Proprietary Trading at Investment Banks (2024)

12y

12y

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So is there really any relation between the sell side trading I described and prop trading? Seems like two entirely different ball games to me, despite the fact that they're both called traders. Perhaps one would be better suited doing something like equity research to get into one of these positions?

Just seems like such an obscure position to me. So few of them, practically a portfolio manager at a hedge fund except the PMs aren't executing their own trades?

Asking these questions mostly out of curiosity. I'd always considered whether I'd like to get into trading vs. banking but if the skills a market maker receives really aren't transferable to truly running money... Not that banking is either, but my primary reason for trading would be as I described.

12y

you don't just "get into" prop trading. it's not like oh you're hired and we'll put you on the desk for a while and if you climb along your learning curve we'll let you run some risks.

how it usually works is you somehow land on the trading floor, somehow you get to do market making first. then if you're good, you might get lucky to be able to trade prop. this is what i've seen the most.

yea market making (flow trading) and prop trading are different games in terms of how your "usual working day" is. and don't get confused, in a BB where there are a lot of flows, a flow trader can make as much (or sometimes more than) as a good prop trader.

Invest first, investigate later.

12y

Invest first, investigate later.

12y

some of my friends are good flow traders but they got too comfortable hence unwilling to take prop risks. some of them only managed to keep trading flow (simply trying to keep the job on an option desk). some of them get stuck in trading mix of flow/prop forever. MOST of them never made it to prop trading.

the good prop traders i personally know, some run their own hedge funds now and some are still in a bank, are those who check out bloomie on the blackberry or read any sources of information round the clock. it is clearly not the job for everyone.

Invest first, investigate later.

12y

Hmmm, very interesting. I have no doubt market making/flow can be just as lucrative with the amount of traffic going through an investment bank, but the relation between the two just strikes me as odd.

Basically, if you wanted to become a prop trader at a bank, you'd do this market making job that has little to nothing to do with legitimate prop trading. After not screwing up royally at your job for so long and proving a good trader (not implying that this is an easy task, btw), you're given money to play with whether you have the ability/know-how to source your own investment/trade ideas or not and you can choose whether to exercise that ability or not. Sound right?

Excuse my ignorance btw and thanks for your answers, just trying to wrap my head around this concept.

12y

Lines between prop and MM are blurring everyday. In fact, a lot of ibanks have been moving prop guys into their flow desks due to regulation.

Say a client hits your bid and you end up long. As a flow trader you have the option to either keep, increase, or decrease this risk. If you wish to express a long view, you would keep that position on your book or you would increase it. Now, what is the prop p/l and flow p/l in this trade? This line is further blurred when you are using flow information to signal prop position ("oh Soros and X are buying, gonna get long and spin trade idea to other HFs").

It is wrong to say that there is nothing relevant between MM and prop. In fact, there is a LOT of overlap as both groups are influenced by the same factors. Not all products are vanilla equities (WSO seems to be on a new kick where people are thinking trading = trading equities). You can't always find a perfect match between buyers and sellers. The benefit of flow is that you have a built in edge (bid

12y

12y

12y

True prop trading is working a on book/desk or taking positions with no customer flow what so ever. If you are risking a firm's money solely based on a speculative view then that is "prop trading". The blurry stuff some of you are talking about is market making and managing customer flow. You still get customer flow, customer flow allows you to bid/ask at a level more desirable than the market. A speculative or prop trader never gets that chance. Likewise a prop trader should be able to put on a view "without customer flow" solely based on analytics and strategy.

As for banks moving "true prop guys" to market marking desks, they are just trying to curve their way around the rules.

12y

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