Rat Race

[21/04/26]

The term, often describing life within investment banking or corporate culture, is derogatory and implies an obligatory and endless struggle of existence. My own multi-year and multi-institution experience couldn’t be further from this definition. I met and worked with incredible talents and had fantastic mentors; enjoyed world-class infrastructure and technology; appreciated outlets of creativity and opportunity for ownership; witnessed finely-optimised organisational machines working seamlessly across countries/trading centres and would describe most colleagues as ‘thoroughly enjoying the job, rather than unhappily turning up because they have to’. Of course, there are trappings of personal financial commitments and an addictive nature to progression and achievement within a meritocratic and homogenous title-tiered structure - designed perfectly so that the next rung is always within reach - but grinding tirelessly for extra unneeded cash is an unfair brush to tar the thousands of very smart people choosing to transition multi-faceted careers and experience sets into this environment that can genuinely offer a different day-composition and challenge infinitely. Within financial markets trading in particular, the common thread is that most people are addicted to solving the puzzle of matching a geopolitical world to the selection of trading instruments and tenors they have in their particular toolkit (product/desk). Far from a crime or sin, this melding of interest in world affairs and front-line newsflow with the complex psychology and attempting to meet expectations set by yourself, your team leaders and your institution is what pulls and keeps most people into this world. Structuring solutions and providing liquidity to known clients just about ticks the box of altruism. Sure, business and individual progress is measured in monetary terms and growth %’s, which can appear ugly or soulless from the outside, but it is this clear attribution model and progress marker or score that universally tracks and compares a very efficient global talent pool and business model; yielding opportunity for progression or relocation.

I wanted to write a little about something I notice and think a lot about; something I have been though myself and deserves a degree of light-shedding. That is the stickiness in lane-switching between sell-side front-office roles and the other avenues available to traders, specifically. The reasons for remaining in a sell-side trading seat are clear. Salary comfort, the specific enjoyment of the client-facing and franchise-management or balance sheet management aspect of the interbank roles that cannot be replicated outside, deferred bonuses or the fact that balance sheet reliance for certain products means that only interbank can they be traded at that level. There is also a ‘traded notional’ addiction or validation. Position size, daily or annual P/L, sleeve or AUM. These are of course fertilized and encouraged by comp structure, managers and headhunters - and of course can symbolise improving expertese and ability as a risk manager, but there can be a darker side to it, whereby traders think in the dimension of notional risk taken, size of client flow taken-down, therefore writing-off opportunities that feel like a step-down because the math doesn’t compute in year 1, or unwilling to sacrifice for the longer-term convexity because of the annual compensation structure and validation that comes with being the senior risk-taker or product-owner at their institution. Sign-on bonuses and P/L ‘accelerators’ at HFs cloud this further.

My own experience is that lane-switching can be rewarding and shouldn’t be as sticky or stigmatized as it is. The prestige of surviving funnelling entry into a Tier 1 trading desk or indeed in retention or promotion through those seats is seemingly only surpassed by a transition into a buy-side seat, which can be a fallacy. That same prestige is naturally tied to the convexity of potential pay towards an MD or Partner seat at a bank or a PM seat at a HF. The first ring of stickiness appears in the seal between those two roles. Compensation-aside, this stickiness can come from the talent exposure and vulnerability that is revealed during the transition. ‘Sink or swim’ at a bank amplifies to ‘fired or life-changing pay’. My own experience was that this transition is incredibly difficult if done without a direct mentor (PM/Sub PM model) and that the style of trading and expectation is not to be underestimated. It is difficult to transition and immediately passport your bank trading process to great success in year one and requires a lot of introspection, work and patience. Thankfully, most funds understand this and can help with the transition, however it is to be acknowledged. Thus, I fully understand and endorse the stickiness, but believe it is still stemming from fear and lack of information symmetry, i.e. people in bank trading seats not knowing exactly what the buyside role and risk-taking expectation will look like, rather than the transition being impossible. Plenty of traders make this jump monthly and many would affirm that they wish they had done this sooner.

To cement the previous point; certain products and desks lend themselves more to lane-switching than others. There is a push factor here - i.e. those that are algorithmically traded or exchange-based have evolved such that the bank trading roles are less ‘macro’ or ‘voice’ and more about programming, autopilot-monitoring and franchise optimisation may simultaneously push macro traders to explore buy-side seats or step-down to a ‘less electronically advanced’ bank or platform. Headcount on these desks is inversely correlated to tech advancement, of course. Trading seats cross-product also differ enormously in skillset or role. Those with huge franchise activity or balance sheet maintenance will have a greater % of day-to-day that is ‘book management’ and less that is ‘prop/alpha generation’. Pull factors will include a desire to boil-away any franchise activity from the role, a desire for a more convex pay structure (profit split or % agreement) and a drive to push themselves harder. The great advantage with liquid products such as rates, commodities and FX is that these off-balance-sheet products can be readily traded using any brokerage platform and the leverage on offer, either via futures or via a fully regulated online brokerage platform can be 20-50x and thus the minimum deposit required to trade and scale a portfolio of this nature is (in my experience) closer to $50-100k, vs the multi-million AUM or prime brokerage account access required to trade a more balance sheet consumptive product. The tax advantages of trading within a corporate structure can also be attractive. The main barrier to entry with these liquid products is the salary sacrifice required to start trading without income and the informational shift (flow information and market data) that comes with the move. My experience-backed persuasion would be that A) bank traders with financial runway to support themselves and their families whilst providing time to scale the small leveraged deposit and sharpen their trading process, or to transition to the buyside and replace the bank salary with an ‘above the line salary draw’ are still unwilling to give up the bank seat and B) the informational step function is now far smaller as a result of AI-constructed market data dashboards and alternative real-time news platforms to the traditional monopolies, not to mention the brokerage platform pricing and futures access improvements of recent years. In my view, the external hurdle is smaller than ever and the push factors are becoming more evident. Of course, buy-side seats specifically are not always plentiful and hiring cycles are evident, but there are plenty of opportunities outside of the behemoth multimanagers and the sphere of proprietary trading firms or more siloed PA trading within a corporate structure are often entirely unexplored. Scalability of ex-HF trading roles can come in the form of Single Managed Account (SMA) allocations, first-loss agreements with hedge fund incubators, Single Family Office (SFO) transition or through the significant compounding of a larger initial account. Salary sacrifice can be supplemented by Expert Network platform involvement, consulting or content creation. The freedom of trading instrument and the learning that accompanies this timid exploration is worthwhile and truly helps you to fall (more/back) in love with the role.

The point of this article; in fact one of the main reasons this website exists at all, is to help traders at banks understand the risk-taking model at a fund and hope that this information symmetry will encourage some of those traders to make the leap themselves. That same risk-taking model can be employed in a PA or Family Office structure. Time autonomy of trading at a fund, trading at a futures firm in ‘raw form’ or trading PA in a UK Limited Company format (or equivalent) is enormously rewarding. You can not only unlock working hours freedom but complete location freedom without necessarily needing to be based within a global trading hub; instead needing to be within location-regulatory scope and with ultra-high-speed internet connectivity. The chiselling-down of the trading seat to its raw risk management components and without the tight drawdown model and risk framework of a multimanager hedge fund can be advantageous. Freedom of view dissemination and discussion generation is an added bonus, if you enjoy writing. I hope that the process transparency of this project will help traders to realise that this is a real possibility and an avenue to consider. Learning and pushing yourself to improve, at your own pace, in aspects other than P/L generation but true process refinement, is liberating.