Do Hedge Funds Value Paper Trading Performance Potential Hires?
Hi everyone,
I have a strong passion for public markets and am currently working towards breaking into the hedge fund industry. To build my trading skills and test various strategies, I have been actively paper trading for the past few months. I’ve managed to achieve some notable results and have been documenting my performance meticulously.
My question is: Do hedge funds value paper trading performance when evaluating potential hires? If so, how should I present my paper trading results to make a positive impression?
No. Good to learn how to put together a thesis and pitch, but no one cares what some paper trading portfolio does. They barely care if you do stuff in your personal account with real money, all it does is signal some positive interest in public markets. Unless you've got some insane success to point to based on some algo you developed or something outlier like that, it's more or less irrelevant.
Nope, I am running a 0.5 - 5m portfolio( let me be vague here), at 1.5sharpe since 8 years, real money… and nobody cares except few first loss capital people.
Short answer: no
Longer answer: noooooooooo
lmaooooo, thanks bro
140 IQ take
Just as a counter to these other replies - me running a PA from my bedroom is what first got me through the door to a well known fund.
The caveat is you have to know your sh*t - I would be very impressed by someone who has a bulletproof process out of uni, and probably hire that individual over someone from a better university. Now someone able to come up with a good trading process and proper knowledge out of university is like looking for a diamond in a pig trough. However these individuals do exist - I know because I was one of them - and I now run a large book using similar principles to the ones I developed in school.
If you are day trading stonks then no, don't feel the need to mention it. If you have a well constructed systematic trading portfolio with some alpha that you can talk through that's very impressive, and shows fantastic initiative versus your peers.
Just a disclaimer - I don't trade equities so maybe this advice isn't valid for the stonk PMs out there.
Were you trading bonds?
Can you give some more details on what you trade and how your pa made you into a HF?
I don't want to out myself as it's a very unusual story in a niche set of products where all the traders know each other (and by golly would they recognise the story if I typed it out here).
I can say this though - there are certain products out there where only a handful of people in the world understand how they trade. Part of the reason I commented was just to provide more of a diverse opinion as this forum is usually pretty equities heavy. If you take the time to really dig deep and be resourceful you'd be surprised by what you can come up with without any extra resources. It's not a macro product or bonds fwiw.
And at the same time you don't necessarily need to have the entire thing bulletproof and ready to go; you're not interviewing for a PM position. To me it shows initiative, the ability to think outside of the box, and extreme resourcefulness. Most prospects just regurgitate a process they've read about online, which doesn't show creative thinking to me.
Successfully trading a macro product in a PA is not "paper trading" do not confuse folks or cut yourself short. The folks screaming "nooooo" are pointing to possible paper-accounts that offer unrealistic entry/exit, margin, etc...This is especially true in equities paper accounts.
While someone who traded a macro product in their PA, is very likely dealing with; liquidity/margin/entry-exit and so on.
Agreed. Paper Trading not worth it. I also got in the door swinging my whole net worth in the market with ~5 defined strategies that landed me an jr year internship at a tiger cub with no contacts.
I love this topic so here are my two cents. The argument is paper trading doesn't simulate the "real world" because real money isn't on the line. Which is fair and accurate. But I can also argue your PA doesn't simulate the "real hedge fund world" either. Trading 0.5M-5M of your money is thrilling and stressful but trading 500M-1B of someone else's money is a completely different beast. Also, the question of liquidity and margin came up. I come from the equities world, and if you trade in a pod shop, chances are you are trading in a paper book simulated by a central desk. They guarantee your fills at some rate and they then go off and fill those orders in the market however they like. So like it or not, most of us here are dealing with a paper book and a paper book can do a decent job modeling market impact and slippage. Ultimately, I believe proving your strategy scales to a size an investor would be interested in and performs in their required constraints is easy to do. I think the ultimate question we want to answer is how can you prove to some random investor you have edge (alpha) in your convictions and strategies. This is very hard to do.
Thank you. That’s a good answer and indeed the issue I have with my 0.5-5m, is that the size is not as relevant as people wants to see and on the strategy implementation.
Who has 0.5-5m in assets before working for a hedge fund? Are we talking in KRW/JPY terms?
Portfolio Management and Research are two different skills. Research is about getting stock calls right and Portfolio Management is about managing risk. I understand how a differentiated Research process can be a source of alpha. I don't understand how Portfolio Managers differentiate from one another (in terms of risk management) as a means of generating alpha (because apparently their shit is so "moatless" that simply discussing how it works would allow people to replicate it easily).
There are sophisticated hedging/options strategies that can allow PM's to manufacture asymmetric risk/reward on any given stock call but I don't think those strategies can really save you if you aren't able to consistently get those calls right. These sophisticated strategies are likely unavailable to the everyday investor so can't even really be developed outside a truly professional PM job. As such, if Paper/PA trading can be leveraged to demonstrate a successful, differentiated Research process, shouldn't that be take pretty seriously by investors?
You could use a paper trading portfolio as a conversation starter but it’s ultimately up to you to impress your interviewer (at least it’s better than nothing). Just note that for HFs liquidity, leverage (as others mention), and risk management becomes really important, which is why taking into account of trading volume, risk exposures, and leverage amounts matter so much.
I agree with what this lad said. I will add on this that HFs now don't care about paper day traders. They even don't care if you have intensive finance background. They want people who REALLY understand Stats/Probs maths, Use Excel VBA,SQL & python (or Java or C++) so yes they expect you to understand modelisation, programming and databases. They will ofc expect you to understand deeply all the financial products. They will put you in scenarios where they simulate an unexpected macro event and will limit your options to see your stress tolerance and evaluate your adaptability. At the end of the day I might been lucky because my father was an engineer then became a trader then started his own fund, so he always told me what to expect to break in the industry: "Hedge funds are there not to make crazy returns, they focus on capital preservation firstly and consistent capital growth secondly..why ? Is because the more stable their balance sheet is the more investors with static cash will join and the more they will makr from the fees. Prop trading shops are the one who wants a chicken with no head trader who takes stupid risky bets because they use the same system as a broker with their OTC algos to hedge their PnL. They expect you to be autonomous, problem solver, quick learner and a stress sucker like a sponge."
Can confirm they do.
Would say once you’re already there as a research analyst, developing a model and testing via paper trading works, I can confirm it.
I will say tho, that it’s not a strategy that will straight up get you a job.
If you can speak intelligently about your strategy, have a writeup on some of your trades, have a few key learnings and showcase a track record, then risk taking PMs will be interested.
No. And I’d even go so far as to say that they don’t care about retail PnL / track records either.
They want to know what kind of edge you bring to the table (e.g. ex bank trader with big network that can sense when big corporate trades are going through the market, fundamentals wizard that can spot inefficiencies in commodities supply/demand after working in the physical world, vol nerd that can spot that 5-delta puts are cheap relative to the 15-delta puts because of some massive selling flow in them via put spreads over the past few days).
theme among these is that they want you to have institutional experience and connections in the market that you can draw on for color when you need it .
It's one of the best ways to show strong interest in the industry. Don't try to make it more than that though.
This is the right answer. The fact you did it *at all* is a great conversation starter, it shows you have enough interest in the space to work hard, and it'll help you stand out from the other college grads who are only applying to a hedge fund in case their PE application gets rejected. But nobody actually cares about your specific rate of return. In fact, if you brag too much about your returns, they won't believe you and it could even be a red flag that shows you may not understand the difference between alpha and beta.
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