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mahras


Total Posts: 36
Joined: Jan 2006
 
Posted: 2010-02-27 10:58
Hey guys,

I have accepted a position for the summer on the credit flow trading desk at a bank in NY. I got a chance to interact with the traders and learn more about what they do day to day, products they trade etc. I was wondering if you guys could guide me to a few primers, books, websites which I should study prior to starting my position. I understand most flow desks are trading CDS, indexes, some ABS. What are the other products I should become familiar with?

Thanks a lot for the help.

baghead


Total Posts: 865
Joined: Sep 2004
 
Posted: 2010-02-27 14:08
congrats, credit flow is an interesting desk to start a career on the trading floor at.

Some flow desks also trade credit swaptions and tranches.
You should familiarise with curve trades, negative basis and skew trades.
Most importantly, credit flow has been about bonds recently, both secondary trading and supporting primary issuance.

There are plenty of discussions about the credit space on NP. Use the search button and join/revive threads.

I will upload some primers when I get the chance.

edit:
Attached File: JP Morgan - Credit Derivatives - A Primer.pdf
Attached File: JP Morgan - Credit Curves and Forward Spreads.pdf
Attached File: JP Morgan - Revisiting Credit Maturity Curves.pdf
Attached File: JP Morgan - Trading Credit Curves 1.pdf
Attached File: JP Morgan - Trading Credit Curves 2.pdf
Attached File: Barclays - The Credit Options Handbook.pdf
Attached File: JP Morgan - Trading Recovery Rates - Digital Default Swaps and Recovery Swaps.pdf
Attached File: Morgan Stanley - Structured Credit Insights 2007 - Instruments, Valuation and Strategies.pdf

credit hubris trading... uhm... hybrids....

mahras


Total Posts: 36
Joined: Jan 2006
 
Posted: 2010-02-27 19:24
Baghead> I really appreciate all the information you have provided. Looks like I have a fair amount of work to do before starting my position in June. Thank you very much.

mahras


Total Posts: 36
Joined: Jan 2006
 
Posted: 2010-05-18 23:14
Decided to bump up this thread because I had 2 more questions:

1. How has this space evolved since the crunch? Baghead mentioned that most of the trading has been focused no bond issuances recently. Could anyone expand on that?

2. Do many credit flow desks partake in capital structure arb? I would guess not but just wanted to be sure.

Really appreciate all the help. The NP archives and the primers uploaded by Baghead have been incredible references.


KangaXX


Total Posts: 293
Joined: Mar 2005
 
Posted: 2010-05-19 00:11

1

-With the demise and effective demise of some banks, and general illiquidity, margins expanded massively during the crunch on high volumes so a lot of money was made. As a result banks rehired, expanded and now we appear to be more like in 05-07 where dealers fight to provide liquidity, and are going to have a much tougher time making pnl.

-Last year was a massive year for corporate issuance which helped fuel profitability of dealing desks, with fees, and then mkt making on new issues. cds volumes not what they were. Cash is the real product anyway.

2 I know a few can, but i think its the minority, not sure though.

-Remember to quote bond prices in 1/16s (steenies) this will make ppl think they are dealing with someone muich more experienced (or with a ganja background). If you can figure out how to put prices in 16s or 32s using the bloomberg keyboard thats like 10years of experience right there.


Bright, energetic people—usually quite young—have promised to perform miracles with “other people’s money” since time immemorial.

polysena


Total Posts: 1057
Joined: Nov 2007
 
Posted: 2010-05-19 00:57

KangaXX:  may I ask why the quoting in 1/16th makes a person look more experienced?

A few years ago (... many years ago perhaps) I remember seeing a few articles in some Journal of Finance or something like that around changing rules for exchanges and decimalisation  discussions about  going from quoting in 1/8th.. 1/16th & 1/32 etc... some reference

I had checked these articles because I was wondering whether it bore relation with something related to my research then individisibilities and matching... I finally did not get the point and forgot the issue. But some things pop up again... why then 1/16 and 1/32 in your view conventions ? other?

 


"Поэтому надо нарисовать человека как урода, разрезанного и изломаного, чтобы голова торчала из жопы или подмышек, а глаза были как у камбалы. В.И.Д про Пикассо "

KangaXX


Total Posts: 293
Joined: Mar 2005
 
Posted: 2010-05-19 01:47

I was kind of joking... Prices used to be quoted mostly in 1/16th, 1/8ths etc so if you refuse to go decimal i guess u are more of a dinosaur. The key point is to use the line "gentleman trade in steenies/eighths/whatever" whenever rounding from a decimal is in your favour. There is a minimum level of quantisation that if you go below it tends to piss ppl off. EG if 3 dealer bids on a bond and they are 98.75, 98.75, 98.76 i am going to heckle the guy trying to win by 1 cent because he should be either 3/4 7/8 or maybe 13/16 or 99 the figure


Bright, energetic people—usually quite young—have promised to perform miracles with “other people’s money” since time immemorial.

polysena


Total Posts: 1057
Joined: Nov 2007
 
Posted: 2010-05-19 08:57

 Oh joking right.. well.. then this all makes perfect sense. thanks for filling the gaps for me :-)


"Поэтому надо нарисовать человека как урода, разрезанного и изломаного, чтобы голова торчала из жопы или подмышек, а глаза были как у камбалы. В.И.Д про Пикассо "

sharpend


Total Posts: 279
Joined: Aug 2007
 
Posted: 2010-05-19 14:48
US treasury futures future options spreads etc are still quoted that way.

Money has a long long history of being broken up in to fractions.


mahras


Total Posts: 36
Joined: Jan 2006
 
Posted: 2010-05-19 22:53
KangaXX> Really appreciate your responses.

Are most of the CDS worries due to legislative and regulatory uncertainty? I remember reading somewhere that while pre-2002, secondary bond trading made up a big part of credit markets, the adoption of TRACE ended up shifting most bank activity in CDS/indicies. Was this somewhat reversed post crisis?

KangaXX


Total Posts: 293
Joined: Mar 2005
 
Posted: 2010-05-22 15:16

cash is the real product, cds is a derivative that some participants find useful. I have never worked on a flow desk, but anecdottaly bid offer pnl was very low in both bonds and cds in the run up to the crash - clients pretty much had choice markets in everthing. This put more emphasis on the structured products market because it was the place some credit franchises could BOOK sizeable pnl (emphasis on BOOK because at some places it was only pnl from some bullsh** accounting model). Structured products with mainly synthetic underlyings made up a big part of the derivative market, and post crunch this part of the market is much much smaller, hence the market focus switches back to what it is real about which is cash trading (again this is anecodotal as i dont have cds volume stats, but im guessing the data would be bad anyway because a few years ago im not sure everything was cleared/matched in dtc). 09 was a massive year for cash - huge issuance, huge demand.

In the past few weeks I suspect what you have seen in credit cash is the typical result of retard dealer thinking - "I need to run some inventory to provide liquidity for my clients". Translation: I like owning 1bn of L+150 bank paper for the carry as i get billed at a funding rate of L+20 (despite the fact that away from deposits my bank raises wholesale at L+200), and if this makes money i am a good "trader" but if it loses money im going to shrug my shoulders and say its just a cost of providing liquidity to clients. And then it tanks 5 points on the nice stuff and 15 on the nastier

[Edit: post edited to delete rant!]


Bright, energetic people—usually quite young—have promised to perform miracles with “other people’s money” since time immemorial.

mahras


Total Posts: 36
Joined: Jan 2006
 
Posted: 2010-05-24 00:34
Kanga> Thanks a ton. Thats interesting that credit flow becomes more about market-making during downturns. Would you say that in the run up to the crash when bid offer pnl was low, most desks focused more on prop?


KangaXX


Total Posts: 293
Joined: Mar 2005
 
Posted: 2010-05-24 14:00

Yes. There is a natural tendency to shift towards prop (and structured trades) when the returns on the flow business fall. I think its probably already started and Im hoping it ramps up further soon, although there are regulatory issues with prop at the moment and this business cycle could unfortunately be rather truncated...

Flow/liquidity provision is like any other strategy, too much capital and the returns diminish and in the downturn competition shrank with dealers going bust/others getting their risk capital slashed. The real money in the bust came from captive clients who had to trade and the only place they could get liquidity was from dealers. This doesnt make you friends in the long term, but a lot of the people liquidating are not around for the long term, so dealers taking 5-10+ points out of blocks of 25-50mm and you quickly rack up pnl. Thatd be my guess as to how the major flow credit franchises did over a bn pnl a year.


Bright, energetic people—usually quite young—have promised to perform miracles with “other people’s money” since time immemorial.

IM


Total Posts: 123
Joined: Mar 2009
 
Posted: 2010-05-25 10:11
Kangaxx

"There is a natural tendency to shift towards prop (and structured trades) when the returns on the flow business fall."

I'm a bit surprised that statement. Is it relatively easily for flow traders to take prop positions? I would think that middle offices would at least try to distinguish between flow and prop positions.

Holmes


Total Posts: 185
Joined: Dec 2004
 
Posted: 2010-05-31 22:45

Maybe call the desk you will be working on and ask them? Flow desks can be quite large.

Also read Parkinson's Law: The Pursuit of Progress.


Jurassic


Total Posts: 57
Joined: Mar 2018
 
Posted: 2018-04-30 12:11
Whats the difference between flow trading and prop trading if the flow traders can held what inventory they like?
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