Prop Trading vs. Software

aickley · Post by **aickley** » Mon Oct 19, 2015 4:05 pm

> The finance negatives are more superficial things-- having to show up at 8:30, wear a suit

You probably think so because you worked 8 years in tech and forgot how the things are. Suits are largely irrelevant to prop trading as it happens outside of banks now.

Why do you say that VCs "failed out of Wall Street because they weren't smart enough for the quant funds"? You kind of assume that there's a universally accepted pecking order of jobs and personal preferences are essentially irrelevant.

mtsm · Post by **mtsm** » Mon Oct 19, 2015 4:49 pm

Well I was just saying you know. Things are pretty tough in finance, that is all. Give it a try, you'll see for yourself.

jslade · Post by **jslade** » Mon Oct 19, 2015 11:36 pm

Applause

This is the best thing written about Silly Con valley in years.

Personally, I think there are plenty of interesting problems in tech, and a lot of it actually is more interesting than most trading stuff, but VC funded companies are mostly a joke, even when the problem is interesting.

One thing to consider: there are lots of interesting and potentially profitable problems that you could build into a viable business without VC. VC's are imbeciles, but worse, they're not interested in funding 10m or 100m companies. Owning a big piece of such a company seems like good business to me.

october · Post by **october** » Tue Oct 20, 2015 3:40 am

"VC's are imbeciles, but worse, they're not interested in funding 10m or 100m companies. Owning a big piece of such a company seems like good business to me.

This makes good business sense but it doesn't make good career sense.

The feedback cycle in VC is so long, and there's so much noise, that associates can be pushed out of the industry (i.e. "denied tenure", meaning not advanced to partner) before they've had a chance to prove themselves. Even partners have to keep an image of relevance. This isn't achieved through portfolio returns, because no one can separate skill from luck over even a 10-year window. Instead, it's achieved through association and an image of access surrounding "unicorns". Also, once a unicorn gets going, it's hard (in the short term) to stop its success, even with incompetent management, and that means that the VC can push his underachieving friends into executive positions (and get paid later, with stock tips and other favors).

jslade · Post by **jslade** » Tue Oct 20, 2015 7:41 am

You parsed my sentence wrong: plenty of good businesses out there that VC are not interested in funding, nor do you need a VC to make them work. Starting a $10-100M business with a partner or two makes a lot of sense to me if you don't like dealing with VC (I loled a lot at a recent linguistic discovery: "VC" means "toilet" in Russian).

Unless your health problems makes self employment impossible, it's probably easier than working your way up the prop food chain.

Lebowski · Post by **Lebowski** » Tue Oct 20, 2015 9:26 pm

Sorry for the late reply, I'm having a busy week in school/interviews.

I honestly do respect the discourse here and appreciate that the question of "tech vs finance" is highly divisive. That being said, tech vs. finance is not explicitly what I'm interested in.

First of all, when I say tech, I mean big, established firms, comme Microsoft, not small startups with app ideas and whatnot. When I say finance I generally am referring to prop companies in Chicago who are well established in market making. Think mid sized, smaller than Citadel or KCG, more akin to Akuna, Wolverine, etc...those are generally the ones that see fit to interview me.

I interned at a tech startup last summer, and I can echo some of october's sentiments. I learned a lot for sure, but I frankly may have taught an equal amount. For my junior internship, I need a place that will challenge me and allow me to mature as a programmer more than anything I think. I need code review from qualified full time employees, best practices, design, stuff like that. You don't learn how to write fully formed maintainable applications in undergrad, you just cook up algorithms that meet the homework requirements. I do not yet think my understanding of professional software development is high enough, and I'm eager to learn more about programming...that's my justification for considering a tech internship. I have little interest in being convinced by my employer that I'm saving the world or venture capital or IOS app development, web stuff, or anything like that. I respect that you find AGILE, etc. demeaning, October (I probably would if I wasn't just a kid), but I think I could really benefit a lot from being in a big tech company (read: not a startup).

As I alluded to before, my real concern is that prop trading is deadly competitive and you are forced to perform at a very high level. Quite honestly October, I feel you may be misjudging how difficult getting a good prop trading job is. I understand that you view yourself as a +4 sigma talent, but I'm a math and stats major at a pretty good school and I am getting quantitatively abused by the top prop shops in trading interviews. Some quant interviews I've found pretty manageable (banks so far, surprisingly), but I nearly left Jane Street in tears recently. If this is the level of talent that is expected to earn your 70-120K as a junior prop trader, I'm just frankly not sure that I am prop trading material. Disclaimer: I've only had a few quant interviews, so I'm still learning. I'm also not so sure what the career progression of a junior prop trader is. The hedge fund industry is going bust, banks pay less, so where can a prop trader go? It becomes a "too many chiefs, not enough Indians" scenario, and I think that's why you see all these tiny new prop companies springing up around Chicago...kids like me came in and spent five years writing software at Citadel, Jump, Tower, whatever, and there was no room for promotion, so they just got frustrated and decided to start their own company. I think prop trading is getting very crowded. It's a meat market for young talent.

If I can earn the same amount or greater doing software, and I can have better job security, quality of life, and my skills are more transferable outside of the industry, tech is starting to seem more attractive. What I'm effectively considering doing is attempting to skip the aforementioned 5 years of frustration with prop trading. I can learn a great deal about programming in tech, earn a respectable living, and here's the kicker...I'm effectively in the same career position as it relates to trading as the guy who got fucked over at a large prop entity. I'll be able afford colo at Aurora, the MDP 3.0 protocol has vastly leveled the playing field in terms of data quality for retail/"semi retail" traders, and the TT API (if the exchange gateway is installed on the same server and you configure some stuff correctly) is as fast as a lot of DMA implementations. I'm not even saying that I'm necessarily going to do latency sensitive trading, but if you look over this phorum long enough, you'll find several individual automated traders that have done pretty well.

Now, I'll point out an obvious and potentially damming flaw in my logic. My question seems to presume that I would know as much about trading as the guy with five years at a top prop firm. Obviously, this is not the case. I'm sure there's a lot of valuable information to be learned as a prop trader, but I think the fact that market making may be one of the worlds least relevant skills outside of trading balances a lot of this out. Furthermore, I've gained a great deal of context about the industry reading books. I think a self taught trader with the right background can become a pretty competent automated trader. I also think that the most relevant skill to becoming a successful automated trader is software development.

This brings me a my actual question: am I crazy to believe that going into software and trading on the side may be better long term? Note that I can always try to jump into trading later if I'm dead wrong.

dgn2 · Post by **dgn2** » Wed Oct 21, 2015 1:50 am

Learning to trade takes a lot of time. Like anything, it is hard to be a professional without actually doing the work full-time. That said, trading your own account can be a great way to learn. You don't need to start with market-making (which is unlikely to be something you can do as a retail trader). Start with long-term trend-following or something else less cost sensitive. There are many edges that don't scale, meaning that you can be a small trader and make good money for your own account doing something that you couldn't do as a prop trader. You can also potentially take a lot of risk in your PA when you have a steady job. Whatever you trade, be sure to learn how to compound your wealth.

Lebowski · Post by **Lebowski** » Wed Oct 21, 2015 7:57 am

Thanks for your encouraging reply. I don't want to discount professional trading experience. If I got the right trading internship, I'd take it in a heartbeat. We're still pretty early in the process, so we'll see. I think working as a developer at a prop firm would also be a perfectly acceptable first job and perhaps beyond. I'm a lot better doing interviews on data structures and algorithms than on mental math and brainteasers. I do tend to do well on questions about explaining mathematical concepts and stat/ML techniques. I've been surprised by how common these questions have been--probably a function of my resume and coursework. There are undoubtably prop firms with better software teams than big tech companies, though I think this is not always the case. One thing I really value in my first employer is their training program. Some prop firms have very explicit training programs for software people and stipends for continued education/training, so that's something I'd consider a major positive.

With regard to the feasibility of retail market making. Again, I'm not saying explicitly that I'll be doing latency sensitive trading, and in general I would prefer not to compete in this space. That being said, the toying around I'm doing now suggests that you can do fairly well with intraday strategies that offer liquidity. I'm not going to compete with guys who layer the book in highly liquid futures because I won't have the speed to cancel and will get ran over by faster traders in fast markets.

TSWP · Post by **TSWP** » Sat Oct 31, 2015 5:26 pm

>is it possible that a software engineer at a good tech company who does some automated trading on the side has a higher expected long term payout than a prop trader?

That depends on how good the prop trader is. I know a couple of "prop traders" that went from few hundred k USD to 1-2 Billion USD, that is their money now, not their AUM.

I have never heard of software engineers working at a tech company doing that, unless they launched their own company and that company is called Apple, Google or Microsoft, etc.

Also, the "some automated trading on the side" bit scares me, it is not a good approach. If you want to be successful in this business you have to dedicate yourself to it, 24/7.

A software engineer may certainly work later as a developer for a fund, so in theory that path in finance is not precluded in the future, if you have previously worked at a tech company.

Phantom309 · Post by **Phantom309** » Sun Nov 01, 2015 2:08 am

> "Also, once a unicorn gets going, it's hard (in the short term) to stop its success..."

It appears that these unicorns have been reproducing. I dunno, it still seems great for VC firms, but not so great I suppose for employees depending on equity-based comp.

[img]/User%20Files/9785/Unicorns.JPG[/img]