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The execution trading trap

25 July 2008

Sarah Butcher

So you want to make a packet working as a hedge fund trader? Just make sure you don’t get stuck in an execution trading job.

Unbeknown to the uninitiated aspiring trader, there are two types of trading role: execution trading jobs and full-blown analyst-style fund manager trading jobs. While execution traders are effectively ops staff who place trades at the behest of other people, analyst traders have the power to make the decisions and place the trades.

Predictably, execution traders are paid less than analyst traders. Even worse, execution traders are often pigeon-holed for life.

“There’s a pay ceiling for execution traders,” says one unfortunate victim who’s trying to escape the execution trap. “It’s all about helping someone to do a job rather than creating value. Effectively it’s a support function.”

Even worse still, it’s a stressful support function. “You’re handling 100 orders at once, of which 10-20 are very important. Two or three fund managers are shouting at you to do their order,” says our disillusioned practitioner. “The question is whether you want to go on until you die of a heart attack.”

Headhunters weigh in against execution traders too. “They’re seen as dimwits,” says one.

Claude Schwab, a partner at Heidick & Struggles’ US hedge fund practice, says median base pay for execution traders with one to two years’ experience is $75k-$100k, with bonuses up to 100%. Base salaries for analyst-style traders are $70k-$200k, with bonuses up to 200%.

Comments (14)

i have lost count of how many execution traders i have met. the job is a dead duck , if you're looking to get into the role now i wouldn't bother.

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Comments (14)

  • Not worse than being a broker and $70k-$200k, with bonuses up to 200% stays a good bargain...

    Jeff 25 Jul 2008

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  • Execution traders and even some alpha generating trading roles are being replaced by computer Algorithms. May way for the Algorithms! They don’t make mistakes, they don’t leave if they feel their bonuses aren’t big enough and they are quicker than any human. Algorithmic trading and Algorithmic Traders are the way forward.

    Algo Trader 25 Jul 2008

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  • Can any exececution trader offer their opinion regarding the accuracy of the above report?

    Not sure whether to believe the pessimistic account and numbers provided.

    anan 25 Jul 2008

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  • Would execution traders add value by ensuring they get best execution? I would imagine that execution traders for stat arb funds wouldn't necessarily have PMs shouting at them all the time. I guess execution trader roles vary with different funds. Can anyone else offer any more opinions....do execution trader go on to do other trading roles within the fund?

    Addy 25 Jul 2008

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  • I have worked on a few execution mandates and whilst there is a ceiling, the new concept of 'best execution' coming in means the value added by these traders can be more obvious.  Within traditional asset manager the bonus element is highly linked to basic and is relatively close to the numbers above.  In hedge funds it is more often about the strategy, infrastructure and size of the fund as to how much value you can add regardless of ability.  Dimwits is a touch harsh, many senior traders have moved to dealing desks and executions roles and found all of their previous sell side trading experience as highly useful and relevant.  Progession from these roles often depends on how much exposure is gained to complex or esoteric trades which would enrich someones CV compared their peers.

    BB 25 Jul 2008

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  • This article isn't very specific. Yes execution traders are slowly becoming extinct, but many of them ave very important roles within large and small companies and many of them earning large bonuses. Yes, the execution traders of the past are becoming extinct, but now there is a new focus towards execution trading.
    Most execution traders now come from a more mathematical/scientific area. A lot of emphasis is placed on modelling slippage and spreads. Most execution traders at top banks/quant funds are responsible for running quantitative models developed my quants within the firm. So they need to develop a very good understand of the systematic models. The reason why all models can not be executed is because most of the time, have discretion provides better execution, early and better profit taking, and better stop management (i.e. an algo would execute a stoploss straight away, whereas a human trader could judge the current market condition, and have the discretion to leave the position on if he/she feels the market might turn). Most top execution traders have to produce research for clients and senior management regarding market conditions, liquidity reports, flow analysis, etc..

    Quant Trader 25 Jul 2008

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  • Along side that the above, I have to mention that top execution traders are highly regarded within the trading desk. As an execution trader you are constantly in contact with other traders, hence you have better access to market news and rumours. Most portfolio managers talk to their execution traders on an hourly basis and have a lot of respect for their research and knowledge. Although there has been more and more emphasis on algorithmic and automated trading, human traders will never be extinct. If you want to get into trading and you have no experience, execution trading is an excellent place to start. And after 2-3 years, you probably will also be given your own small trading book.

    Quant Trader 25 Jul 2008

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  • Article is so very true. Execution traders / sales-traders are seen as the most inferior, sub-human quality people of the 'front office'. The day to day job is unbelievably intellectual - typing in orders into a computer and working them, and the occasional forwarding out of an email written by someone else to your clients (taking the original author's name off of course). A glorified Sainsbury's checkout monkey, handling a bunch of orders. God knows how they haven't been replaced with computers - which have a much better chance of getting the order done as requested. They are slowly being eroded as clients input their orders directly using DMA/CSA websites.

    Henry 25 Jul 2008

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  • Hang on. By execution trader do you mean the traders at investment banks who get orders from sales people, create prices, take on the risk and try to make a profit doing do? Confused...

    Ed 28 Jul 2008

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  • I have worked at an assetmanager for 5 years as an execution fx trader. The view stated above is partly true although the funny thing is the portfolio managers who gave the orders had so little understanding of the market, embarassing most if not all the time. For the part which isn't true I'm of the opinion an execution trader can and should bring added value knowing where and how to efficiently execute orders and furthermore knowing whats is happening and for what reasons before or when it happens. Salary wise it all depends on the view the company takes on execution trading, how they rate it. Unfortunalty both execution traders and companies lack knowledge most of the times. I do believe a large part of the job will disappear due to sometimes idiot rules (mifid) and/or electronic trading platforms. Also if a company isn't making use of the value the people provide, they will rapidly disappear or indeed will quickly adjust their service quality towards the low expectations. A trader is still a trader. Happy to receive feeback

    Mor 28 Jul 2008

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