Serious Qns for Bankers from a student-IB FO, hedge funds, PE etc
 

I don't know if I'll get serious (or any!) replies, but here goes:

tl;dr: Bankers please contribute your wisdom! Many thanks :)

Anyone working in Finance: IB/HF/PE etc? Current med student(early yrs) and hating it. Okay, not exactly HATE per se, just that I don't suit medicine. I'm not the typical rah-rah wannabe doctor who wants to SAVE THE WORLD, volunteers in Cambodia during the hols and so on. Neither am I one who relishes the thought of spending a decade or more studying for exams and such.

I'm a late bloomer re my passion (yes, cheesy word) for econs, finance and banking. Long story. Seriously thinking of switching to study economics. Probably applying to certain UK schools (you know, the targets)-better chance of getting my foot in the banking door. Maybe even to the US.

Can't see myself doing med till I'm old and grey. On the other hand, banking is so enticing. It appears to fit my character (slightly sociopathic, but all smiles on the outside, plus I thrive on stress). Love the idea of it, the game (!!!), the pursuit of success. The focused, main aim of making it rain money. Just exciting to me! And honestly, economics as a subject interests me a lot (also started play-trading on investopedia)

So, can anybody in the industry (sell side, buy side) please give advice? How did you start, progress, where you are now...anything. Would you do it again? Compensation adequate? I'm a female btw, if that matters. Also, is it very maths intensive? I'm fine with maths, but if crazy integrals and PHD knowledge are required on a daily basis...(that's just for quants, right?)

Another thing, do you have to be an overtly extroverted alpha (male) leader to survive? I am introverted, BUT I do communicate well professionally and am outgoing when needed (for networking etc).

I AM serious about this. Don't know if I can get into the right uni, but I HAVE to try now, lest I regret later in life and end up OD-ing on propofol. ha. Dream/Aim: Hedge fund portfolio manager (too high? okay, first aim to get into a target uni) Auspicium Melioris Ævi right? And not just 'hoping' but 'working for' a better age :)

Thanks for reading through. My heart on my (anonymous internet) sleeve right there. Will delete if there's no reply in a couple of days-too uncomfortable exposing my thoughts and aspirations as is. Might post on wallstreetoasis as well, but thought it best to get an SG perspective first. Here goes...pressing the submit button at 3.40 am.

Hi, research has shown that most surgeons are sociopathic though as a doctor-to-be it'd be best not to make such a quick diagnosis.
So I guess you'd fit right in, no need for banking. I don't think there's anyone who is rah rah for banking either.

The fact of the matter is the jobs you claim you are interested in are all super hot types where plenty of people with better academics and without the handicap of wasting years in the medical school are desperate to get in as well.

I seriously doubt abandoning your medical studies now to take up an economics degree from scratch will get you anywhere near those jobs you seek. Maybe a Finance related department in a MNC or BO / research based roles in banks possible, but anything more forward then that is a shot in the dark.

I get a sense in your post you actually don't know much about Finance beyond a general idea that it is sexy to be fund manager. The jobs you listed like IB, hedge funds, private equity are quite different from each other. Why not you describe more in detail what you think each of these jobs are and what you think you will be doing on a daily basis in each job?

Preview of hedge funds
 

Out of all the financial industries, I would describe the hedge industry as the most secretive and bold one. Essentially, we are at the buy side, and with a pool of investors money, employ various trading strategies in various markets to earn a profit. It is believed that hedge funds are the least regulated implying the least limitations in what you can trade and how.

The interface between us and the financial institutes comes in execution of trades. For example, the banks handle all the complications in acquiring what we want to buy. We want to go long on GOOG so we call up Goldman and ask them to get a certain amount of GOOG. Now this is a highly simplication of what's going on. There's the aspect of multiple banks, the issue of pricing what assets, the option of trading on the exchange, the packaging of certain assets whose value is derived from another (derivatives), etc.

My advise to the TS is that hedge funds require people with specialized skills and as a result, it probably should be one of the later career choices you make. Unlike investment banking, IPO, M&A, or Private Wealth Management, you don't get to see the broad picture of finance when working in hedge funds.

Now, I'm being careful here. When I say broad, I mean how the different players in the whole finance universe interact with each other. Sure, as a trader, you need to know market interactions that are inferred by financial news. However, you specialize in looking at the news which are connected to pricing a certain asset, like equities or currencies. Any other information, which may be relevant to finance but not relevant to your asset, can be ignored.

As for the math, again it varies. Since I'm a huge math fan, I can expound on it further. The level of math used in hedge funds can be intermediate (George Soros) or widely advance (Renaissance Tech). Not to say that those who use an intermediate level of math imply that they weaker performers. No, because they employ more fundamental analysis.

For those hedge funds using technical indicators, you need to know nothing further than standard deviation, means, maximum, minimum, minimax and maximins. For those filled with Stanford and MIT math students, and these are the hedge funds that rule Wall Street, you need things like statistical inference, martignal concepts, partial differential equations, and stochastic calculus.

And I'm not just word dropping here. There are tons of academic literature out there that suggests trading strategies. All of them starts out with sigma algebras and probability measures. I've read almost a dozen of those. The value of math students going into hedge funds is to create a path from the literature to a fully functional trading system that trades on the abstract theory found in those papers. Have tens of thousands of data points holding prices of assets scattered along the path makes it much more difficult to navigate.

Cheers,
Donny

the garden variety hedge fund does not require much mental or mathematical prowess.... there's just a lot of obfuscation and black box work behind the scenes ..pardoning the pun

IT skills on the other hand - that's the differentiator.. if hedge funds are your cup of tea...

A lot of the boutique high-frequency trading(HFT) firms on Wall St don't have many or even any traders at all. Everything is traded via algorithms. These guys use the firm's own money to trade, no external customers, all private companies and all very secretive.

Here are some of such firms:

Getco
Wolverine Trading Company
Hudson River Trading
Chicago Trading Company
Jump Trading LLC
Optiver
DRW Trading Group
Spot Trading LLC

If HFT is what you are interested in, I suggest you brush up on your mathematics and computer science skills and focus less on economics/business.

Pretentious as it sounds, my advice would be to go on to finish your medical studies. Not a day goes by that I wish I pursued a profession that would *actually* contribute meaningfully to society - to be able to build something, cure something, design something, heck, even entertain something.

In hedge funds you could be building something ...
 

You could in a way that in those HFT hedge funds, you ARE building something. A highly complex trading system that with high probability gives your investors an annual return higher than inflation. That's at least how I look at it if I need to find meaning in my job.

Anyway, those firms mentioned are in the algorithmic trading space. People tend to throw the word HFT around quite loosely so I hope to clear two things.

HFT vs Algorithmic trading:
High Frequency Trading (HFT) is actually a subset of algorithmic trading. Algorithmic trading simply means any sort of trading that is automated with a computer eliminating the need of a real person monitoring prices live and trading on them. Again, this should be seen as a type of trading where the emotional and human aspect of it is removed and replaced in its place a calculative and numerical approach of how to trade. No assumption is made on whether the need of a human trader is beneficial or detrimental

HFT is a subset of this style of trading where both the time to generate trading signals and the time between entering and exiting a trade is within a second. Obviously, this by default necessitates the use of a computer.

For an example of algorithmic trading which is not HFT, consider the following. A system which looks at a whole bunch of data, say two days worth of 5 min data of three interlinked assets or ~1500 data points, does complicated calculations on them, say an inference of their probability distribution, and then decides on a position which presumably is trend following meaning that it's exit would be in a weekly time frame. Clearly, there isn't any high frequency component by way of trading but the need of a computer is obvious.

Hedge funds vs Market Making:
I know that Getco is a market maker and not a hedge fund. Hedge funds takes investors money and make speculative decisions on the direction to which the market is moving. A market maker collates a whole bunch of prices, from banks and dealers, and puts out their own prices at which other speculators, this would be hedge funds, could buy or sells certain assets.

Of course, in an age of high-tech finance where very smart people are finding innovative ways to make money, there is some overlap of strategies hedge funds and market makers can use. That will be a conversation for another day.

Cheers,
Donny

Skills specifically needed in HFTs
 

Just to add one more note, if you REALLY want to get specific, HFTs will require a greater degree of computer science than mathematics. In HFTs, you are essentially finding ways to improve the speed in execution of trades. This most likely comes in finding new ways to have your program place the order with the counter parties.

Examples in which this could be done are:
1. Knowing when to break out of sorting algorithms when you have sorted enough data, i.e., filtering out prices from three banks from that of twenty others.
2. The shifting of calculations on hardware before it gets to the software, i.e., the use of FPGA to sort prices before reading them into a data structure.
3. Testing the robustness of your algorithm in finding a offer less than a bid. Your algorithm must be able to confirm two counter parties which are willing to deal at a certain price BEFORE dealing with either of them. In HFT, you rarely have an open position, thus, it's dangerous to open a position without knowing in advance on whether you can close it out with a certain counter party.

As you can tell, 1 to 3 is almost all about computer science skills and not about math. When you start moving into the realm of price forecasting in speculative trading, then it's time to brush up on those stochastic calculus chomps.

Cheers,
Donny

Hedge funds vary over a wide spectrum in terms of strategies and trading patterns. You make it sound as if every fund is into algorithmic trading when many are in fact not algorithmic based or employ them only sparingly as a supplemental tool for their core trading strategies or financial modelling.

I suggest you not generalise the whole industry and pontificate beyond your scope of expertise. Such inaccurate generalization can lead to amatuers wasting significant time and money in pursuing their studies and end up having a misunderstanding on the entire industry. You are messing with people's lives and careers here and it is only good morals and ethics to provide better context to what you are espousing.