Options/Stock Trading (2 Viewers)

[Jago]

I've posted this thread in the unsw comm/business subforum but I thought it might get a few more views here.

I have a question.

Let's say I want to get into the world of options/stock trading, one would presume I would need a Commerce degree, yes? Would a generic commerce degree do in landing those kinds of jobs or will I need to major in finance?

If employers are looking for certain courses you've taken (do they actually do this?) what sort of courses should I be taking to become an options/stock trader? Will doing some fins electives be enough? How about just intro econometrics, would that be enough?

Thanks guys.

 

[Calculon]

I've got a mate who got a stockbroking job by just doing some 6 month or 1 year diploma, so I guess that'd be your worst case scenario.

 

[velox]

Stockbroking =/= trading.

Need strong math in pdes etc. Com/maths/eng etc are good. But its also the mindset. I would say finance major at the least.

 

[pete_mate]

there are many levels of trading.

the tafe guy would most likely be a phone jockey, he wouldnt trade on principle (trying to make the bank his own money). His clients would be mum and dad investors,

the middle ground is working at a large bank, say JP morgan or UBS, and trading on behalf of large institutionals, say AMP or whatever, larger trades, more money, plus more trading on principles.

But the other extreme is that you are given millions of dollars to play with by a merchant bank and just sit in a room and make money all day.
This requires you to be the best of the best, you'd need 1st class honours in finance, and be brilliant at trading.

this is my understanding as of yet,

 

[Jago]

I'm probably aiming for the middle ground. What kind of credentials would I need there?

pde = ? What do you mean by mindset?

 

[velox]

partial differential equations. Like BS and other options pricing models.

What do you mean by middle ground?

 

[redruM]

partial differential equations. Like BS and other options pricing models.

What do you mean by middle ground?

I think he is referring to Pete's post about working for a custodian.

The mindset would likely be that you are interested in the area. You need to be trading yourself...so you emulate what you'll be doing in the job. The theory from the degree will only get you so far. Practical experience is what counts I think. I have heard of guys at certain Investment Managers without degrees...I'm not saying that drop your degree and start trading, but try to gain practical experience.

 

[Jago]

the middle ground is working at a large bank, say JP morgan or UBS, and trading on behalf of large institutionals, say AMP or whatever, larger trades, more money, plus more trading on principles.

that ^

redrum: are you saying I should open an online broking thing and just dive in with say $1k? That could be an interesting approach I think.

On another note, I've heard there are similarities to poker. How close to the truth is this?

 

[redruM]

that ^

redrum: are you saying I should open an online broking thing and just dive in with say $1k? That could be an interesting approach I think.

On another note, I've heard there are similarities to poker. How close to the truth is this?

Give me about a year or so and I'll let you know.

You don't really need to "dive in". Just do some analytics/research and track how you would have gone if you had spent the money. Won't cost you a cent.

If its like poker - I will never invest in a pair of queens. I think the purists will argue there is no such thing as luck when dealing in securities or playing poker. You are playing something not completely predictable (the cards or markets) against people - which is where the oportunity is. It isn't about beating the market or the cards, but rather just beating the other bloke.

 

[Jago]

Sounds predatory. I like it.

 

[redruM]

Putting people on tilt > *

 

[pete_mate]

Sounds predatory. I like it.

i don't think you get the sortof psychological warfare that is in poker in trading.

there is market manipulation, like putting in a big sell order to influence the market when you dont intend for it to go through, or smoething.

but this stuff verges on the illegal, so its not that like poker.

definately join the simulated trading games, and do "paper trading" like buy something at a price and pretend sell it etc.

you seem to be interested in how to get into this, without knowing a whole lot about it, i'd be careful that your perceptions of it arent divorced from reality.

 

[Jago]

If i just wanted to trade options, I'd just google 'options trading' and go from there. I'm more curious about the requirements to getting hired by a (decent to large sized) firm.

Edit: also, what is the difference between trading options and trading stocks, besides the obvious (not trading actual stocks, used as to hedge, smaller bankroll required)? Is it difficult to get these kinds of jobs?

 

[Rorix]

Once you find out more about the field, you probably won't want to trade stocks. Trading equity derivatives is OK though; research the field a bit more to see what sectors appeal.

Let's say I want to get into the world of options/stock trading, one would presume I would need a Commerce degree, yes? Would a generic commerce degree do in landing those kinds of jobs or will I need to major in finance?

You need maths. Finance major is very low in maths; but good because it shows an interest in finance. Engineering/Commerce is good but has the disadvantage of doing Engineering (assuming you don't want to do Engo). You will get trained on the job (and in your years of bookkeeping after you're hired) so its not really about the subjects you take.

A lot of firms that seem like allowing you to trade are actually market makers; this is probably not what you are looking for.

If you can prove yourself, there are undoubtedly opportunities at major banks (theres a well known current UNSW student whos a prop trader at a major IB).

However, what it takes to get hired? Some basic knowledge and an interest in finance..its a high risk job though. If they give you say $10mm and you lose it in 2 days, you're going to get a tap on the shoulder.

If you want to throw some money on a brokerage account (which is not a bad idea) you're going to need more than 1k...probably 4k at least for each stock you want to invest in (e.g. if you've only got 5k you can only hold one stock). Otherwise brokerage will eat you alive.

 

[Soros]

If you can prove yourself, there are undoubtedly opportunities at major banks (theres a well known current UNSW student whos a prop trader at a major IB)

a kid who's a prop trader? unlikely.....more details?

 

[velox]

a kid who's a prop trader? unlikely.....more details?

He is probably is. CB probably.


Marketmaker = flow trader
Trader = Trade large trades for clients and tries to get the best price possible without influencing price
Prop trader = Make money for firm, usually keep 50% or so of what you make over a certain percentage etc (just an example).

It's very much the mindset, you need to be quick thinking and good quantitatively. (i.e. strong at mental arithmetic). You also need pretty good math skills in PDEs etc.

Quite unlikely you are going to be given $10 million until you are like VP.

i don't think you get the sortof psychological warfare that is in poker in trading.

there is market manipulation, like putting in a big sell order to influence the market when you dont intend for it to go through, or smoething.

but this stuff verges on the illegal, so its not that like poker.

definately join the simulated trading games, and do "paper trading" like buy something at a price and pretend sell it etc.

you seem to be interested in how to get into this, without knowing a whole lot about it, i'd be careful that your perceptions of it arent divorced from reality.

Front running is dodgy, I dont think it happens these days.

Just remember these days the traders role is getting less and less. More and more firms are going into stat arb and hiring phds in maths and computing, so a BCom from UNSW who is a trader might be out of a job in 5 yrs.

http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10443567

As an example. A few months ago bloomberg mag had an article on it.

Equities trading is the more entry level form of trading. Fixed Income is the most profitable.

 

[§eraphim]

Commentary on quants:

See the latest edition of "Bloomberg Markets" for a feature article on graduates entering finance. Apparently there is a high demand for good maths/finance grads with programming skills ^.^.

In Sydney, I would say there is also quite a bit of demand for these kind of ppl which is being driven by quite a few factors, eg banks growing, Basel II, new desks being created (carbon, inflation). I've been contacted quite a few times about jobs like these.

Commentary on useful finance/maths to be a quant:

PDEs is important, but not that important. It's main limitations are theoretically it provides no financial intuition, and numerically the computational cost grows exponentially as you increase the dimensions (hence the need for simulation methods). Other problems I've faced include having to numerically compute tricky contour integrals, difficult to program more sophisticated methods to deal with tricky boundary conditions, etc. Other aspects of Applied Maths are even more useful, eg optimisation, for model calibration.

Finance is good to pick up the jargon/conventions, esp fixed income with the day count conventions stuff. The rest isn't hard, but it will help u relate to non-quanty folk.

Commentary on markets (speaking from a hybrid equity/credit perspective):

Equities (both underlying and derivative) markets are very small compared to FX and rates and they are all heavily arbitraged (maybe coz they're all using the BS/BGM model respectively).

In credit, both single name and portfolio derivatives, there is no general consensus on the right model to use (the Li model is currently the Black-Scholes for CDOs). Expect better credit models to come out (probably going to be BGM like). You can probably make a buck out of CDS since it's all OTC and the take up of exchange-traded CDSs and the like has been disappointing.

 

[Rorix]

a kid who's a prop trader? unlikely.....more details?

I'm not going to post any names, but people out there should be able to confirm.

 

[lDoHl]

I am also interested in trading. I have recently started considering transferring from B Com to Com(Fin)/Sci(Math). Note - I am currently in my 2nd year. Should I be transferring at this stage (at the end of the year) or just see the degree through?

 

[§eraphim]

I am also interested in trading. I have recently started considering transferring from B Com to Com(Fin)/Sci(Math). Note - I am currently in my 2nd year. Should I be transferring at this stage (at the end of the year) or just see the degree through?

Any quantitative degree helps you to understand the models. It doesn't have to be Maths. Actuarial Studies is better in most cases.

Also, I think it's too late to transfer as you will have to remember all your old high school maths, and then catch up on the first 2 years which are core.