Last Updated on August 31, 2020
The usual way to get a job in top hedge funds is to major in something technical (Quantitative Finance, Math, Statistics, Computer Science, Physics etc), get good grades and have internship experiences at top trading firms.
However, this might not be realistic for many. Here are some alternative tips:
How to get a job in trading? Here are 5 ways, 1) Find a mentor/be an apprentice, 2) Work backwards from the job descriptions, 3) Contact those not in the HR department, 4) Get your foot through the door in a related role, and 5) Get good at trading.
How much would you make in a trading firm? You’ll make $100K to $300K in top hedge funds as a fresh graduate, and probably $0 in your first year in proprietary trading firms and up to 6-digits a month if you’re in the top 5% of those trading firms.
We will elaborate more on the above but first, we need to understand more about trading firms.
There are 2 types of trading firms. One pays you and coaches you, the other doesn’t pay a base salary but gives you capital to trade.
Both of these firms have different entry requirements, rewards and risks.
What are the 2 types of trading firms and their salaries?
There are 2 main types. Let’s call them Type A and Type B.
These are top hedge funds and trading firms where you work in teams.
They pay you a high salary and train you. Since you work within a team, you won’t get much autonomy over trading decisions initially but you will as you improve and get more experience.
These firms take in fresh graduates or those new to trading.
Salaries for these new hires range from 100K to 300K per year.
Examples of Type A firms
- Renaissance Capital
- DE Shaw
- AQR Capital
- Jane Street
The second are proprietary trading firms that hire you but you trade as a lone ranger.
There might not be a base salary. They provide capital to you, you take home a cut of what you make.
Beginners don’t make much, if any in the first year. Top traders might make 6-digits a month. But only around 1% of traders who enter the firm will reach this pinnacle.
These firms don’t train you much and your “colleagues” might not share their trading strategies so freely.
Some of these firms might take in fresh graduates or those new to trading. But they are mostly keen on proven traders, which is natural since they are not training you.
In these firms, you get paid on merit and don’t have to deal with office politics. Many wannabe-traders who dream of making millions in your pyjamas will like this.
A note on Type B firms, if they ask you for money (for training or whatnot), those companies’ main profit is probably from the training they provide you and not trading.
Examples of Type B firms
- Tower Trading group
- TransMarket Group
- Schneider Trading Associates
- Bluefin Trading
- Met Traders
Which type of trading firm is better for me?
If you are new to trading, I recommend you get into a Type A. You’ll gain knowledge, credentials, connections, mentorship and money in one fell swoop.
I was in the second type, but I was fortunate as I was an apprentice under a senior trader and he taught me generously.
Usual Entry Requirements for Trading Firms
Getting into Type A firms
- Get a degree from a top-tier school
- Major in something technical (Financial engineering, Math, Statistics, Computer Science, Physics etc). You need to be excellent at quantitative skills. Above-average finance skills will suffice.
- Bachelors might get you through the door for entry level roles. But Masters or PhDs are usually required.
- Get good grades
- Intern at branded companies
- Get good at brainteaser interview questions
- Have a good understanding of the markets
Getting into Type B firms
- Have a good trading record
- Get good at brainteaser interview questions
- Have a good understanding of the markets
How to get into trading firms?
Let me first lay down the bad news, it is incredibly difficult to get into top Type A trading firms without the above qualifications. It is almost impossible if you want to get into a high-frequency role without those qualifications (unless your dad owns the firm!)
For Type B firms, it is still difficult but it is no where as difficult as Type A firms.
Now that the bad news is over, here is the semi-good news.
Other than directly applying to trading firms, here are ways to increase the odds of your success:
- Find a mentor/be an apprentice
- Work backwards from the job descriptions
- Contact those not in the HR department
- Get hired at a lower tier firm (first)
- Get your foot through the door in a related role
- Get good at trading
Find a mentor/be an apprentice
Get an experience trader to teach and guide you.
Cold emailing some trader with the message “please mentor me I’ll work really hard!” will usually not get you any results.
When someone hears mentorship request, they equate it to “commitment, work and responsbility to a stranger while not getting paid”.
That’s not a great way to approach a mentor. Here are 3 better ways:
- Ask concise and specific questions
- Offer something they need
- Have a high cost of signalling
1) Ask concise and specific questions
Most people are willing to answer questions via emails. But you need to make it easy for them.
Ask them a concise and specific question. Tell them what you tried.
Don’t ask for facts that can be googled.
Don’t ask for commitment such as a coffee meeting, being an academic thesis supervisor, mentorship, or to be partners to form a new hedge fund because you have a killer proven strategy and “all you need” is someone to code it and run it for you.
A good question could be:
I read your blog/background and I feel that you’re really qualified in XXX arena.
I’m trying to build a trading strategy by scraping data off YYY sites. My aim to predict stock earnings by running correlation analysis of the scraped data and price.
I have the following data (A, B and C). However, I’m not sure how to decide which of those data is relevant for trading ZZZ stock.
Personally, it seems that A and C would be relevant since they are correlated to revenue. But I might be overfitting my strategy to my data.
Could you point me in the right direction or advise me if I’m on the right track?
2) Offer something they need
Sometimes, manual traders want to build an algorithmic trading strategies and don’t mind taking on fresh guys with some quantitative skills.
Other times, firms need “number crunchers” and will take on someone who exhibit decent programming skills.
Find out what your audience needs and see if you can provide those.
I was hired as a quantitative intern at a proprietary trading firm. I helped my boss with quantitative analysis and he taught me trading. Win-win.
(I definitely got the better end of the deal.)
3) Have a high cost of signalling
It is easy to send an email to apply for a job or ask for help from a mentor. Many companies receive emails from job applicants.
However, if you show that you’ve did a lot to to deserve an opportunity. You will stand out.
If you want be an apprentice to a trader, show that you research and traded his asset class. Show that you understand how it works. Show that you learnt AI because you think you can enhanced his returns by implementing some machine learning technique. The list goes on.
The costlier your efforts, the higher chance you have to stand out.
Work backwards from the job descriptions
Look at the job descriptions of the jobs you are interested in, then work backward and learn the required skill sets.
Find ways to show that you are adept at those skills.
For instance, if they are looking for a data scientist or someone good at AI, go join (and hopefully win) Kaggle competitions or build a portfolio of project that exhibit those skills. Don’t just show what you’ve learnt on your CV, show what you can do!
Contact those not in the HR department
If you applied via the regular route and the HR department rejects your application, try talking directly to the managers in the department you are keen in.
Find them on Linkedin and message them there.
Alternative, use a tool like Hunter.io to find their email.
If you know the email naming format of their firm and you know their name, you can roughly figure out what their emails are.
When you contact them, show them what you can offer!
Get hired in a lower tier firm (first)
Ideally, we want to get into a top trading firm straight away.
We don’t want to enter a lower tier firm as, to a large extent, we are judged by our last held job and salary.
However, if you’ve applied to top trading firms multiple times to no avail, do consider starting in a lower tier firm.
Once you’re in, work hard and smart and excel. Then use your accomplishment and experience to apply to a top firm.
Doing this is better than banging your head against the wall for years while being jobless.
Get your foot through the door in a related role
Just get your foot through the door in the firm you are interested in, even if the role is not what you want.
From there, work you way into the trading/investing department.
This is probably the best choice as you get paid in the process.
Get good at trading
Being good at trading means to have a good trading record for a few years.
A good performance entails consistent returns with low drawdowns.
Making 25% per year annualised for 3 years, with a 5% maximum drawdown, and being profitable 90% of the months (Up 33 months out of the last 36) is an example of a fantastic record.
If you’re that good, I suggest you don’t join a Type A firm.
Join a Type B firm. A Type B firm will allow you to trade solo while keeping your ideas to yourself.
How much money do you need for algorithmic trading? You need 20 times your yearly expenses to be a full-time trader. However, the minimum amount needed could be as low as $300, if you just want to test your ideas and learn. More info here: How Much Money do You Need for Trading to Quit Your Job?
What percentage of traders are successful? In a trading firm with proper training, about 80%. With mentorship from an experience trader, about 50%. In a proprietary firm with no training, about 10%. By trading at home in your pyjamas while reading tips off Reddit and learning technical analysis, about 2%.
*These numbers are based on biased guesses by the author.