Equity derivatives trading
How's the equity derivatives space been doing? Do equity derivatives traders mostly do market-making or is there room for risk-taking? Seems like an interesting space that's not really talked about often on this forum compared to rates/fx/commodities. Which banks are best for this? Would appreciate any insight from anyone.
Based on the most helpful WSO content, the equity derivatives space is quite dynamic and offers a range of activities including both market-making and risk-taking. Traders in this area often engage in a mix of these activities depending on their firm's strategy, their specific role, and the market conditions. Equity derivatives trading involves a deep understanding of both the underlying equities and the mathematical models used to price derivatives. This makes it a stimulating area for those who are technically inclined and good at mathematics.
Regarding the question of market-making versus risk-taking, it's not a binary choice. Many traders find themselves doing a bit of both. Market-making involves providing liquidity to the market by being ready to buy and sell derivatives at any given time, while risk-taking involves speculative positions based on market analysis and predictions. The balance between these activities can vary widely among traders and firms.
As for which banks are best for equity derivatives trading, it's a nuanced question. Success in the space can depend on many factors including the bank's resources, the specific desk's reputation, and the individual trader's skills and network. However, large investment banks with robust trading operations are generally well-regarded in this space. It's also worth noting that proprietary trading firms and hedge funds are significant players in equity derivatives, often focusing more on the speculative side of trading.
The equity derivatives space is indeed less frequently discussed compared to more traditional asset classes like rates, FX, or commodities. However, it offers unique challenges and opportunities, particularly for those with a strong technical background and an interest in complex financial products.
Sources: I'm currently an equity derivatives/vol trader: Q&A!, Q&A: Equity Derivatives S&T, https://www.wallstreetoasis.com/forum/trading/what-is-a-traders-objective-and-how-can-they-justify-not-speculating?customgpt=1, I'm currently an equity derivatives/vol trader: Q&A!
interested as well.
I’m assuming youre asking about equity derivs at a bank. I would look at the recent earnings releases for the big banks and see what you find out. Do they mention EQD as revenue generators? And if they do, do you think that business would make money without risk taking involved? Cheers
banks on the street had good q1s for equity derivs. take a look at ms, gs and jpm. depending on exact product (flow vs structured products), european banks tend to be strong in the latter domain.
Any ideas on where the EU banks might rank in terms of their structured products offerings?
i don't have data as to absolute rankings in terms of market share/wallet share, but some prominent names are UBS, Socgen and BNP Paribas
It's been ok, last few years post-Covid were pretty good and saw the odd VP getting 7-figure TC in BBs. Things are a bit slower right now but still ok compared to the dull years of the mid 2010s. Some desks take risk in ok size, while others focus on almost pure market making with very small risk limits. Keep in mind that on a vol market making desk you will always have some risk leans so you will learn about risk taking even on a smaller desk. That said, I'd say Optiver, SIG, IMC are better places to be for a junior than a bank if you're going to trade equity derivatives. Higher pay, quicker progression and better risk limits vs most of banks on top of the better infrastructure and smarter colleagues. A bank is worth it if you want to spin the bank seat into something else down the line.
fair. boons for starting your career at a bank include more structured training programs, larger classes and/or more opportunities to network with a wider variety of folks (many of whom who are smart and could hop to one of the aforementioned shops), a more comprehensive look at how the business runs and the interaction between trading, structuring & sales and likely a 'safer' job for the immediate future.
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