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How much do hedge fund traders earn?
- geppeto 9y agoThanks, the way reported salaries mask total compensation is very opaque between industries.
- josh5555 9y agoThis info is really outdated. Nobody charges 2 and 20 any more. Those days are over except for the very top money managers.
- jamez1 9y agoTrading/Dealing and portfolio management are two very different functions and this article doesn't begin to touch the distinction. This article is not a good source of information, especially about the current state of the industry
- cgb223 9y agoWould you care to elaborate on what the actual state of the industry is then?
- wizwazzle 9y agoCould you refer us to some more appropriate articles or sources about this topic?
- atemerev 9y ago"Portfolio management" is traditionally the domain of IBs, isn't it?
- BenjaminTodd 9y agoBy "portfolio manager" I (the author) just mean the more senior person who oversees trading. It seems like a couple of different titles get used. We don't mean portfolio management in the sense of advising individuals on what to do with their portfolio, which is what some investment banks use. That's a totally different job. Like I say, this article is only based on a couple of interviews, and we still have a lot to clear. I'd be keen to get more data.
- losvedir 9y agoFinance seems to have a lot of different terminology in different areas. From my experience in "sell side equity research" (i.e.: we researched stocks, but didn't own much ourselves, other than our market-making trading desk), I've come to associate "portfolio management" with the "buy side" - hedge funds, mutual funds, pension plans, and so on. Investment banks were something else entirely; they pitched and ran mergers and acquisitions. They didn't manage stocks themselves. It gets confusing since some firms can do both. E.g., Goldman or Morgan Stanley are generally well known as investment banks, but they also have an equity research side. But folks who work in equity research aren't called "investment bankers" and "investment bankers" don't work on the equity research side. In fact, there's regulations that try to limit the interaction between the two sides. But in any case, I wouldn't consider either side to manage a portfolio.
- atemerev 9y agoHedge fund traders get some small percentage of what they earn for their clients. This is not a problem. The problem is that when they fail, their clients lose money, and they don't (yes, there are some career risks, but they are minor). Elementary knowledge of game theory tells us that becoming a hedge fund trader is a great opportunity. Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
- kkleindev 9y agoFor what reason is it now easier than ever?
- atemerev 9y agoLow barriers of entry. Availability of low-cost market data sources. Bitcoin venues as the perfect training ground.
- deleted 9y ago[deleted]
- illuminator 9y agoHow would you go about getting started in Bitcoin trading?
- andirk 9y agocoinbase.com is the way the IRS wants you to do it, and it's easy. And their new gdax.com exchange is fun to watch. Do it ASAP as the BTC price is getting pretty high pretty quick. On a side note, your Econ + minor CS is a good idea. But get your BS in CS while you're at it. Can you imagine looking back and thinking that was time wasted?
- vostok 9y ago> The problem is that when they fail, their clients lose money, and they don't (yes, there are some career risks, but they are minor). You can lose your deferred compensation, which is very common at both hedge funds and banks once you start earning more money. > Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls. Have you ever tried raising institutional money? It's not that easy even if you have a good track record. Many times it will come under extremely investor friendly terms and often it will be a SMA rather than an actual investment. Of course you can raise millions of F&F money, but the economics for most strategies don't work out until you get into the 9 figure range.
- vostok 9y agoI feel comfortable denying the claims in this article.
- ignawin 9y agoPlease, do.
- headmelted 9y ago"can only be used by accredited investors" "3.6% of assets under management" Hold on. Let me take another swig of coffee so I can decorate my screen with it. How can this possibly be true? This would mean that there is some form of accreditation for investing that allows someone to qualify who thinks that a 3.6% fee is a good investment. Who are their investors? Do they know this? I have no special access to the markets (no investor status, no massive sums under management) and I pay no more than 0.07% in fees, in total. Were I resident in the US it would be about 20% less. No wonder they're raking it in.
- austenallred 9y agoAll accredited investor means is you have $1m+ in net worth or $250k+ in salary. Out of the range of the average young American, but small peanuts for most people worrying about asset mabagement
- headmelted 9y agoI'm slightly less appalled now. It still baffles me though, as common sense would seem to indicate that having money and paying 3.6% are mutually exclusive. Thanks for clearing that up. (If only i had a cloth to clear my screen up too..)
- jsolson 9y agoIf you have the degree of money to invest and you believe the expected the net return exceeds your other investments, you very well might make the bet. We are, after all, talking about hedge funds. How much variance are you willing to tolerate?
- deleted 9y ago[deleted]
- stouset 9y agoIn order to be an accredited investor as an individual, you need (quoted from Wikipedia) "a net worth of at least $1,000,000, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year." That's it.
- allenleein 9y agoObviously, the numbers vary a lot, but most top tier firms will start you at a minimum of 150-200k usd including bonus the first year. If I had to estimate the median salary growth from there on, I'd guess it to be around 50% a year, with the rate slowing down as you get to 750-1mm. After five years on the job, the median would be around 700k, with the top 10 percentile making more than 2-3mm. At that point, if you're good, you're probably leading a team (or are a senior quant in an all-star team), and your bonus depends almost entirely on performance. An interesting downside to this, especially for young traders who get to the high numbers, is that they often begin to treat their bonuses as a given. Once you make seven figures, it becomes easy to assume that your smarts will ensure financial prosperity for the rest of your life. But bonuses in trading are very volatile - I think of mine like an NFL player's paycheck, rather than a software engineer's salary. Competition from different firms, financial regulation and shifts in market structure often come in the way of long term salary guarantees. Over the years, I've seen that those who survive through thick and thin (well, 'thin' in a strictly relative sense) are the ones genuinely passionate about the intellectual challenges of trading. From Quora: https://www.quora.com/How-much-do-traders-at-big-quantitative-hedge-funds-like-Renaissance-or-Two-Sigma-typically-make https://www.quora.com/How-much-do-traders-at-big-quantitativ...
- vostok 9y agoThat starting range is approximately correct, but the median is not $700k after 5 years.
- allenleein 9y agoso what's the num?
- vostok 9y agoI would guess that the median is around $300k if you consider only PM-track roles at top firms. It depends on the firm, but the typical breakdown will be somewhere between $100k salary plus $200k bonus and $150k salary plus $150k bonus. If you consider non-PM track roles then the average is lower and if you consider lower tier firms then the average is lower. That doesn't mean that nobody makes $700k -- there's a very famous example of someone at a lower tier firm who took home $10 million. There are firms where the PM takes the bulk of the money and little filters down to junior level staff. There are firms where by 5 years you're either fired or getting paid a lot. There are firms that hire relatively few people and pay junior level staff very well. I don't know if I would estimate as high as $700k, but the median here is going to be very good. These firms make up a small minority.
- zimablue 9y agoI work at a hedge fund (as a dev for an average Dev salary). The pay for head manager seems roughly right, and we're 1bn between about five-ten analysts with one making most of the calls. ( I give a range because some are kind of apart from the fund proper, working on starting new funds by building a performance record. I think the article might have some survivors bias, you can't say "I'm going to be a hedge fund trader" and equate that to the average income if you survive thirty years. It's cut throat and people burn out or get unlucky, we need the drop out rate. Also quant funds are getting bigger and must have a pretty different compensation scheme.
- curiousDog 9y agoWhat qualifications do the traders usually have? Economics,s tatistics, math degrees?
- lunchladydoris 9y agoLuck.
- kamaal 9y agoThis reminds me of a saying my boss used to tell me. During a mass hiring event, they wouldn't even bother to pick up a resume if it fell down on the floor by mistake. When questioned about the practice and asked if those candidates were just unlucky to not make it, the hiring manager replied- He didnt want to hire unlucky people.
- deleted 9y ago[deleted]
- drrob 9y agoA friend of mine is an analyst, he has a business studies degree.
- zimablue 9y agoThe big man was maths and engineering. Others I dunno, they're normally pretty sharp and focused and good looking ( I guess it's intrinsically client facing)
- theprop 9y agoWhat the article talks about is not a typical hedge fund trader, but a kind of portfolio manager, that's what a prop trader is more like. A trader in a hedge fund is someone who usually earns $200k plus or minus something...but is more in executing trades and such, not coming up with investment ideas (so not that gigantic upside they mentioned there usually).
- BenjaminTodd 9y agoIt seems difficult because the roles exist on a spectrum. I'd be interested in how to make the titles and claims more precise.
- eiliant 9y agoeli5 a prop shop vs. hedge fund? or hedge fund trader vs. prop trader is that's any different
- mi100hael 9y agoHedge Fund: an organization that invests client money and keeps some % of the fund/profits each year as a fee. Prop Shop: a division within some financial institution that invests the institution's own money.
- deleted 9y ago[deleted]
- j7ake 9y agoMaybe someone can explain this to me... how is this different than saying that professional athletes are one of the highest paying jobs in the world ? There are a lot of hedge fund traders that blow up and are no longer part of the statistics of these senior guys who are taking in $10 million.
- rdmsr 9y agoProbably because the perceived skill difference between this and many other modern jobs is small. I can imagine people being incredulous that this is skill rather than something less deserved (luck/situation/...). The skill difference between your average SWE (or even average college basketball player) and an NBA player is pretty massive (and quite visible). I'd imagine it's much harder to find an someone that says 'yeah that's easy I could do that' about an NBA career...
- BenjaminTodd 9y agoOur estimate of the mean is still 400-900k, whereas the mean in sports/arts/entertainment is only about $70k. https://80000hours.org/articles/highest-paying-jobs/ https://80000hours.org/articles/highest-paying-jobs/ Even the junior roles in trading are higher paid than this. You're right that you also need to account for the chance of dropping out of the role all together, which is hard. (Though drop out rates are high in both sports and finance.)
- samscully 9y agoThere is very little demand for professional athletes so training to a very high level in mathematics or finance is a much less risky proposition.
- known 9y ago20% of profit
- osrec 9y agoAs someone who works in the industry, I have a few issues with the article. Firstly, I feel the average salaries are inflated, even more so at the junior level. I find it a common tendency amongst finance workers to exaggerate, especially since real data is rarely made public, so it's an easy, unverifiable boast. Also, the finance industry seems to thrive on selling limitless upside to bright grads, in exchange for their best years and hard work. The truth is, not everyone makes it to star hedge fund manager status, and your personal earnings, while higher than a lot industries, will rarely be spectacular. My experience tells me that most people at hedge funds are doing just okay - enough to be comfortable, but not enough to quit their jobs for good. And yes, there is a lot of luck involved; for example, Paulson & Co - once considered a genius, now a garnering one-trick pony status. A little message to the intelligent engineers, scientists, mathematicians out there: don't be taken in by the propaganda of the finance industry. The upside is potentially good, but on average, nowhere near as good as you are made to believe (and certainly not worth giving up your passion for). Ditch the hype and focus on contributing something more meaningful to the world - you'll probably be happier and perhaps financially better off!
- lordnacho 9y agoI second this. Been in the industry for many years now. Typical people you run into: - People who are constantly looking for a new gig. They have a model, they have experience, but either they can't find the appropriate fund for their style, or they have a bad streak. - People who can make money, but only in small size. Some guys I know sit and home and trade. Enough to pay themselves, but not enough to even get a fund job. - People who were on the team or near some star trader. Amazing how many of those there are, and how little it rubs off. On the whole I'd say don't believe the hype. It's very hard to get a seat, and hedge fund managers are not smarter at recruitment than tech people. So you'll spend a long time in that support style role, wondering whether you'll ever get to be the main guy.
- dave_sullivan 9y agoThat's eerily similar to the people you meet in startups: - most consultants - "lifestyle businesses" - "worked at facebook, give me money" So much hype in both industries, for similar reasons. There are always ways for smart people to make money. Most people with some experience in either industry are doing better than the national average but hardly wealthy and generally spend too much money. I do get the impression there's better pay in finance though. $250k as an experienced engineer strikes a lot of people as high. $250k for someone w/ a few years at a good hedge fund is... about right, maybe even low.
- qeternity 9y agoFormer hedge fund trader here at a big fund: these numbers are correct, but not representative. There are thousands of funds out there. Some huge and killing it, but most are small that aren't. The costs to launch and run a fund are huge, which really eats into the take home of the smaller operations. In large shops, a PM will often take half of what he earns for the manager (i.e. not for the LPs). So if he runs a book of $100m and makes 25% (so $25 pnl), the manager keeps (historically) 20% so $5, of which $2.5 might go to the PM. There are definitely guys who are making tens of millions, and obviously the guys that everyone reads about who are making much more. But the vast majority of front office personnel who are working at funds are making sub $500k/year.
- BugsJustFindMe 9y ago> But the vast majority of front office personnel who are working at funds are making sub $500k/year. cough poor them.
- fb03 9y agoCan you believe it, sub-500k? Hah!
- rootsudo 9y agoThis website again? I swear it's main marketing pool is just us, the population of HN.
- soVeryTired 9y agoIMO a lot of the information in this article is suspect. Perhaps the terminology is different in the states, but decision makers tend not to be known as "traders" in the UK: they're portfolio managers. Traders are middle-office guys who handle execution. Secondly, there are very few shops that can charge two and twenty these days. Even in the good days, two and twenty was the 'sticker price', a point at which to begin fee negotiations. Any client with a decent-size ticket would pay less. As a junior / mid-level front office hedgie I made £120k last year. I wouldn't be surprised if my boss made double that. Not a stunning amount, but easily enough to be comfortable and save for the future. Unless you're an equity partner at a hedge fund, that's what you can expect to earn in the uk. The appeal of asset management is mostly about the lifestyle rather than the comp: interesting, varied work, with fifty hour weeks and no weekend work. On a per hour basis, you might do better than someone on the sell side, but those guys work a lot of hours.
- Ntrails 9y agoYou've also got to account for the incredible variance in what a hedge fund constitutes when dealing with terminology. Reinsurance, Property, Bonds, Options, FX etc etc It seems unwise to try and generalise across even just a generic equity fund, let alone the world of hedge funds.
- user5994461 9y agoWhat are the hours and the perks? That's the only question.
- nissimk 9y agoIt's more than many other jobs. Everyone gets to work early. Many front office personnel get to work before 8 and the floor is mostly full by 830, but many people leave at 5 and most by 630. Most people eat lunch at their desk. There are a lot of extra curricular activities though. You need to do dinners and events to build relationships.
- 6nf 9y agoWhat is this shit
- whatok 9y agoI'm also here to echo the trader != portfolio manager which seems to be described in this article. There's a vast difference in duties and comp between the same job title at a bank, hedge fund, or prop shop and you really cannot look at only comp and job title for comparison. I suspect some data points from hedge funds and prop shops got mixed together. A typical trader at a hedge fund is not making anywhere near the comp claimed in this post and "senior trader" at most places is like giving you a gold star because they didn't want to promote you to portfolio manager. Additionally, 2 and 20 literally does not exist anymore for the vast majority of funds. Downward pressure on fees has been all over the news for the past several years and having the inaccurate data point as well as no mention of recent trends leads me to doubt other data points in this article. The revenue split also makes no sense and does not account for fund size or strategy which has a huge influence on costs.
- mailshanx 9y agoCan anyone shed light on how an machine learning focussed software engineer or data scientist might get a piece of the action? Specifically, how might such a person land a role that has potential to pay say, 300k+ ?
- dsacco 9y agoThat depends on your degree level. If you have an MSc or a PhD you should be able to more or less walk onto an interview at many hedge funds, including relatively well-known ones. With less than that, it's going to be more difficult (but doable). Many quantitative funds specifically hire math/stats/comp sci without a background in finance. The interviews will be very math/stats focused with coding (maybe algorithms) thrown in. Don't expect $300k your first year (or second, honestly). Expect more like $150k. The lucrative compensation will be in bonus, and you (or your team) will eat what you kill. You should research the industry more so you're not walking in blind. "Quant" is an overused term and means different things. That skillset can land you in roles for execution (mostly development), strategy research (much more math/stats), risk management, trading, etc. There are few roles that will start off at $300k+ without any time in the industry, and where it happens those are generally cases of very well-known firms poaching someone from academia.
- lloyd-christmas 9y agoGet a masters in Financial Engineering and work in risk management.
- auntienomen 9y agoApply for a job at a top quant hedge fund or prop shop. You've probably heard of the most famous ones: Citadel, DE Shaw, PDT, Renaissance, Two Sigma,... There are also a fair number of quieter/newer ones like Edgestream, Headlands, Princeton Alpha, Stevens Capital/Tewksbury, TGS, Voleon,...
- rodionos 9y agoHow much do poker players earn? Can't answer by looking at top players unless you take the remaining 99% into account. Survivor bias.
- wdb 9y agoAre we here talking about salary or including bonuses? In my opinion bonuses should be excluded from salary (especially when discussing your salary).
- SirLJ 9y agoI am not sure if the salaries are accurate, but today data is very cheap (just search for stock market data in eBay and you can find 20 years for less than 100 bucks) and with a little python knowledge you can test any trading idea imaginable, passive ETF investing, etc...
- dsacco 9y agoYou've mentioned that before. Buying financial data from Ebay sounds insane. There's all sorts of issues with that recommendation...just for one, what kind of data is it? OHLC? 1m? 1s? Tick data? Real historical tick data costs five to six figures per year from a well-regarded source. There's a price signaling issue here - if you have legitimately identified alpha, the cost of the data is not unreasonable (just as a colocated server is not unreasonable expensive if you can capitalize on it). If someone has high quality data, why would they sell it on Ebay for that price? It signals several things: 1) They don't care about selling where their customers are, 2) They don't care about leaving (ridiculous amounts of) money on the table, 3) They are probably not going to provide any verification or due diligence for the data, let alone any support for it afterwards. What are these people doing, scraping Yahoo Finance, throwing it in a CSV and selling it? I find it exceptionally difficult to believe that "with a little Python" you'll be testing anything close to "any strategy imaginable" using this data. Vendors that sell real data do not share many of the characteristics of a fly by night operation.
- SirLJ 9y agoI am talking about daily data for long term trading/investing, obviously if you plan to run high frequency or day trading operation and need one minute or tick data, neither eBay nor python will help you :-)
- AdamN 9y agoThe comments below point out that the numbers or the math may be right or wrong but one lesson for people choosing a career: 1. Industry matters big time! 2. Reputation of the teams your on matters big time! 3. College (High School..) you go to/went to matters big time! 4. Moving industries can be done ... but in the more mature industries (like finance), it's hard to break in 2 years after college. 5. College really freaking matters (even if you drop out of Harvard). 6. Your humanity must always be top of mind and any of the prior points are swamped by the importance of 'to thine oneself be true'.
- yannovitch 9y agoI would advise lots of you who have answered here to watch the TV show "Billions", lots of your answers made me immediately think of this show !
- mathattack 9y agoSome observations having put some time in on Wall Street between tech stints... 1 - There are a lot of jobs a few years out of undergrad or MBA that pay low 6 figures. 2 - The hedge fund jobs that are mid to high six figures are much harder to get. It's not "Graduate, sit and wait" 3 - Most of the comp is in bonus, and there is tremendous job risk. (Base salaries top out around 100K) If you make $750K for a good year, and then have 2 bad quarters, you're fired without any bonus, and good luck getting the next job due to the weak track record. 4 - The industry goes through purges every 6-8 years where masses of people get laid off. (2008 was the last - they're overdue) 5 - The industry is cutting employment over time.
- acd 9y agoHere is a visualisation of different assests including Hedge funds which explains the high salaries. Hedge funds are the top of the financial world. http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/ http://money.visualcapitalist.com/all-of-the-worlds-money-an...