Well the line between traders and quants has always been blurry to the point of no differential at Jane Street, D.E Shaw, and Citadel since inception. Traders have always had quant background, but have focused on more execution-oriented analysis whereas quants are a bit more idea-oriented.

Any sell-side investment bank still has clear lines between traders and quants. In fact, while they blurred more pre-2007 I'd argue they've become more clearly defined.

Source: work at a prominent investment bank.

The line between trader and quant in electronic trading scenarios is pretty vague and has been for some time.

That's plausible, my indirect experience is not current.

One gets you fired when you lose money and the other gets you a speaking opportunities at universities where kids are discovering Gordon Gekko.

You want it to be that way, but it's the other way.

If you're just a "cog in the machine" doing research or writing software for a trader, and he ends up sucking, the firm will probably shuffle you around to work under someone else. You have generally useful technical skills, cost less than the trader, and recruiting good technical people is expensive.

If you're a supposedly brilliant trader but cost the firm money taking stupid risk or fail to make any profit to justify your inflated salary and bonus, there's not really much they can do with you.

.... like john merriweather or victor niederhoffer for instance. two guys who've blown up the world multiple times but still manage to find capital and manage huge funds.

When I graduated from NYU's mathematical finance program with a Master's, I thought I'd be a quant. I thought they make the big bucks. Nope, that was traders and they didn't even need a bachelor's degree sometimes. I never quite figured out how traders get into those positions where they make multi million dollar annual commissions, but I realized early on I like to create social web apps and left finance.

I still always joked about the idea of myself and a friend becoming traders and trading opposite strategies, then splitting the bonus one of us is bound to get. Obviously we'd need to obfuscate that the expectations on our ambitious strategies would be roughly mirror images of each other -- one would get fired, the other may get a few million.

Haha, it doesn't work that way, unfortunately. If you have any strategy that's statistically different to zero, you have a winning strategy; if it's loosing money, you can just trade the opposite strategy yourself!

The problem is, that most strategies are zero, on average. You win some, lose some with your trades, but what eats your capital is the trading costs. Then even trading the opposite trade would still diminish your capital.

No, you don't know whether it will win or lose ahead of time. You just trade opposite strategies in an ambitious way so you are GUARANTEED to have a large chance of winning a lot ... the arbitrage is that one trader gets fired and the other gets a large bonus for being right!

> Wall Street has been hiring physics & math graduates for a good while now, but typically as quants, not traders

Smart people have been hired as quantitative traders for decades, this really is nothing new.

Is it really a market then if wall Street is investing in the flow of money in and out of a position rather than the company itself?

The only time you're actually investing in the company is when they IPO. That's what the market is primarily for, getting capital to companies that need it; after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment. This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary. Traders have always played the short term ups and downs, that's what makes them traders rather than investors and without them, there wouldn't be liquidity to exit your positions.

> that's what the market is primarily for, getting capital to companies that need it;

Personally, I believe that is incorrect. The amount of market activity related to getting capital to companies is dwarfed by other activity. As data points:

- Commodities markets don't allocate capital to companies (or farmers or whatever) at all.

- Most new stock sales (IPO or otherwise) happen outside of the public markets first, and are allocated to a minority of the market participants.

I think a much better way to think of the markets is as primarily about pricing risk. That this risk assessment function happens to provide a good way to allocate capital to companies is a by product.

You should perhaps read more than the first two sentences before replying.

> This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary.

I clearly addressed that markets have more than one function.

I was reacting to the word primary. I think that is a common (especially on HN) misconception. The markets make more sense when you don't think of them as mechanisms to fund companies, and do think of them as ways to trade risk and liquidity.

I'm not convinced that the capital allocation component of the markets is even as you say "necessary". You could easily envision the markets chugging along fine without allowing any direct sale of equity to the markets. That is some intermediary would be required to buy the equity from the company as it became available and in turn could then sell that equity into the markets. We are almost to that point already.

> The only time you're actually investing in the company is when they IPO.

Well, no, anytime the company is selling shares you can invest in the company rather than the secondary market. The IPO is obviously the first such event, but it isn't necessarily the only such event.

Also, if there was no secondary market, people would be much less likely to buy at IPO and other times the company sells shares.

Right, but I did mention that.

Fair point, and true.

> after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment

You are forgetting about dividends.

Traders != investors.

It's never been a market maker's job to invest in companies.

Are you saying that Wall Street should be taking larger proprietary positions? Not a criticism, just curious.

No offense taken. Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals. As an exchange, the investor shares in the profits and enjoys the satisfaction that they directly and indirectly brought prosperity to themselves and others.

If it is just about agnostic profit over assisting business expansion and creation than Wall Street is really is a casino than a market.

I would never knowingly invest in a tobacco company or an arms maker. (I am long the S&P 500) Some might feel okay with it since they are smokers and appreciate a strong defense but who is okay with a computer crashing a market becasue it was profitable?

I really appreciate your response.

>Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals.

It seems that the general trend is against banks taking proprietary positions. I guess my knee-jerk response is that I agree with that trend as I don't want my deposits used to fund someone's investment thesis. If I did, I would put my money in a mutual fund or other investment vehicle rather than a bank. At the same time, it's certainly not against the law for banks to make longer term investments.

>but who is okay with a computer crashing a market becasue it was profitable

I am certainly no fan of banks, but this does not seem like an accurate representation of their role in the markets.

"Wall Street" as popularly imagined - the world of big banks like JPMorgan, Goldman Sachs etc. don't invest in anything. Wall Street's role is threefold:

- Providing access to capital and dealmaking facilities for companies looking to grow or change ownership. That's IPOs, debt issues, mergers & acquisitions, spinoffs, corporate restructuring. Banks organize those deals and shop them around, acting as advisers.

- Facilitating trading of securitized instruments (public stocks, bonds, derivatives) by making markets or otherwise connecting buyers and sellers to exchanges or other counterparties. These buyers and sellers are the funds actually investing in individual companies and retail brokers servicing individual investors. The bank is neutral in its view of the issuers of the securities being traded, it just wants to see trading happen. (Sometimes this involves creating a specific instrument for one client and selling offsetting instruments to others, but again the intent is that the bank is not taking a position in that client.)

- Providing banking services to corporate clients. Loaning them money, helping them manage exposure to foreign currencies, and so on. The kind of stuff any retail bank does for its individual clients, but scaled up.

> Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals.

Your idealist premise is also a bit frightening if you think about it further: you're suggesting that an industry with a purely facilitatory role - i.e. offering access to public markets - should use some sort of qualitative moral judgement on who it should provide services to. That's a dark path.

Fortunately your industry does exist: it's called the buy side, and there are fund managers out there who will happily take your money, pool it with others, and invest according to a thesis they are legally obliged to share with you and stick to.

I think this characterisation of Wall Street is a little disingenuous. Just to use Goldman as an example: it's hard to claim that SSG, MSI, UIG, and others are acting in anything approaching a "purely facilitatory role" as you claim.

>> Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals.

Isn't that what the buy-side is for?

I think what's happening is in ETFs, the quants are writing programs that trade, as opposed to slamming phones. In my stint in Wall Street I saw a general move in Fixed Income towards traders with CS/Math/Engineering degrees, sometimes paired with MBAs.

Whilst I think this was inevitable, as banks have become increasingly technical, it also makes me a bit sad that now you need a Math PhD from MIT and a Harvard MBA to go and be a trader.

I think back to an earlier HN discussion [1] on the article "The Rent Seeking is Too Damn High" [2] - when my father worked at a bank he said it wasn't uncommon for your market salesman from the street to get picked up as a trader, indeed my friends mother went from secretary to trader. She was given a chance because her boss felt like she had a spark about her.

It's fun to look back on the past with rosy eyes thinking "those days were better" but truly how can we hope for meritocratic (in the true sense of the word!) social mobility if you need 0.5 million USD in school fees to get a job as a trader?

[1] http://fivethirtyeight.com/features/the-rent-seeking-is-too-...

[2] https://news.ycombinator.com/item?id=11054527 or possibly https://news.ycombinator.com/item?id=11041340 (two days earlier, way fewer comments)

Thanks for that (forgot to get the sources as was posting on mobile!)

Agreed - I've had colleagues (with PhDs) go to financial jobs, but they were not traders.

I worked for Optiver (largest marketmaker in Europe) between 2007 and 2010. We hired grads for trader positions all the time.

Optiver even sponsored the mathematic, physics and cs study association for students in Leiden for the longest time. Trying to win over students before they graduated.

https://www.deleidscheflesch.nl/p/optiver

Competitors did this too. Really nothing new here.

Depends what you're trading. Cash Equities - probably not needed. Fixed Income Options - probably needed.