Fixed Income vs. Equities
What is generally more lucrative to trade? Where is less income volatility? How about commodities, derivatives and interest rate trading?
Trending Content
Career Resources
WSO Free Modeling Series - Now Open Through
May 31, 2024
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
read the old posts.
there is no post which compares all the different product classes
well then look at a few and piece it together.
it depends.
surprisingly insightful for a guy with no work experience.
what harm have I done to you?
with common sense you would know it depends on the market and expertise.
my experience comes from the previous posts which are mostly explained by you, if you think reading your posts still gives me no experience, then i guess you're agreeing that your posts are bullshit.
Jimbo, please do me a favor and contribute to that thread in a sensible manner. I'm particular interested in interest rate derivatives trading. If you can provide reliable information, then please feel encouraged to do so, otherwise please stop posting meaningless comments.
Cuba, i've said this before, i'll say it again. when you come asking a question, and expect me to provide you info free of charge you need to make it worth my while somehow. asking questions that have already been addressed do not meet that criteria.
what do you want to know about rates trading.
you can't use the search function? I assure you, your question has been answered (in some fashion) at least a couple of times.
I believe Jimbo's actually the one usually answering those questions also ;)
the asset class that you know the most about will be the one that is more lucrative for you.
owned.
This is an example of a ridiculous thread. Everyone : people need to have more respect...
Could we please come back to the original question - I am really interested in a profound answer. I used the search function before opening this thread, but I didn't find a satisfying answer. E.g. income volatility is never mentioned. Of course, the more experience, the more lucrative...just assume equally skilled traders in the different asset classes.
Why would you standardise the single biggest determinant of your earnings?
If your next question is that you are/will be just as good in equities as you are in fixed income, the answer is that you are not.
income volatility will be a direct function of your skill as a trader and broader market conditions. you can blow up or have a massive p&l on most desks, subject to your risk limits. equities will probably have a lower variance, as would something like spot fx.
equities in dallas are the best
you can compliment my ass alright, your sarcasm and incompetency make me puke
oh come on, if you're gonna try to insult me at least be creative.
first of it's "incompetence" not incompetency. and the above goes for you too....you can provide no value to me. I can provide quite a bit to you if I am inclined. posts like that don't help.
and posts like "surprisingly insightful response from per with no experience" helps?
you started this whole thing, sure you may know more about trading, but when you dont know the answer to my question, just dont put anything down, if you're not willing to help "lazy" people, then dont put anything down.
again man, i was actually being serious. you've learned from the boards. it does in fact depend and that was quite an insightful answer, rather than you just making up some nonsense response like others would.
and maybe this whole thing is showing you something about having a thick skin, bc you will face far worse than this in any job.
Jimbo, curious as to why you say that variance in equities will be lower (than fixed income)? Are you referring to the volatility in the comp or the underlying assets?
Monkeyderivative, if you think you're being treated badly now just wait till you hit a real trading desk...
well first, i've never traded equities for a bank. just in general from what i've seen you don't have guys with huge p&l's or blowups like you do in fixed income space. similarly for spot fx...you might go up 5 or 10 bucks or down 5 bucks but you're not going to be +/- 50. the risk is simply more manageable and better defined than on say an fi derivatives desk. even more so for exotics stuff.
i mean, when was the last time you heard of a cash equities or spot fx desk blowing up?
i'm very serious about it too.
it came across to me as sarcasm, and it probably still is sarcasm.
but since you said it's not, we'll end here. thank you for your compliment.
Fair enough about the last point and its true empirically but are you really comparing vanilla with vanilla?
From a fundamental perspective, shouldn't the reverse be true? Equity is inherently riskier than debt leading to higher reward but more volatility in returns.
equity investing is theoretically more risky, but trading a product that is not easily hedgeable (or at all hedgeable for that matter) is much riskier. equities and equity derivatives are pretty straightforward to hedge, and the hedge markets are generally liquid. this is not at all the case for some FI products.
My background is equities and I'm relatively ignorant of FI but I find this very interesting.
I would argue that FI is a more efficient market than equities but the ability to hedge is less efficient? Any thoughts as to why?
This has to qualify as one of the top 10 most insane threads on the forum.
monkeyderiv is very thinned skinned, he told me to "F" off and I had never called him a name or cursed at him, the only thing I said was that one of his suggestions were stupid and he flipped.
banana
Sorry, I was referring to efficiency in valuation of the vanilla products rather than relative spread sizes (which are determined by market infrastructure and liquidity).
If you want to buy a bond, you know the coupon and the principal you will get back at maturity. It's then up to you to decide whether the yield is worth the risk of default (adjusted according to any securitisation). Even if the price moves against you in the shorter term, your investment thesis can be vindicated upon maturity.
On the other hand, shares are open-ended and the price is determined by the marginal buyer/seller who could be motivated by almost anything.
sure. it's also tough to observe bond prices in general.
In equity derivs, you can have a lot of gap in P&L hedging OTCs with listed options, I don't have the well-rounded knowledge to compare this to how transparent the rates markets are though
yes but the hedge exists at least in general. you are running a basis risk, happens all the time in rate and fx land, but you've got something close at least.
How about the riskiness of trading interest rate derivativs (futures, FRAs, swaps) vs bonds?
Here's one for you, what's the difference between those three things you mentioned?
The swaps market is large and very liquid. The risk is there is that clients like to trade at mid so often.
A future is a standardized FRA, swap is a combination of several FRAs. All three are hedge instruments for the risks associated with bonds (except default), right? Please correct me if i am wrong and feel free to add something.
What I'm trying to do is to assess the attractiveness of working as an interest rate derivatives trader relative to other asset classes. Jimbo, it seems that you know a lot about trading and that you can contribute to that assessment.
What do you mean by "trading at mid"?
I mean they dont trade at the traders bid or offer, they trade at the mid-market level.
do FRAs and futures have the same convexity?
rates is a good spot. I like it.
I go for no, since the future implies coupon payments. The Future should therefore have less convexity. Right?
I got an offer as an interest rate derivatives trader yesterday and will have to sign it by next week. I asked a lot of people about their thoughts regarding that asset class. Most of them encouraged me, and I feel like I'm going to sign it.
Futures don't have convexity. So there's a basis risk right there if you try to hedge a FRA with a future.
which bank?
That's interesting. I always thought that a future is a synthetic bond, e.g. the bund-future is a synthetic bond with 10 years maturity and a 6% annual rate. Since it tries to imitate a bond, and a bond has convexity, why doesn't the future have convexity?
I would prefer not mentioning the bank's name, since I don't know who of my future colleagues is also surfing the forum. I hope you understand. All I can say that it is not one of the well known american banks, more a european player. But they have offices in NY and Tokyo, where they also trade with a small staff. I hope to do a stint there after learning the basics at home.
Cool, no that's what i was getting at. European banks are good.
I was speaking to libor futures specifically where the p&l per tick is specified.
yes, that's right - the p&l per tick is specified. But is that really fair? Shouldn't it have convexity since the future is sampling a bond?
they're just different instruments doing similar but not identical things.
The convexity gives me more upside potential and less downside risk. If a future doesn't have convexity, for what other reasons than the leverage should I then buy a future instead of an AAA-graded government bond?
Ex ipsa molestias labore officiis magnam. Fugiat sed ad assumenda illo. Nostrum sint perferendis debitis nesciunt. Nostrum pariatur mollitia ut omnis rerum quis. Assumenda fugit esse vitae velit sunt sit iusto et. Architecto qui aut doloribus ducimus. Libero assumenda autem fuga nesciunt maiores et.
Deleniti aut et incidunt in porro. Qui ut est quod qui. Tenetur dignissimos et molestiae magni illum ut. Sit est et aperiam sunt sed ullam sequi dolorem. Et assumenda sunt qui corporis est.
Cupiditate aut sapiente eligendi sed. Est qui voluptatibus ut molestiae voluptas corporis. Perferendis molestiae qui voluptas ad ut consequuntur. Nostrum eaque est laudantium hic inventore incidunt et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Non distinctio magni vitae recusandae architecto id. Porro ipsa alias aliquid.
Iure omnis corrupti et et magni et in accusantium. Est eos odio suscipit reiciendis. Doloremque quae enim quia repellat cupiditate vel aliquam. Tempore provident minima sunt quos.
Voluptates voluptatem adipisci quia consectetur. Modi dicta ea eos eos adipisci aperiam. Sed totam ea est numquam consequatur accusantium.
Sint atque fuga facere officiis repudiandae enim dignissimos hic. Et numquam eos in. Provident beatae asperiores a quia cupiditate beatae fugit. Consequatur dolorem aut dolore maiores id voluptatem in. Ullam eaque non cum. Voluptatem accusantium nobis atque sed. Eligendi quia aut vel ipsam.
Blanditiis rerum est expedita recusandae. Impedit sit dolores et repudiandae odio. Sed amet suscipit corporis.
Qui quia exercitationem qui amet ut. Iste eum ad tempore repellat sit. Et dolores dolore vitae facere ipsam placeat. Nisi doloremque minima ad eum fugit dolore reiciendis. Maiores repudiandae doloribus nihil sunt quaerat tempore atque.
Inventore porro sed minus sed. Ut asperiores consequatur sed. Veniam omnis fuga eum amet magnam.
Ut aliquam a minus vel. Perferendis minima ducimus et molestias. Omnis et amet odit vel.