Trading never offered a brilliant career path, but at least there was a route to glory. In the past, top traders could expect to be given bigger books and broader risk limits. If they performed within these parameters, they could even get out of banking and move to a hedge fund.
Today, the traditional trading career arc is in disarray. These days, the biggest books are managed by machines. Risk limits are being slashed. Hedge funds only want to hire their own. And when hedge funds do hire from banks, it's on a purely trial basis. - Ex-bank traders who move to hedge funds are given a brief chance to prove themselves; if they don't make the mark, they're promptly let go.
If you're a trader in a bank, this leaves you with two choices. 1. You need to get with the programme in banks. 2. You need to go in search of a job with a hedge fund - and risk being laid off a few months later.
Zaheer Ebrahim of London-based search firm Kennedy Group, says the happiest traders are those who've accepted the new risk-adverse reality in banking. "Agency traders [traders who simply match buyers and sellers] in banks are pretty happy," he tells us. "Banks still need them - not everything can be automated, and they get paid pretty well for what they do. It's the real risk-takers who are frustrated."
The frustrated 'real risk takers' are usually mid-ranking traders who joined banks in the expectation that they'd be able to trade based upon their ideas, only to find that they're just facilitating the flow of customer orders. Now that prop trading has been outlawed by the US Volcker Rule and is in the process of being outlawed by the European Union, risk-based trading no longer exists in banks. "The risk you get to take now in a bank is really very limited," says Ebrahim. "It's nothing like it used to be - it's more about market timing than anything else."
What applies in London applies also on Wall Street. Michael Karp, chief executive of New York-based search firm Options Group, says he receives a lot of calls from would-be risk-taking traders in banks who are frustrated with their lot. "It's not easy right now for traders," he says. "You get a lot who want to move to the buy-side [hedge funds], but hedge funds have become incredibly choosy."
Ebrahim says he too receives a lot of calls from bank traders who want to join the buy-side. "Most of the time. we can't help them" he confesses. "Occasionally we'll find someone in a bank who has a good educational background and a good trading methodology and then a hedge fund will given them a go. But a hedge fund won't keep them if it doesn't work out - hedge funds are hiring potential, they don't want someone who doesn't perform."
The worst placed traders in banks would seem to be in foreign exchange (FX). The spot FX market is already heavily automated and is expected to become more so in future. Regulators are requesting that human beings are removed from the equation following the recent fixing scandals and trading bonus pools are being decimated by huge regulatory fines.
However, one long-established FX headhunter, speaking off the record, says 2015 will perversely be a brilliant time to be a trader in the FX market. In the past 12 months, banks like Citi, Deutsche and RBS have all dismissed traders linked to the scandal. As a result, some of the best talent in the industry has disappeared. "There simply aren't enough good FX traders out there to replace them," he says. "Either junior traders are going to be promoted early, or banks will have to take a deep breath and wait a few years until today's juniors are experienced enough to take control."
That sounds like the opposite of a dead-end job. But what if you’re not a rising star in the spot FX space? Karp suggests downshifting across divisions: “Traders who can’t find jobs can always move into risk management.”