Following last week's article on the complaints of traders in investment banks, a debate has emerged on the differing skills of traders by product.
"FIC trading is intellectually more complex because it is all about macro, but fixed income traders are often not at the same calibre as equity traders except very few," says one trader claiming to have a background in equity exotics and G10 rates. "Just walk around NYC fixed income trading floor... 90% of fixed income traders are state school frat boys while equity traders (let's ignore cash trading desk because it is not a fair comparison) have higher degrees."
"Equities trading is turning a lot more into an IT job and is getting ultra political," says another commentator. However, he also claims that equities trading involves minimal risk, low skills and lower compensation.
The dispute comes as equities trading is increasingly driven by electronic trading systems, and as fixed income trading is going the same way. At last week's investor day, JPMorgan said revenues from its "low-touch" (electronic) equities trading business have been rising at a compound annual growth rate of 12% since 2019 and that it now plans to invest in electronic credit trading too.
As trading becomes more electronic, trading jobs are increasingly going to developers, quants and systematic traders who work with the electronic systems. While a small proportion of these new species of jobs are paid more, margin compression and narrower spreads mean many people are also paid less.
As the chart below, taken from JPMorgan's European banking report in December, shows, some fixed income products are more susceptible to electronic trading than others.
This is why, as the initial comment-leaver on last week's article points out, "the only lucrative business in trading these days is credit trading, and we all know why- it is vastly inefficient compared to the equities and rates."
Investment grade credit trading and high yield trading in particular, still need personable humans who can make markets by interacting with other traders, rather than by running electronic trading systems. For the moment, good credit traders make the most money (remember Hamza Lemssouguer at Credit Suisse, or Akash Garg at JPMorgan, although neither are fratty types). One day soon, though, credit traders too may be replaced by quant traders on lower pay. The frat boys are getting squeezed out.
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