I was wondering if there are any former bankers or financial professionals active on the ERE forums? If so, how long were you in the industry and why did you bail?
I was in the banking field for around 20 years and an elected fiscal officer for one term-----and I'm glaaaaaaaaad I'm out.
djc
Any Former Bankers here...
-
dot_com_vet
- Posts: 603
- Joined: Mon Jan 31, 2011 2:07 am
I'm in the financial industry. I think akratic is too.
It's long hours, but worth it IMO. I've been working in the industry for 3 years now and will probably continue working in it for another 3-5. After that, I think I'll have had enough of the stress and want to cut back to something reasonable, or ERE.
It's long hours, but worth it IMO. I've been working in the industry for 3 years now and will probably continue working in it for another 3-5. After that, I think I'll have had enough of the stress and want to cut back to something reasonable, or ERE.
-
ScaredyCat
- Posts: 8
- Joined: Tue May 31, 2011 5:53 pm
Akratic, out of curiosity, how does your job work? Does manager go "hey, we should try an algorithm that does XYZ, akratic why don't you code that up?" or do you write code that does statistical analysis to determine what strategies might be effective? Do you think your experience can give you an edge in your personal investments?
Coincidentally, I also do algorithmic trading. Not to get into details, but usually a trader has an idea for a strategy that the engineer codes up. Depending upon their mathematical background, there may be opportunities that a quant or engineer might identify statistically, usually through factor analysis. It really depends upon the job role, but in my experience algorithms aren't nearly as sophisticated as you'd anticipate. The more sophisticated, the more difficult they are to understand, and the more difficult they are to support if they do something unexpected.
My knowledge of algorithms gives me no edge in personal investments. Anything I understand about market microstructure, which is where algorithms live and die, is useless for the average investor (ie, myself). It gets washed out with broker's fees and inability to trade at millisecond-level granularity.
If I had a very strong mathematical background I might be able to leverage that for pairs trading or similar (pairs trading is where you detect a certain statistical relationship between two products - they are cointegrated - and you trade them when they diverge, with the anticipation that they revert to the mean), but most tools used in the financial industry are very expensive to license and aren't available for personal use, so you'd essentially be starting from scratch.
My knowledge of algorithms gives me no edge in personal investments. Anything I understand about market microstructure, which is where algorithms live and die, is useless for the average investor (ie, myself). It gets washed out with broker's fees and inability to trade at millisecond-level granularity.
If I had a very strong mathematical background I might be able to leverage that for pairs trading or similar (pairs trading is where you detect a certain statistical relationship between two products - they are cointegrated - and you trade them when they diverge, with the anticipation that they revert to the mean), but most tools used in the financial industry are very expensive to license and aren't available for personal use, so you'd essentially be starting from scratch.
Yeah, I agree with everything m741 said.
So far I've been coding up ideas for traders/managers, but the hope is that eventually I have broad enough exposure to different trading ideas that I can come up with my own profitable trading strategy. The learning curve is steep though.
Like m741 said, commissions and latencies make these strategies useless for personal investing, but some of the big picture ideas probably do translate:
- prefer analysis and hard work to speculation
- manage risk: what's about to happen is basically unknowable, so make sure your positions are hedged
I guess another personal investing lesson is that the market really is efficient, with obvious and even not-so-obvious inefficiencies corrected on millisecond timescales. And if I ever did identify a true market inefficiency, I wouldn't want to address it in my personal investing account, I'd want to address it with the bankroll and timescale of a trading shop.
For example, consider fixed income government debt, such as three year, five year, and seven year bonds from the US Govt. I know that trading algorithms backed by sophisticated math and engineering are correcting pricing inefficiencies nearly instantaneously. So there's no point in my personal account of trying to decide which of 3Y, 5Y, 7Y is the "best deal". The question is simply whether this asset class makes sense for me or not.
Personal investing is on my mind these days, so I'm going to keep going.
If the markets truly are efficient, we should prefer index funds. Anything else would be a waste of time and commissions in an efficient market. But 70% stock indexes, 30% bond indexes is so, so far from hedged. With trading algorithms your position is ideally so hedged that if the market rips up *or* down your profit is untouched. So what combination of indexes leaves your investment income truly hedged against stocks going way up, stocks going way down, massive inflation, massive deflation, recession, prosperity, the collapse of the dollar, etc?
Well I'd really like to figure that out. But I've only ever seen one investing strategy even thinking along those lines, which is why I'm interested in the Permanent Porfolio. But apparently not interested enough, because I haven't found the strength to actually invest in it yet.
One nice thing about working in algorithmic trading is that if I did actually manage to come up with a novel trading strategy that legitimately improved the market, it wouldn't matter what I did with my personal investing, because I'd be rich. But I'm not counting on getting that lucky, I'm just banking on my engineering salary for the next few years. I'm thankful to be working on interesting and challenging problems though.
So far I've been coding up ideas for traders/managers, but the hope is that eventually I have broad enough exposure to different trading ideas that I can come up with my own profitable trading strategy. The learning curve is steep though.
Like m741 said, commissions and latencies make these strategies useless for personal investing, but some of the big picture ideas probably do translate:
- prefer analysis and hard work to speculation
- manage risk: what's about to happen is basically unknowable, so make sure your positions are hedged
I guess another personal investing lesson is that the market really is efficient, with obvious and even not-so-obvious inefficiencies corrected on millisecond timescales. And if I ever did identify a true market inefficiency, I wouldn't want to address it in my personal investing account, I'd want to address it with the bankroll and timescale of a trading shop.
For example, consider fixed income government debt, such as three year, five year, and seven year bonds from the US Govt. I know that trading algorithms backed by sophisticated math and engineering are correcting pricing inefficiencies nearly instantaneously. So there's no point in my personal account of trying to decide which of 3Y, 5Y, 7Y is the "best deal". The question is simply whether this asset class makes sense for me or not.
Personal investing is on my mind these days, so I'm going to keep going.
If the markets truly are efficient, we should prefer index funds. Anything else would be a waste of time and commissions in an efficient market. But 70% stock indexes, 30% bond indexes is so, so far from hedged. With trading algorithms your position is ideally so hedged that if the market rips up *or* down your profit is untouched. So what combination of indexes leaves your investment income truly hedged against stocks going way up, stocks going way down, massive inflation, massive deflation, recession, prosperity, the collapse of the dollar, etc?
Well I'd really like to figure that out. But I've only ever seen one investing strategy even thinking along those lines, which is why I'm interested in the Permanent Porfolio. But apparently not interested enough, because I haven't found the strength to actually invest in it yet.
One nice thing about working in algorithmic trading is that if I did actually manage to come up with a novel trading strategy that legitimately improved the market, it wouldn't matter what I did with my personal investing, because I'd be rich. But I'm not counting on getting that lucky, I'm just banking on my engineering salary for the next few years. I'm thankful to be working on interesting and challenging problems though.
-
jacob
- Site Admin
- Posts: 16162
- Joined: Fri Jun 28, 2013 8:38 pm
- Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
- Contact:
I've raked my brain to understand what algorithmic [high-frequency] trading actually does---what purpose it serves in the trading ecology.
1) When someone presents you with a limit order, that is, he lists it in the trading book, he's essentially _giving_ you an option (not to be confused with a traditional option although the math must be similar) to buy or sell at some price. That option has value, because you have the choice to act on it, while he is already committed. An algorithm would act on such options that have positive values. The effective result is that limit orders are more likely to turn into market orders. This makes the market [price] move faster and more often. You could say that this means the price is more efficient, but this efficiency also comes at a cost of higher volatility.
2) Algorithmic hedging mainly comes from staying out of the market [in cash] and going in and out quickly. As such it serves mainly to provide ultra short term liquidity. Think of it as payday loans for Wall Street. [The difference is that the rate isn't fixed.]
As a result of providing money and acting on some orders which would otherwise not be acted on, more trading will happen and people will get faster execution. The irony is that they'll typically get a better price to begin with but lose out in the end---the difference being the money the HF trading makes. In that sense algorithmic trading can be said to increase efficiency. However, it comes at the cost of short term volatility. It removes friction in the markets. Socially speaking, though, sometimes market friction is a good thing.
[To keep this post somewhat relevant to the thread. I've never worked in banking, but I would actually like to. It seems to be similar to science in challenges, stress, difficulty, and hours, except your work isn't archived in some dusty library and the pay is 4 times higher. However, I may be overly idealistic, self-destructive, and stupid
]
1) When someone presents you with a limit order, that is, he lists it in the trading book, he's essentially _giving_ you an option (not to be confused with a traditional option although the math must be similar) to buy or sell at some price. That option has value, because you have the choice to act on it, while he is already committed. An algorithm would act on such options that have positive values. The effective result is that limit orders are more likely to turn into market orders. This makes the market [price] move faster and more often. You could say that this means the price is more efficient, but this efficiency also comes at a cost of higher volatility.
2) Algorithmic hedging mainly comes from staying out of the market [in cash] and going in and out quickly. As such it serves mainly to provide ultra short term liquidity. Think of it as payday loans for Wall Street. [The difference is that the rate isn't fixed.]
As a result of providing money and acting on some orders which would otherwise not be acted on, more trading will happen and people will get faster execution. The irony is that they'll typically get a better price to begin with but lose out in the end---the difference being the money the HF trading makes. In that sense algorithmic trading can be said to increase efficiency. However, it comes at the cost of short term volatility. It removes friction in the markets. Socially speaking, though, sometimes market friction is a good thing.
[To keep this post somewhat relevant to the thread. I've never worked in banking, but I would actually like to. It seems to be similar to science in challenges, stress, difficulty, and hours, except your work isn't archived in some dusty library and the pay is 4 times higher. However, I may be overly idealistic, self-destructive, and stupid
]Everything is predicated on achieving your goals. If you hit your sales targets in core deposit growth, Loans-both commercial and consumer, and investments your life is good and you are compensated well. However, sooner or later the goals are set so high they become unobtainable and you are working 24/7 to keep employed. This doesn't even take into account handling the client complaints and staff problems that arise on a day-to-day basis.
Oh yeah, I almost forgot about Community Service requirements each Branch Managing Officer is required to perform........
You don't see too many 50 year old branch managers anymore.
djc
Oh yeah, I almost forgot about Community Service requirements each Branch Managing Officer is required to perform........
You don't see too many 50 year old branch managers anymore.
djc
I'm not a banker, per se, but I spent 11 years working in auditing and corporate finance for public accounting firms (PW, Deloitte) and two non-US multinationals (Thomson, Coty) before becoming a Sarbanes-Oxley contract consultant for 5 years on Wall Street to some of the friendliest, most popular companies in America: Bank of New York, Morgan Stanley, AIG and others. I was working as a consultant to the corporate controller, trying to clean up prior years' "audited" financial statement errors (I'll have more to say on trusting "audited" financial statements when making investing decisions at another point) at one of the big companies that failed in 2008, and decided I'd had enough and relocated for semi-ERE reasons to a small town in Florida. I still do the same kind of finance/control work, but now I'm doing it for smaller privately-held companies. I hope to keep working down the ladder until I can consult small businesses micro-businesses. I had hoped my blog would generate more income so I could consider leaving finance world altogether, but I think I'll be a lot closer to ERE consulting than blogging...
My father was a banker for forty years; but of the old-school, pre-80s deregulation era encapsulated in the mantra 3-6-3 (3% on deposits, 6% on loans, tee time at 3:00 p.m.) My mother says of my father in his heyday that the manager of a small-town bank was next to God in terms of social prestige. It was a good gig.
Flash forward to today. My younger brother is a banker, a senior VP handling online cash management functionality for a mid-level national bank specializing in banking the venture funds. He works outrageous hours to insane deadlines. On an hourly basis, his $250K salary + bonus really works out to about $70 an hour. To hear him moan, it is a thankless, never-ending pit of misery. But he snapped on the golden handcuffs hard and is seriously underwater in his S.F. condo.
The key difference is that my father's bank was OTC-traded and shareholders respected the long view and expected risk-averse underwriting. My brother's bank is NASDAQ-traded and the C-class drives for quarterly results without much concern for the long view.
Flash forward to today. My younger brother is a banker, a senior VP handling online cash management functionality for a mid-level national bank specializing in banking the venture funds. He works outrageous hours to insane deadlines. On an hourly basis, his $250K salary + bonus really works out to about $70 an hour. To hear him moan, it is a thankless, never-ending pit of misery. But he snapped on the golden handcuffs hard and is seriously underwater in his S.F. condo.
The key difference is that my father's bank was OTC-traded and shareholders respected the long view and expected risk-averse underwriting. My brother's bank is NASDAQ-traded and the C-class drives for quarterly results without much concern for the long view.