Wall Street has been hiring physics & math graduates for a good while now, but typically as quants, not traders. Those were (are?) hugely different positions, in terms of responsibility and dollars realized.
Not my area, so I may just be missing something too. But when I had acquaintances going into this sort of things, they weren't getting anywhere near a trading desk. At least, not for a while.
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.
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.
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.
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.
Smart people have been hired as quantitative traders for decades, this really is nothing new.
It's never been a market maker's job to invest in companies.
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?
>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.
Isn't that what the buy-side is for?
- 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.
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.
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.
> 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'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.
You are forgetting about dividends.
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?
[2] https://news.ycombinator.com/item?id=11054527 or possibly https://news.ycombinator.com/item?id=11041340 (two days earlier, way fewer comments)
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.