by Jerry Chi Comments (33)

Credit Derivatives Trading in Tokyo: Interview

Credit Derivatives Trading in Tokyo: InterviewContinuing our series of interviews with bankers / financiers in different parts of the world, today we’re speaking with a friend of mine from Stanford who worked in credit derivatives trading in Japan and then founded his own trading firm… after only 1 year of work.

A lot of readers are interested in going to Asia, and an equal number are interested in starting their own investment firms one day – so I figured this would be a good read.

1. Tell us about yourself.

I’m Taiwanese American, born in the states and raised in Silicon Valley. During my studies at Stanford, I had the opportunity to study abroad and intern in Japan.

It was so cool that I decided Tokyo was the place I wanted to be after graduation. While in Tokyo, I gained experience on the equities trading desk of a major U.S. investment bank and the fixed income trading desk of a major European investment bank.

Now I run my own trading firm out of Beijing, but I trade U.S. and Japanese equities.

The Recruiting Process

2. What was the recruiting process like for trading?

I applied for full-time jobs by going to the Boston Career Forum, which is the largest Japanese-English bilingual career fair in the world.

Many Japanese and non-Japanese find their jobs at top investment banks in Tokyo this way. Before attending the career forum, make sure to submit your resume in advance and fill out any online forms/questionnaires of firms you are interested in.

The interview process at the career fair can be grueling – possibly more than 15 interviews jam-packed in one day.

Most top-tier firms will interview you at least a half dozen times before giving you an offer, which might be given out on the spot or a few weeks later.

For finance professionals already working in Tokyo, much of the hiring goes through acquaintances, former colleagues, and headhunters.

Trading interviews are naturally different from investment banking interviews – for students, there will be some basic fit questions and math / brain teaser questions to test quantitative aptitude. For experienced professionals, the questions will focus on previous trading experience and your understanding of financial markets.

3. Was the process any different because you were applying to Japan?

For US or European investment banks in Tokyo, the process is pretty much the same as everywhere else, except you sometimes go through different channels – such as the Boston Career Forum – rather than sticking to on-campus recruiting or networking.

At Japanese securities firms, recruiting happens much earlier (over a year before the job starts). I’m not sure offhand how much the actual process differs because I didn’t really apply to any Japanese companies.

In terms of getting offers, commitment to living in Japan and ability to speak Japanese come into play, but language ability is not as crucial to trading as it is to other finance jobs like investment banking or private equity.

4. How much networking did you do when getting your job? How essential was that?

My internship at the equity trading desk was due to networking with an alumnus.

I found the fixed income job via the career forum I went to, so no networking was required there.

I got in without a huge networking effort for 2 reasons:

  1. I went to a “target” school and had a finance background.
  2. The market was much better when I was recruiting.

These days networking would be pretty much required to get in, unless you get lucky or have some crazy connection(s).

The Job Itself

5. What did you think the job would be like before you started?  How did that change once you got there?

I expected the fixed income trading job to be exciting and extremely quantitative, but I later realized there was a lot of repetition and that most of the real quantitative work was being done by the quants, not the traders.

The traders simply use the tools developed by the quants.

Trading volume and the outstanding notional amount of non-government fixed income securities in Japan is pretty small. Trading volume of Japanese equities is high but tick-sizes are controlled so that stocks seem to move much more slowly than U.S. equities.

Traders used to fast-paced U.S. markets might be somewhat turned off by this. That said, each market has its quirks and some people enjoy trading the Japanese capital markets.

Also, I expected to spend most of my time trading – but a lot of my time was actually spent resolving IT issues and organizing data.

6. Is there any activity in credit derivatives (where you worked) these days? Or is it completely dead?

Yes, there is. The activity of credit default swaps actually increased after the credit crisis started, since previously Japanese companies didn’t default much and the market didn’t move much.

The Itraxx Japan CDS index, for example, moved about 3 basis points in the half year before July 2007, and then exploded by over 200 bps in a few months.

On the other hand, try selling a synthetic CDO stuffed full of subprime mortgages to a conservative regional Japanese bank… yeah, good luck. It was already really hard before the credit crisis, and now it’s even harder.

Some investors are still willing to take risk given that corporate credit has pretty juicy yields now – but overall, the already small group of credit trading professionals in Tokyo has gotten even smaller since the credit crisis.

7. What other options were you considering? Were you glad you chose what you did in terms of geography/industry?

I only considered jobs in Japan since I liked the country so much.

I was also thinking about consulting or equity research – but those are also more difficult to get into and require native speaker level proficiency.

In retrospect I might have chosen a derivatives structuring job over credit trading, since I am analytical and disliked the repetition involved with flow trading.

Culture / Pay / Models & Bottles

8. Do bankers still lust after models and bottles in Japan? Or is it just sake bottles?

Haha. Oh man. Some guys come to Japan just for this.

If you want to indulge in in Tokyo, it’s pretty easy to do so – until your boss wants you to work overtime.

I won’t get into all the details here since this is PG-rated, but just use your imagination.

One common practice is “goukon,” or blind date parties, where 5 guys and 5 girls might go out for drinks together. I organized one myself before. Even non-finance people in Japan work long hours and it’s hard to meet people otherwise, so these have always been popular.

The selection of bars, pubs, and nightlife in Tokyo is also awesome (not just sake bottles; it’s very international). It’s not like Hong Kong where there is basically only one area (Lam Kwai Fung) to go drinking.

That said, you should come to Japan because you really like the country, not for the models / bottles aspect.

9. What was the culture of your firm like? Was it more because of the firm itself or because you were in Japan?

Foreign investment banks in Tokyo have a mix of the parent bank’s culture and Japanese culture. That means:

  1. Longer working hours than Western counterparts, but maybe not as long as Japanese securities firms.
  2. It’s a meritocracy, and young people can get paid a lot – unlike in Japanese firms, where you typically get paid a fraction of US salaries.
  3. Women are valued and respected more than at Japanese companies, but maybe not as much as they are in the West.
  4. Diversity is more important than at Japanese firms.

In my view, most people would be crazy to work for a Japanese securities firm over a foreign investment bank.

10. What were the hours / pay like in Tokyo?

My starting salary out of college was about 7 million yen base plus a 2.5 million yen bonus, so about $100K USD total. If you start out at a Japanese securities firm your salary could be as low as 1/4 of this (yet another reason why lots of Japanese youth still live with their parents – try getting by in Tokyo on $25K per year!).

Hours were around 13 hours a day plus an occasional Saturday. I know traders in Tokyo who work from 10 hours a day to 17 hours a day, but most are in the 11-14 hours per day range.

Just like at any other trading firm, your salary can quickly escalate into millions of USD depending on your performance – but that rarely happens and given the financial crisis, most firms probably won’t let you take that sort of risk anymore.

11. These days many readers are concerned about how they’ll pay for their apartments in Manhattan given lower pay – what was that like in Tokyo, where real estate is even more expensive than New York?

Keep in mind, everything in Japan – even the most expensive apartment you can find – is much smaller than what you’d find in the US or other parts of the world.

I paid about $1,000 USD per month for a 25 square meter (270 sq ft) place but the location was excellent.

If you are willing to take a short 30 minute commute then your rent can be a lot cheaper. The public transportation system in Tokyo is second-to-none, and Japanese products can help save space in the apartment (like really small but effective vacuum cleaners). Some companies also use an accounting trick to pay for an employee’s housing before taxes, then subtract it from the employee’s pre-tax income.

Next Moves / Starting a Trading Firm

12. You didn’t stick around too long before starting your own firm – why did you leave the industry when you did?

I left my fixed income trading job in Japan because I wanted to start my own company, and because I felt my job was overly repetitive.

I’d like to say that I foresaw the credit crisis and all, but it was just good timing that I got out before things turned really bad.

13. Many readers are thinking of starting their own investment firms one day – what was it like going through that experience after having worked in trading for only a year or so?

Staring my own trading firm was a pretty tough experience, but I learned a lot. My advice: do not do it for the money.

You need to think carefully first about your desired work-life balance and your passion, and only then should you think about the money.

Although my firm is doing OK, I think I started it a bit too early on in life – I would have benefited from a bit more experience at a big company.

Starting the firm in China, of all places, was also “interesting” to say the least. Founding a company in any location is really tough, but all sorts of factors made it even more difficult and grueling here.

14. Where do you want to be 10 years from now?

I hope I can be back in Tokyo, and I’m open to career options outside of finance. I haven’t done too much long-term planning because things change too quickly – if you had found me 2 years ago, I never would have expected to be running my own trading firm today!

15. Many readers are thinking about going to Asia to find opportunities in finance/business these days – any advice or recommendations on that?

I think it is an excellent time to be coming to Asia, especially Hong Kong, Singapore, Beijing, and Shanghai.

If you choose Tokyo, your career prospects might not be as bright but the lifestyle is great. Beijing and Shanghai have lifestyle issues (like pollution, etc.) and the financial system is not as advanced, but they are improving and growing rapidly.

Singapore and Hong Kong are the most advanced financially, they have excellent corporate-friendly legal systems, they are more diverse, and everyone speaks English.

16. Any words of advice for anyone interested in going into trading today?

Be confident but don’t be overly confident. Don’t think that you are always smarter than the market. Do your own due diligence when entering into a trade. Make sure you can handle the pressure of losing money before you take the job.

Trade because you really like doing it – not just for the money.

About the Author

Jerry Chi graduated from Stanford, worked in equity research and trading in Japan, and then started and sold his own prop trading firm in China. He earned his MBA from Wharton, and then worked at Google and Supercell in Japan.

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  1. Hopefully Jerry is still active on this post. Here we go:

    I work for a US based tech company focused on digital media products (not advertising). Think CNN, Forbes and Hollywood studios as our clients. Given Jerry’s role at Google and his involvement with the tech scene in Japan, I hope he will comment on the following:

    I know and love Japan, speak some Japanese and have lived in East Asia. My goal is to convince my company to open their Asia HQ in Tokyo and appoint myself as the director. I would be in charge of all operations, sales, hiring etc…

    1) I have experience with selling to corporations in S. East Asia. However, our company is able to sell some of our products without feet on the ground via online sales channels but acquiring large corporate customers without physical presence is not possible. What specific things should I focus on as a reason to have feet on the ground in Asia?

    2) Keep in mind I am Caucasian, but I would like to spend the rest of my life in Asia. Besides the obvious things like I know the company culture, values, goals etc… What other important aspects should I focus on to convince the employer that I am the person who should be running Asia operations?

    1. Jerry isn’t active here right now, but:

      1) What you just said, it’s impossible to expand into large companies without a big presence on the ground there. Also say that East Asia could be a huge growth area and point to other examples of companies that have rapidly expanded after establishing an office there.

      2) I think it will be tough given that you need to have an extremely high proficiency level in Japanese to work there in a high-level role (I have lived and worked there before so I know something about it) – but if the employer doesn’t know that, you could pull it off anyway by saying that you can act as a “bridge,” understand both cultures, can get deals done in between different Asian countries, etc.

  2. hi, im reading on your number #6, and you mentioned about japan itraxx credit default swap index move about 3 basis point half year before 2007. anyway, do you know any good book that mentioned about japan ixxtrax cds so that i can learn more about the topic? at my current job as an analyst and i price this security each night. i get the info of the jpy itraxx from ice website and price then on the portfolio. but i dont understand full concept of japan itraxx cds. would you please help me shed somelight or recomend some good book so i can expand my knowledge.thanks very much.

    1. M&I - Nicole

      I don’t know of a book that focuses on Japanese iTraxx CDS, though you may find interesting

  3. Hi,

    Sorry for posting a comment on an old post. I am a Chinese having lived in Japan for about 3 years (Japanese ability is soso, very basic business level). This year I graduated from a US university as a finance major and got a chance to have an interview with one of the top USA IB at Boston Career Forum, which will happen in about 4 days…The position will be a trader or sales position at FI division…Currently I am preparing for my interview and found that I almost forgot the knowledge learned from my previous Fixed Income class…Do you know what kind of FI questions will be asked in the FI S&T interviews? I think it is really too rush for me to review all the FI or Derivatives topics and at the same time, market information as well as Math knowledge…….Thank you very much!

    1. M&I - Nicole

      People comment on old posts all the time. We are glad to be of help. Please see below for a link you may find useful:

      We don’t cover FI in our interview guide yet. But the above should help, at least to brush up your knowledge

  4. Hey,

    I would like to ask about the Math related stuff in the interviews, and in Trading while doing the job.
    What kind of math “level” you should know, or how important portion of the interview is it?

    And what kind of math you will need to deal as a trader in the actual job?

    1. M&I - Nicole

      I think you’ll need to be able to think on your feet and answer math brain teaser questions which can be quite hard to prepare for. It is pretty important for trading interviews because interviewers want to know your raw talent and how you perform on a trading floor. You don’t need to know very difficult math formulas unless you’re in a quant role, but you should be able to have basic understanding of maths as well as derivatives.

      1. Thank you very much for your response.
        Looks like less and less opportunities for me in the finance industry.

        As i am not a native english speaker, an analyst job for me is not really available. On the Trading front the math, beside i am really passionate about the market.

        Got any suggestion/advice regarding where else i could look in finance?

        1. M&I - Nicole

          Perhaps you can look at quantitative trading roles if you’re very interested in maths and the markets/

  5. Hi! Thank you for the post!
    I am a senior graduating in August this year and is thinking of going to the Boston Career Forum.
    I have never thought of working in Tokyo before studying abroad in Tokyo, so I missed the Forum last year…Does anyone know if the Tokyo Career Forum in June is a good bet too?
    Thank you! =]

    1. M&I - Nicole

      Readers may be able to offer you better suggestions

  6. So what factors do traders consider when trading Credit Default Swaps?

  7. HI,
    I was just wondering how come you chose the other Asian markets as oppose to choosing to work in the Taiwanese financial market?
    And do you by any chance know the difficulty in breaking into the American/Swiss Investment banks doing S&T in Taiwan?

    1. Japan is a much bigger market than Taiwan and few banks have a big presence in Taiwan, compared to Japan where pretty much everyone has large offices. He was also more interested in working in Japan long-term so it made more sense to go there.

  8. I been in Japan one month in host family in tokyo and maybe going back for one year (exchange student)…How wonder how much energy should I put into it.
    If I am interested in IB and later BD , how can I break into Japan. Is it possible to become Tech investment Banker there ? I know its alot of work but, my main question is if I work for an american bank, all the documents and reading should be in English right ? May be Im just wishing… but I heard that so much people are working there at quite high level and they dont speak Japanese at all….I mean beeen there, one mot

    1. Honestly, I would not even bother trying to get into IB unless you want to go super hardcore and study Japanese intensely for years to become perfect at reading/writing. Everything there is done in Japanese and they don’t do much with the outside world. Really senior people can get by without it because they have a reputation, but you do not. Trading is a much better option.

      1. Hi

        I knwo its a very broad question but just to have an idea, How people become traders in Japan ?Excluding Networking and luck I guess…And is the boston career fair is opent to Canadians ?

        1. Yes it is open to everyone I believe. Most traders get in via on-campus recruiting at the undergraduate level, career forums, and networking.

    2. For IBD in Japan, you need an extremely high level of Japanese; maybe not for other divisions, but IBD you definitely need super good japanese, since you’re mainly dealing with Japanese clients – even my Japanese friend got asked if her japanese was okay, and another friend who interned at jpm said while the bank is very international, ibd only has japanese people in it.
      in other words, unless your japanese is at native level, you’ll (unfortunately) get filtered out during the document screening process

      1. really, but what kind of business/banking related jobs non japanese has in japan ? if they are not Japanese native ?

        1. except trading …

        2. Sometimes very senior bankers (Partner-MDs at GS for example) are brought in from elsewhere, but you’re right that it’s rare. Basically there’s no point in trying for IB in Japan unless you’re a native speaker of Japanese, it’s just a poor use of time and has a very low chance of success.

      2. What do you mean by “IBD” ?

        1. Investment Banking Department

  9. hey jerry, i like your comment about how it seems that the quants are doing all the work, and the traders are just executing. from talking to some quants, they feel neglected in that their models aren’t always used. the traders don’t even know what the programs do half the time, and don’t bother to ask.

    i have a related question:

    is it true that for someone interested in non-market making trading (quantitative), an ideal position would be a quant at one of the large quant funds, i.e. rentech, deshaw, aqr, citadel? Would these positions be preferred over say a trading position at a bulge-bracket (goldman, MS, etc)? I’m not very sure what traders actually do at banks. I know some structure derivatives, i.e. MBS, CDOs, exotics, but i’m not interested in doing that. I’m trying to find a position where it is quantitative, non-market making, and where risk is taken, thereby giving potential for large returns.

    The other option, from what i’ve read, is to be a banker in m&a/lev fin/coverage group, learn fundamentals/accounting real well, and go into a fundamental-driven equity hedge fund. This would be non-quantitative, but I would be okay with this as well.

    What are your thoughts?

    1. There is more risk but also more potential reward at a quant fund so it depends on your risk tolerance. Banking also works but you work much longer hours and won’t necessarily get paid much more.

  10. Hello,

    As I went through this site, I stumbled across this section and couldn’t believe I’ve found someone who did something I am trying to do at the moment. I am going to attend the 2010 Boston Career fair and really want to land a trading job in Japan because I love the country and have many friends. I also studied Japanese in University on the side while majoring in Finance. I was wondering if you could give me some pointers on how to prepare for the interviews, how to network my way in since I don’t have much experience (only 1 year in asset management ops and 1 year of english teaching in japan which i know doesn’t look good on my CV). Basically, I need your help in increasing my chances of landing a job, as i really want one in trading and love Japan!!

    1. I’ll ask Jerry and see if he has any tips – for these types of interviews they’re looking for very specific people and networking doesn’t work too well in Japan due to cultural differences… Boston Career Fair is definitely your best bet. Make sure that you practice discussing probability, statistics, etc. and learning some of the relevant vocabulary because they will test you. Other than that, just make sure that you can clearly explain why you want to be in Japan more than anywhere else.

      1. Thank you Brian. And, how do i approach a country’s economy question if they happen to ask me? like, what do you think about the US/Japan/Chinese Economies?

        Hope to hear from both of you soon.

        (Your resume writing tips really helped, I will also change some of my club and extracurricular activities to make them sound better than they actually were)

        1. Well obviously Japan is not doing well and China is the hottest place right now, so maybe find another way to spin it… you see Japan as the link between the US and China or something like that, and your decision to go there is more based on the culture than the GDP growth rate.

          1. Yeah, thanks for the advice. Any news from Jerry?

            Also, what kind of probability and Stat questions will they ask? I don’t know where to even start reviewing notes from college.
            I purchsed Crack’s “heard on the street” to sharpen up my skills in answering breainteasersm will that be enough?


            Also ask around on WallStreetOasis… Jerry is extremely busy with business school + work right now and I have limited S&T experience but there are lots of experienced traders on WSO.

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