The following is an article by 80,000 Hours member, Joe, about (i) why he thinks trading can be better than other finance jobs (ii) what the work’s like (iii) who might especially suit it. Joe has over 5 years experience in trading, and was keen to share his perspective with other 80,000 Hours members on why this might be an especially promising career path.
In summary, Joe thinks:
If you have excellent quantitative skills, have yet to start your career, and are thinking of earning to give, you should consider going into a hedge fund or proprietary trading firm to trade stocks or other assets. You can reach a seven figure bonus within five years by working on interesting problems. You’ll work with really smart, focused people and have transferable skills if you choose to leave.
I’ve worked in the industry since I finished college. Most recently I was at a leading electronic market-making firm for four years. Most market makers don’t try to take views on the market; instead they try to buy from people who want to sell, and sell to people who want to buy. They place their buy orders (“bids”) slightly below their sell orders (“offers”). Historically, orders were placed by humans, but more recently computers have been placing orders. This is much more efficient, and the spread between the bid and offer has decreased over time. That’s great for investors.
There are other forms of trading, e.g. some firms calculate assets’ theoretical prices and trade whenever they diverge from actual market prices. I know less about this, but I gather a lot of the below still applies.
A typical day
Looking into performance of your strategies – how are they doing today, and what changes can you make – crunching statistics, automating some excel sheets (using VBA), using a stock exchange website to see how they plan to treat an upcoming dividend, and trying to figure out the tax implications of a specific trade are all fairly normal. I’ve been given odd tasks, e.g. “explain to the auditors how we price each of these stocks”, and “go find me some Tabasco sauce. I don’t care how you do it, but I want it before lunchtime.” (None of the nearby shops sold it, so I found a restaurant and haggled with the chef). The mindset is very much “I don’t want excuses. I want it done.” Expect to work hard in your first year (11-12 hours/day). After that you can expect to work shorter hours than you would in a lot of City jobs.
Market making consists of providing liquidity to financial assets. A small amount of algorithmic trading is taking part in a zero-sum game, in which a few firms are fighting over a set amount of money. But that’s a corner case, whereas in some professions it’s the bulk of the job. In my last office we had some fund-raising events for charities, we recycled, and some of my co-workers earmarked 10% of their income for non-profits. Standards vary by firm, but I don’t know anyone who has ever been asked to perform a task he thought was unethical.
Who is suited to it
The mathematically inclined. Programming knowhow (especially Python or C++), strategy games (e.g. chess, poker), the maths Olympiad or anything like it, and an interest in asset prices are all CV pluses. If you’re invited to interview, you’ll benefit from being fast at doing mental arithmetic and solving brainteasers. Familiarity with the laws of probability and statistics is highly desirable at every step of the process. Almost everyone I know in the industry has a degree in maths, physics, economics, or computer science. I met one guy who had just finished a degree in Viking Studies – he was able to demonstrate his maths ability and that was what counted. If you hated maths at school, you should look at something else.
How to find a job
If you have time to work on any of the above skills to add to your CV before you‘re job hunting, do so. If not, don‘t worry about it. Trim your CV to one page: whoever reads it will be busy and you do not merit two pages of his attention.
Some firms will recruit on campus. Most will not. If you’re willing to invest some time (and this may be the best return you’ll ever get on an investment), find a stock exchange that publishes a list of its members and Google those member firms’ websites. Do not send all of them your CV and the same letter. That will waste their time and is unlikely to get anywhere. Instead, spend a few minutes on each firm, see if it’s right for you, and if so write a short note explaining why you think you‘re right for them. Reference the company values in that note (better yet, tailor your CV to the job). If you’re invited to interview, make sure you find out as much as possible about the company before meeting them. Do they focus on statistics? Revise all your stats notes. Do they ask people how the S&P did this week? Know that. Do they specialise in FX trading? Make sure you spend an hour researching forex terminology (and dabbling with an Oanda account if you’re willing to commit a little money).
Why is this of interest to members of 80,000 hours?
- The pay is great and you can earn to give. If you remain in the field, you’ll do well. Ten years down the line you’ll be highly paid and you’ll rub shoulders with very wealthy and influential people. Usually they will not have considered Effective Altruism, and just raising the ideas can have a big payoff.
If you decide to switch careers, you’ll have extremely valuable business experience and will have earned a lot. There’s a case to be made for investing rather than immediately donating your earnings but that’s your call to make.
Exit opportunities are plentiful. Most ex-traders I know went into related finance jobs like risk management, but several left the industry entirely and are doing just fine. One is a lawyer now.
What are the earnings like?
Varies from high to very high. If you’re good at it, you can make millions five years down the line. If you’re not, you’ll still be making six figures without working investment banking or management consultant-level hours. If it turns out you’re not suited to the industry, you’ll leave before then. That means the worst-case scenario is that you spend a year or two working 60 hour weeks, earning highly and learning a lot while you do so. You’ll have a good knowledge of financial markets, statistics, Excel, be trained to solve problems, and have a great understanding of risk/reward.
What are the coworkers like?
As a rule, traders are highly switched-on, pleasant to talk to, and are great people to learn from. I do not think trading is the optimal career path if you’re trying to meet highly altruistic people, but the Gordon Gekko stereotype is pretty far from the truth.
Based on my experience, the industry is over 95% male. I don’t think there’s much sexism in hiring, so please don’t be deterred from applying if you’re female, but do be cognizant of the gender imbalance.
A lot of the guys I know went to the gym regularly at one point we had an office P90X program. It probably won’t come as a surprise to learn that most are libertarians.
Poker’s a common hobby, and there were more outdoors types than I’d expected. I knew several traders who didn’t drink alcohol.
I’ve been asked how people deal with the stress, and I’m not sure. With a few exceptions, most people kept their emotions out of the trading floor.
Other resources to check out:
wallstreetoasis.com is a useful forum.
efinancialcareers.com has a lot of job postings.
If you’re interested in earning to give and you have more questions, I will try to help (I will ignore questions that Google can answer). You can reach me at joseph_mela at hotmail dot com.
You might also be interested in this interview with ex-trader and 80,000 Hours member Ben Gilbert.