The Future of Sales & Trading, 2019 Edition: Should You Still Go into the Industry?
We get a lot of questions that ask some variation of:
“Is Industry X dying? Should I bother going into it?”
In many cases, it’s just people being paranoid and assuming that robots will automate all jobs, kill everyone, and take over the world within ~5 years.
You could call it “Elon Musk syndrome.”
But there’s one industry where these concerns are well-founded: sales & trading.
You’ve probably seen headlines stating that headcount is falling everywhere and that many functions are being automated.
Some even claim that the distinction between the front, middle, and back office no longer exists in the same way.
But mainstream news sources are not always reliable, to put it mildly, so I recently caught up with a reader who reached the VP level in S&T at a large bank and then decided to leave.
Here’s his blunt assessment of all these issues, including the future of sales & trading:
Breaking into Finance Through the Side Door
Q: Can you start by giving us a quick summary of your story?
A: Sure. Almost a decade ago on this site, I contributed the article on moving from the middle office into a sales & trading role.
I did a couple of not-so-great internships in university and had nothing lined up after graduation, but then I got lucky and won a trading support role, which I then turned into a junior trader job after working on an extended project.
After I moved into that role, I spent a lot of time learning market mechanics and the entire ecosystem of U.S. equities.
I made some risk trades, but a lot of the work was agency/execution trading and building out a solid electronic trading platform for our customers.
A few years into that, foreseeing the automation trend, I decided to get my MBA as a “hedge.”
I did a part-time MBA because my bank offered a 30% discount, and I wouldn’t have to leave my job and risk unemployment while saddled with student debt.
But that was a mistake because I would have gotten much better career opportunities with a full-time program.
After finishing the degree, I interviewed around internally for other trading positions and took one on the newly created ETF desk.
I thought ETFs had more upside since they were newer and had momentum as institutions increasingly began to trade them.
I stayed there for ~4 years in a full market-making capacity and reached the Vice President level.
But I decided to quit because I didn’t want to be pigeonholed into my specialty forever.
I tried to explore other desks that offered broader exposure, but couldn’t find anything suitable.
Q: Since you entered the industry right after the 2008-2009 financial crisis, you must have seen a lot of changes in that time.
Can you summarize the main trends?
A: One common theme in sales & trading is that senior people always love to talk about how good it was “back in the day.”
For example, when I first started, they talked about how great things were before the advent of decimalization, which had led to tighter bid-ask spreads.
A few trends emerged when I was there:
- Unbundling – Partially because of MiFID II in Europe, banks have been unbundling services such as research, investment banking advisory, and trading, which means that buy-side clients have begun to trade based on price more than anything else. This one has hurt the large banks, but it has arguably leveled the playing field for market-making prop trading firms.
- Automation of Quotes and “Disintermediation” – A long time ago, clients would call or message us to ask for quotes on something they wanted to trade. But now they use electronic systems to get quotes automatically, and some of these systems bill the dealers for this service, further reducing margins. This trend is especially common in the ETF space, where clients often ask multiple dealers for quotes and receive the numbers within microseconds.
- General Reduction of Headcount – In my ~10 years on the trading floor, most desks lost headcount, but as you wrote in the article on Equity Trading, the Cash Equities desk has been hit the hardest. For simple and highly liquid products, it’s often easier and cheaper to bypass the humans – and buy-side firms are becoming more cost-conscious.
All that said, in terms of the future of sales & trading, I don’t think humans will disappear completely.
For one thing, a reduced headcount means that the remaining people will need to be savvier with programming and IT systems to do more with less.
Also, machines still can’t replicate human discretion and situational awareness.
You can automate a pricing/trading/hedging model for listed products, but it’s much harder to automate anything related to client relationships.
For example, let’s say your best customer wants to make a market on $10 million of Asset XYZ, and your pricing model says that the bid-ask spread should be $100 – $101 based on this product’s trading history.
But you know those levels are too wide to keep your best customer in good graces, so you decide to tighten it up and offer $100.40 – $100.60 instead.
You’ve done something sub-optimal according to the code, but this specific action has preserved an important relationship and will result in more business in the future.
Q: Great, thanks for that example.
You mentioned that the Cash Equities headcount had fallen most dramatically – what about other desks?
A: It depends on the liquidity of the product and whether or not it’s listed.
The desks least vulnerable to automation are many of the ones in Fixed Income Trading, including ones like corporate bonds, distressed debt, and credit default swaps (CDS), as well as structured exotics in Equities; basically, any product where dealers carry and hedge the inventory and become the “axe.”
Automation and quant models work well for listed, highly liquid products because it’s so easy to find pricing history.
But if a single dealer holds all the inventory for a certain product – something like an exotic based on multiple options on other options – then pricing models don’t work as well because the dealer has full discretion over buy/sell decisions.
Leaving the Industry, Next Steps, and the Future of Sales & Trading
Q: It’s quite difficult to advance to the VP level, so why did you decide to leave your role?
Was it to get broader exposure, as you mentioned earlier?
A: Pretty much. Specifically, I wanted to learn programming and become a lot more comfortable with Python and VBA.
The ETF desk was nice because it required me to know about fixed income, equities, international securities, FX, and commodities, but I was still doing the same thing every day: getting clients to trade and managing the risk.
I realized that if I wanted to have a sustainable career trading ETFs or many other products, I would need to get up to speed on coding and automation.
Plus, I had been there for around 10 years and wanted a “clean break” so I could focus on these skills.
Q: That brings up a good point: is sales & trading still a good area for a broad range of undergraduates to target?
Or do you need to be more technical in terms of math and programming skills to be a viable candidate?
A: If you have a programming background, sales & trading in all its different areas could still be good because there’s always a demand for people who can automate processes.
If you don’t know how to code, stick to desks with less liquid products that offer better exit opportunities: distressed debt, convertible bonds, structured finance, or, in other parts of the bank, research or risk management.
Even sales might be a better option because the human element will always be required there.
I don’t think the picture is quite as dire as what many news stories have claimed – but yes, you have a distinct advantage if you know languages like Python, R, C++, or even VBA.
Q: Since the technical bar is now higher, is there much of a distinction between the back, middle, and front office in S&T?
A few news stories have claimed that it’s going away.
A: I have not seen that happen personally, but I have heard co-workers and former co-workers complain that they’re staying later to work on bookings.
I wouldn’t be surprised if certain trading/operations/support roles get rolled into a single job and then outsourced to places like Vietnam.
But I still think there’s a pretty clear distinction between client-facing and non-client-facing roles, so I’m not sure how accurate these stories are.
Q: You mentioned some other options that a technical background gives you, such as quant research and quant funds. Fintech also seems quite popular.
What about the overall future of sales & trading?
Is it still appealing as a long-term career next to those other paths?
A: At the end of the day, if you produce results for a bank, you will advance; it depends 100% on your performance and desire.
It’s hard to say whether the other opportunities are more or less appealing because the trade-offs are different.
For example, quant roles have received a lot of hype, but they’re also notorious for burning people out; the turnover rate is quite high.
But if you are very technical and you want to spend 100% of your time on math, statistics, and coding, then sure, the quant path might be better.
“Pure traders” are more likely to go to prop trading firms, where their compensation depends almost 100% on their performance.
In my view, fintech may be a bit overrated as a sales & trading exit opportunity because there aren’t that many real trading roles outside of crypto.
So, if you want to go that route and work at a firm that streamlines the operational or back-office functions of a bank, your industry and product knowledge will be helpful, but not necessarily your trading skills.
Q: Thanks for that summary.
What are your own plans?
A: I’m not sure.
I’ve done some startup investing and networking with venture capitalists, and I’ve been teaching myself Python, VBA, and SQL, and doing data-science classes.
I’ve also been thinking about management consulting and strategy jobs at larger companies and startups that list management consulting or investment banking as prerequisites.
And I’ve even thought about making a run at investment banking, though I’m not sure how plausible it is for someone like me.
Q: Well, no one can fault you for failing to consider all your options.
Good luck, and let us know which path you take.
A: Will do!
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