Graduate entry to derivatives trading?

[tgt]

Anyone tried entering into one of these positions? What was the selection criteria like? What tests did you do? Anyone can upload or find on the web test questions that are similar to ones asked by the interviewer? I heard it was basic numerical calculations.

 

[shoehorn]

Anyone tried entering into one of these positions? What was the selection criteria like?

Demand for entry-level traders has plummeted over the past year. In short, it's a terrible time to consider becoming a front-office trader at any desk. Generally speaking, the job market in this area is going to be very weak, particularly in the US, over the next two to three years. That said, there is some demand for arbitrageurs at several arbitrage houses, especially in Amsterdam and Frankfurt.

If you're interested in the general area, however, there's been a huge surge in demand for quants at alternative investment funds. The downside is that you're probably not going to be hired as a trader at one of these funds; instead, people are looking for hires who are excellent programmers, with experience of implementing various derivatives models, or back-office quants. Unfortunately, this isn't an area in which a recent college graduate would stand a great chance of landing a job. Typically, being hired as a quant implies that you've got a Ph.D. in a hard science, and the best places to work tend to hire only people who've got Ph.D.s from Ivy League schools or Oxbridge. The days of places like D. E. Shaw or Citadel hiring humanities graduates because they "got a good vibe from them" are long gone, probably never to return.

What tests did you do? Anyone can upload or find on the web test questions that are similar to ones asked by the interviewer? I heard it was basic numerical calculations.

There's been a very noticeable trend towards asking much more technical questions over the past few years. Knowledge of the most commonly-encountered types of derivative would of course be mandatory (if you're unsure what a look-back, a barrier, CFDs, or path-dependent Asians are, you'll be caught out straight away). It wouldn't hurt a great deal to be able to present at least one derivation of Black-Scholes either, as well as a very, very solid knowledge of the greeks, smiles, and delta-hedging. It's quite noticeable that traders are increasingly expected to have quite a good knowledge of back-office stuff that was previously the sole domain of quants.

Oh, and don't go to an interview without knowing LIBOR and LIBID. It's embarrassing when you see a candidate asked about interbank instruments and he doesn't have a clue what's being talked about.

 

[shoehorn]

As an addendum, my personal experience is that if you're familiar with the material in Taleb's Dynamic Hedging, you've probably got enough knowledge to get hired as a trader. It's an awful lot of material though, and reading a book counts for only so much.

 

[hubris]

To pick nits: back office is generally record keeping, cash-flow analysis, and other assorted boring stuff. The degree of rigor is less than middle and front offices.

The thing to keep in mind is that each trading floor will have a different environment; some replicate the Enron desks towards the end, other are more like retirement homes.
The particular environment of the floor will likely dictate what questions you get, e.g., at a high testosterone, one I know of, one person would yell at you and the other would ask you probability questions.

Since you are interested in derivatives, you are pretty much making a market in volatility.
So, that should be a good starting point. Also, there is Crack’s “Heard on the Street” and Mark Joshi’s recent interview book, the latter more quant based but might be of interest to you.

 

[shoehorn]

To pick nits: back office is generally record keeping, cash-flow analysis, and other assorted boring stuff. The degree of rigor is less than middle and front offices.

It depends where you're working. 'Back office' generally means a different thing in Europe than it does in the US; to make matters more complicated, front/middle/back can mean different things depending on which street in London you work at. I use it in the sense of everything away from the trading desk.

 

[hubris]

It depends where you're working. 'Back office' generally means a different thing in Europe than it does in the US; to make matters more complicated, front/middle/back can mean different things depending on which street in London you work at. I use it in the sense of everything away from the trading desk.

Hehe...no worries; just standing up for my turf so to speak, we have to justify our salary differentials somehow.