Sell-side traders’ salaries have been falling for years, and there are fewer trading roles within the U.S. bulge-bracket banks. In addition to pressure to cut costs, many banks simply need fewer traders as electronic trading continues its ascent. A recent Fortune article sums up the situation in its title – many people are talking about “The Death Of Trading”.
So how much can a trader expect to make at a bank or broker-dealer in the U.S.? Are salaries and bonuses spiraling down the drain as banks reduce headcount, or are you still going to make a very, very good living?
The first problem is supply and demand. Between the first half of 2014 and the first half of 2019, research firm Coalition says front office headcount fell 11% across front office jobs in banks globally. However, the cuts were higher in fixed income sales and trading, where 16% of staff disappeared during the period. As of the second half of 2019 banks are addressing over-staffing in the equities division too (witness Deutsche Bank's withdrawal). The upshot is that there are a lot of unemployed traders chasing not so many jobs, and this is never good for pay.
Accordingly, 2019 is unlikely to be a bumper year for bonuses. Johnson Associates’ “Outlook for 2019” expects fixed income compensation to fall by single-digit percentages compared to 2018, while equities traders can expect to see bonuses down 10-15%.
How big is the money now?
Trading pay is unfortunately being squeezed on all sides, as high-value proprietary trading has been all but regulated out of existence by the Volcker Rule while client flows are increasingly migrating to electronic platforms, which allow one trader to serve many more clients. U.S. banks pay better than European ones, both because they tend to be more profitable and because they are not covered by EU rules limiting bonuses to no more than two times basic salary.
Traders are typically paid 15% to 20% more than salespeople at the same firm. Traders tend to make better money due to bonus upside.
Wall Street traders' salaries fixed, bonuses falling
One strong indication of the declining status of traders is that headhunting firms have discontinued the annual 'salary surveys' they used to publish. Once one of the most profitable areas of the recruitment trade, these are now much less in demand. Piecing information together from postings on Glassdoor and Wall Street Oasis, however, gives some indication of what you might be able to expect in salary and bonus as a fixed income trader on Wall Street.
Straight out of the intern program and with the rank of “analyst”, the most junior employees on a trading desk earn between $60k and $90k, with some bonuses as high as $20k but most closer to $10k and plenty of zeros in 2018; according to the Page Executive 2019 survey. Expectations are somewhat better (but maybe mistaken) for 2019 with bonuses expected at 20-60% of basic salary.
Of course, at this level it’s debatable whether someone can really be called a 'trader:' they’re just a junior providing support and assistance to the employees who actually handle orders. And at the junior levels, compensation is largely determined at the level of the whole sales & trading graduate program, with little variation between business areas.
After a couple of years and promotion to “associate”, traders' pay varies considerably by performance and business unit. Some junior traders at European banks and in less profitable specialities like cash forex are still stuck around the $80k mark as first- and second-year associates, but it’s more normal to be getting into the low six figures, with bonuses potentially reaching 50% of salary.
Once fixed income traders reach VP level, their base goes up to between $90k and $150k. Bonuses are now in the 20-70% range, although they were 100% for top performers a few years ago.
Fixed income traders at the director level can earn up to $300k in base salary, although “juniorisation” of the front office means that there are now people with the Director title who are not earning much more than the top of the VP scale at $150k. Bonuses for directors, however, get significantly better and reach as much as 150% of basic salary.
Of course, the best paid traders are at the top of the tree. For Managing Directors, basic salaries start at $250,000 and reach $500,000 and more and bonuses are 200%+ of salaries. Bonuses are generally expected to be at least loosely related to the P&L of their trading book. As traders take on overall management responsibility for their desks, they can expect that considerations like their compliance track record and 'culture carrying' roles within the firm will also affect compensation
In summary, trading is an industry under threat, particularly on the sell side. But it still pays very well indeed.
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