Ask me about working with derivatives for 'retail' clients

[KLLions]

I worked for some years for two large I-banks with good PCS/HNW retail divisons. I sold to, and traded for, very high-net-worth clients [generally $100mm+ and up] various derivatives, and structured products, including interest rate notes, swaps, currencies, collars for equities and FX, etc. Not as a broker, I worked with the PCS gang, but I was paid salary+ year-end bonus, not 30-40% commission like they got.

Many of these clients just liked to trade very large sums of money, often using leverage, even if they had no perceived 'edge,' in whatever market was hot or on the front page of the WSJ, so we obliged them.
Ask away.

[JasonK]

What's the most you ever lost for somebody?

[KLLions]

Generally, we didn't have/want discretion with this stuff. For clients where we would just execute buys and sells for them, the largest would be around $750k in a single trade, but during the course of a year certainly more than that [net], but I didn't have too many big losing trades in a row - if you do, clients just stop trading.
Each year, I was profitable over the entire client base that traded, ranging btw $8-15mm Net.

More usually - they had discretion and often ignored my advice, I'd say several million dollars, perhaps $12mm or so.

Now, on a straight hedge [buying puts, using forwards] the loss on the put/call purchase could be tens of Millions, but no economic loss as they had equivalent gain on other side. I spent a lot of my time meeting with clients and explaining risks of unhedged positions [say you got 500mm CAD from a sale] for USD-based investors. [And vice versa.]

One of my co-workers 'hid' losses by not closing out a client position and lost $50-100mm for a client. He was fired of course, and there was some sort of settlement with this client.

[KLLions]

Mods - this thread is not about 'money-making', it is about working in derivatives, just like the OOT thread about working with mortgages. Could someone pls move it back?

[RacersEdge]

What kind of skill set do you need? Are you going through the math of designing these derivatives, or just trading them?

Also, what's PCS?

[KLLions]

PCS is private client sales.
Most derivatives are pretty vanilla at heart, to design a 'new' one you're normally talking about the math/physics PhD's who are off on another floor somewhere geeking out.

Skill set for a salesperson: smart, knowledgable & well-read in general, expert on your asset class[es], honest, like working with people, ability to think on feet and deal with stressful situations, able to talk about other topics - 'How does drop in price of oil affect USTs affect USDollar, and if economy slows what does that do to price of USD/Yen.'
Able to control both fear and greed of self and client.

[Scorpion Man]

Ummmm....what do you mean by saying this?

"A fixed-to-floating swap is risk-reducing 95% of the time. "

By definition, a fixed rate liability has no "risk" ... its fixed. By floating you are taking on the risk of interest rate volatility. Maybe you meant something different...

Having been on the other side as a potential buyer of these securities I don't agree that people always understand the costs involved. I think many people also think they are getting "something for nothing". THat is basically the way certain derivatives are often pitched...for us it was often the bank trying to get us to pay them for using their balance sheet when we didnt need to.

[Jeffmet3]

Of the bigger firms in NY, which would you say are better to start off working for, which offer better growth within, which will provide more options for moving horizontally as well.

What did you start off doing when you came into the company selling derivatives.

what are your thoughts on the future of the industry, ie. what direction is it moving in

thanks,

I'm thinking about getting into something along the lines of derivative trading, or some type of brokerage/wealth management as regardless of the starting 6-figure salary, I don't know if it's worth it to go into i-banking.


jeff

[KLLions]

[ QUOTE ]
Of the bigger firms in NY, which would you say are better to start off working for, which offer better growth within, which will provide more options for moving horizontally as well.


[/ QUOTE ]
Any of the major ones would be fine, really. It is a huge growth business. They all have different strengths, it would depend on the desk you landed on.
[ QUOTE ]

What did you start off doing when you came into the company selling derivatives.


[/ QUOTE ]

My first derivs experience was selling and marketing IR swaps, caps, and collars, virtually all aimed at risk-reduction, unlike the LIBOR-cubed swaps that Orange Co bought [and then pretended they didn't understand, what a joke, they got exactly the exposure they wanted, even if it was a stupid strategy.]

[TMDG]

I want to work as a quantitative trader or quantitative analyst (those math/physics phd geeks). I'm applying to quantitative masters programs right now.
Did you have any interaction with these quants? how would you describe the work they do? I imagine it's a lot more intellectually challenging than an ibanking job (although I hear they spend a lot of time debugging). Do they seem generally to enjoy their work?