minute he receives the order from the pm – he can add or destroy alpha purely from his decisions on how he works the order depending on his knowledge of the stock, the market, likely newsflow, etc. machines will never replace this – just look at the poor performances of algos in risk arb stocks!
    hf traders in multi-strats usually have to be expert in several asset classes: equities, options, futures, cbs, cds, etc even stock loan….plus receiving 3000+ bloomie messages and colour calls a day means they need to disseminate exactly what is useful to their analysts, pms as well as their own orders.
    most guys will also have their own discretionary book too.
    sales traders vary widely, but the smartest add a lot of value especially when news breaks.
    yes i am biased but if all the above categorizes one as a ‘dimwit’ then i am happy to be classified as one! just my view but those comp numbers well out too

  14. i have lost count of how many execution traders i have met. the job is a dead duck , if you’re looking to get into the role now i wouldn’t bother.

  15. Been working at an execution desk for Asset Management in a top tier swiss bank – Bonds and Convertibles. Most boring thing ever after a while – really “uninspiring” daily routine. Biggest problem for me personally: to be compared with a lot of the above mentioned dimwits on a daily basis. Boy you have no idea what is walking around in a top tier (haha) bank. E.g. there was a collegue for whom it wasn’t obvious that a bond that pays coupon in kind (PIK) – a lovely close to broke southamerican issue of course – must have a denomination of .1 or even smaller due to the nature of the bond. But since he executed a cleint order in that issue and operations was not capable either the came back to him saying his 35’698 -ish nominal size is not tradeable and they can’t settle the trade since denomination is min 50’000 everyday life in a top tier institution. Fluctuation is high – especially in ops – so those who know what they are doing and have some sort of normal standards (not to mention those with higher ones) do leave in an instant after realizing. My 5cents: the bigger the employer the more specialised the execution role – the more dimwit routine you’ll be facing. If it’s a role that covers execution in several product categories you’re good.

  16. Hi,
    can only agree to what KC1978 said, same here, working in a top tier bank within the Private bank as an execution trader…. pretty much the dullest thing somebody can do. It is true the PM who places the order has absolute no idea about the market but that is not an argument for value added, they are just not really smart people. The daily job pretty much involves a ton of Backoffice work while the more interesting part of following market or talking to clients is negligible. Usually every bank will have their sales team that informs clients about what is happening. If you are lucky you have you own book, but in many cases execution trader don’t even have that, meaning they are a mere booking center and the value added consist in finding a buyer or seller, which in times of BBG isn’t that complicated.
    Soon or later this job will get obsolete and a computer can do all the work…. It is nice for about a year and you get what happens in the market but after that it get dull and boring thats why I would recommend everybody to avoid or search for something else (which I am doing).

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