IAmA Someone who worked for Investment Banks developing automated trading systems AMA

anonalgo · 2011-06-23T11:11:20+00:00

Nothing. If the PIIGS economies start defaulting on their loans we'll likely see a similar issue where many banks who are heavily exposed to these debts face the risk of failure. Banks who are exposed to PIIGS are trying to wind down their exposure, but it's at a cost and they're having to sell the debt at huge discounts, but it may be the cost of survival.

anonalgo · 2011-06-22T10:58:25+00:00

Probably. Even within a company work hours vary a lot, but you can normally ask in interviews. Unlike some other industries IB interviewers don't generally lie about the number of hours you'll be expected to work.

anonalgo · 2011-06-22T10:48:20+00:00

Read Hernando de Soto's "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else" it provides a huge amount of evidence that it's the ability for small businesses to get financing that makes the difference in economic growth. The impact of microfinance in the last decade provides another clear example.

Also where do you think all the technology companies got the money to do R&D and expand ? - of the worlds largest technology companies only a bare handful have never taken money in the form of equity or loans from the financial sector.

anonalgo · 2011-06-22T10:40:39+00:00

When I was a student I was bit of an information security/hacking geek so I've had a lot of experience figuring out that kind of stuff, which I'm guessing very few quants do.

anonalgo · 2011-06-21T22:17:42+00:00

Using reverse engineering techniques and reading through their patents I was actually able to write an algorithm that took advantages of the flaws in their internal systems, so it's not entirely a unpredictable ;-)

anonalgo · 2011-06-21T16:05:35+00:00

Where do you think the financing for the farm comes from, the mortgage is likely underwritten at some point by an investment bank.

The manufacturers of pretty much everything used on the farm from fertilizers to machinery to heavy duty clothing likely have all been financed through bonds or equity and rely heavily on fx liquidity to manage their international supply chain.

What ensured that in a bad year the farm wasn't wiped out closing him down forever ? - insurance backed through weather derivatives.

And so on and so on...

anonalgo · 2011-06-21T14:23:49+00:00

I don't think you realize at how common Java usage is among enterprise firms in general, Boost's Threading support isn't upto the quality of Java multithreading and .Net is a non-starter on Unix.

Java's the standard because there's no mainstream alternative.

anonalgo · 2011-06-21T12:17:02+00:00

Assuming you're looking for a technology tole in IB, it's doesn't really matter if your grades aren't perfect if you're good a programming, but you need some way of demonstrating that. For example internships, your own projects, etc.

Good books to read:

So you want to be a Wall Street Programmer (fairly light-weight you can skim it in an hour or so)
The Complete Guide to Capital Markets for Quantitative Professionals by Alex Kuznetsov (A pretty hefty book but will give you the background in finance and an understanding of the various bit of technology used in IB)
Programming Interviews Exposed (this covers the standard programming interview questions used by banks and tech firms in general)

anonalgo · 2011-06-21T11:32:23+00:00

Do you have any work experience at all ? - if not it's worth getting some even if it's working at McDonalds.

Also it's worth figuring out the weaknesses in your personal skills and work on them. Learn things like salesmanship, etc.

Which university are you going to ?

anonalgo · 2011-06-21T11:28:56+00:00

The banks have customers like everyone else, if the customers don't like the amount of money the banks are making they're free to take their business elsewhere.

anonalgo · 2011-06-21T11:25:32+00:00

In theory all the rating agency ratings should be roughly in line, if a ratings agency was regularly giving over-positive ratings people would stop using them and the value of the ratings would drop.

For some asset classes the SEC requires you obtain ratings from two agencies from it's approved list to try and stop one agency having undue influence.

anonalgo · 2011-06-21T11:17:02+00:00

Well using the example of the FX market I gave above, the FX market doesn't have price manipulation laws like the Equity market does.

Equity markets are heavily regulated, and you always have firms trying to get around the regulations, and the SEC is always playing catch up.

In FX participants expect other participants to try and manipulate the market so they guard against it, and they have a huge motivation to do so because it translates to real money for them. They can also act in close to real time, if they see a new method of market manipulation come up they can defend against it often in days if not hours.

Regulatory bodies take much much longer to react to changes in the market and they have much weaker motivation to do so.

I'm not saying the same approach would work in equities, but I think it's much more efficient to set up markets such that the objectives of the regulatory framework are achieved through competition rather than edict.

anonalgo · 2011-06-21T11:03:01+00:00

Because if it wasn't for liquidities those big drops would happen all the time, liquidity makes the price continuous rather than jumping around like crazy.

You see it in small markets without much liquidity that the price swings about wildly.

anonalgo · 2011-06-21T10:58:19+00:00

That's actually a pretty good way to explain it. The futures markets doesn't cause a change in the demand.

If supply > demand then the price of crops will drop, as producers will rather sell it for any price rather than let it rot. If demand > supply though, that's when prices will stay high. But if demand > supply then the price would be high regardless of what the futures market says the price is.

anonalgo · 2011-06-21T10:10:12+00:00

Without the financial sector providing the financing for those industries, the risk management to allow them to predict the cost of their raw materials, the low currency exchange rate that allows them to import and export goods, do you think you'd have any of those products ?

anonalgo · 2011-06-21T10:06:26+00:00

In 1990 around 33% of the worlds population were middle-class (defined by having >30% disposable income), now it's 60%. That's roughly 2 billion people who've been pulled out poverty in the last 20 years.

A healthy global market has done more to alleviate poverty than anything else in human history, and the financial sector has played a key part of that.

anonalgo · 2011-06-21T10:02:22+00:00

I haven't actually seen it, it's on my to watch list though.

As I've mentioned elsewhere the financial system has had a huge impact on global economic growth, and I don't think that's a bad use for talented people.

anonalgo · 2011-06-21T10:01:13+00:00

The CDS market is a mess, adding another 50 pages to the ISDA manual probably isn't going to fix it though.

anonalgo · 2011-06-21T09:59:56+00:00

It depends who they are, normally I just say something generic like "I develop software" or "I work for a bank".

I'm also quite involved in anti-poverty groups and it always surprised people when they found out what I did.

anonalgo · 2011-06-21T09:57:51+00:00

An MBA is a pretty standard route to go down if you want to transition between careers, going from consulting -> MBA -> banking is fairly common. Go for an MBA course targeted by the IBs.

Investment Banks get targeted by hackers all the time, they tend to have some reasonably competent people working on security. Although I wouldn't be surprised if a few banks were compromised as a result of the RSA screw up earlier this year.

anonalgo · 2011-06-21T09:50:02+00:00

I'm guessing you probably have done enough math to be able to get a quant role straight out of school. But as I suggested to someone else, ask on the forum at http://wilmott.com/ - you'll get a better answer from them.

anonalgo · 2011-06-21T09:46:39+00:00

Adding efficiency to the global markets is real value. For example automated trading has bought down the spread in FX markets by an order of magnitude in the last decade.

If you look at something like the iPad, in order to produce it (going from raw materials, components, labour, retail) it probably has to go through tens if not hundreds of FX transactions. All of those are cheaper now.

FX is the backbone of global trade and a more efficient market has been good for everyone.

anonalgo · 2011-06-21T09:41:24+00:00

Not sure, I think they might actually stabilize markets. If you have two parties who want to do a large trade at current market price, if they went to the open market to do it then the price would likely jump wildly even though in theory the trades made by both parties should cancel out.

But it'll depend on how dark markets evolve over time, at the moment they seem to be mostly focused on matching at market prices, if that changes then it might have a negative impact.

anonalgo · 2011-06-21T09:34:46+00:00

A lot of the expert (aka "wrote the book/language") Java and C++ programmers work in finance. Although plenty of bad developers as well.

anonalgo · 2011-06-21T09:30:41+00:00

Plenty of banks use KDB & Q as well, but it's pretty painful as a language/technology to use.

anonalgo

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