Last week’s article on the presentation put together by ex-Goldman Sachs trader Anton Kreil caused a bit of fuss. To recap, Kreil said trading jobs in investment banks are now poorly paid and comparatively mindless, that 90% of a trader’s time is spent on market making business for clients and that 80% of that market making business is simply agency trading, where buyers are matched up to sellers using a computer algorithm and the bank takes zero risk.
“There is very little skill required in trading in an investment bank these days, because execution doesn’t require a human!” said Kreil, advising that any aspiring trader nowadays should want to work for a hedge fund instead.
However, a senior trading professional at a top European bank in the City (speaking on condition of anonymity) said it’s inaccurate to say that 80% all trading business in a bank is now agency-based. “This might be the case in some liquid products, like cash equities but in riskier and illiquid areas likes high yield or distressed, you’ll have far less agency business,” he said.
He added that trading roles in investment banks are more varied and complex than the presentation suggested. “You usually have three discrete groups of people – pure traders who are managing the risk, sales traders who are taking client orders and executing trades, and advisory sales people who are pitching trade ideas to clients and getting trades off the back of it.”
He said that what most banks don’t have any more are proprietary traders. These are the traders who simply bet the bank’s money on market movements. They were banned under the Volcker Rule. However, so-called ‘pure traders’ are still placing bets in the market and hedging against the risk that a bank will lose money when it buys a security to sell on to a client.
Another senior trader, who also used to work at Goldman Sachs and now works for a Mayfair-based hedge fund (and also requested anonymity), said it’s clearly become harder to make money in banking, but that working for a large hedge fund is no better. “It used to be that making money was the number one goal. Now it’s staying within the regulations. That’s very different to how it was 10 years ago, but it’s exactly the same in a large hedge fund now.” Many traders in hedge funds are simply button-pressing ‘execution traders’ he points out – the exciting hedge fund roles are for analysts and portfolio managers.
Christopher Wheeler, a banking analyst and director at Mediobanca in London, said that some trading in banks is boring and executed algorithmically but that a lot is complicated and requires intellect. “You might be putting on a derivatives trade which includes a currency impact that needs to be hedged. It can be very complex,” he argues.
However, Wheeler admits that young people go into trading with mistaken expectations of excitement. “It’s a bit like war – there are long periods of very, very dull times and then suddenly you’re off and running.”