Thanks to Michael Lewis, high frequency trading is all the rage. Admittedly, it may be all the rage for all the wrong reasons, but still.
The high frequency trading (HFT) dark side is clearly a lucrative place to be. Back in 2009, Sergey Aleynikov was paid $400k a year by Goldman Sachs and was poached by hedge fund Teza Technologies for $1m. At that time, Aleynikov had graduated ten years previously but had only two years’ experience in financial services, having moved to Goldman in 2007 from a telecommunications routing company.
Aleynikov’s story (Goldman tried, and has so far failed, to convict him for stealing its code) is unique in the high frequency and algorithmic trading world. His pay may be less so.
“During your first year after leaving university and developing trading algorithms for a high frequency trading firm you can earn up to $133k-$150k,” says Andy Kronin, a recruitment consultant at GQR Global Markets, which places high frequency trading talent in the U.S. and the UK.
“After two years, that will rise to $249k-$291k in total compensation,” Kronin claims. “Pay in this part of the industry goes up quite quickly.”
Needless to say, creating complex algorithms for high frequency trading firms isn’t open to everyone. “Hedge funds and high frequency trading firms will only hire you if you have a Masters or PhD in maths, physics, computer science or engineering,” says Kronin. “They will never hire someone with just a Bachelor’s.”
Most of the HFT hiring these days is done by buyside firms, Kronin adds. In the old days, he says banks used HFT systems for proprietary trading, but they can’t trade prop under the Volcker Rule.
Together with the money that's on offer, increased regulation may help explain why people with high frequency trading knowledge are leaving banks for high frequency trading houses (we have a list of them here from 2011) and hedge funds. Greg Tusar, Goldman’s head of electronic trading, left for Getco in February 2013, for example. And as we reported last week, there are rumours that ex-UBS electronic trading guru Phil Allison has left for KCG Group, which was formed from the merger of Knight Capital and Getco later last year.
Will you still be able to earn as much working in high frequency trading in future? That's debatable. Figures released in October 2013 showed that combined revenues at Citadel Securities, Optiver, Tower Research Capital, Jump Trading and Sun Trading fell by 46% in 2012. The European Union already has plans to curb high frequency trading and Lewis's book has helped spark an FBI Investigation into the practice in the U.S.