I have left my job in credit trading, and I am never going back. 

I spent 20 years working as a voice credit trader in an investment bank before switching into electronic trading. It was a good career, but I walked away two years ago, and I will not be going back. It’s become impossible to make money in credit trading. Algos have ruined the market. 

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In the pre-electronic world, dealers were the hub for trading activity. Good dealers with inventory to show clients could make markets and make money off the spread. 

I went into credit trading because you could make large amounts of money in the job. Sitting in a voice trading seat, you could make money for the bank and money for yourself. $10m and $1m a year were not unusual. But that money has disappeared. 

First, electronic trading platforms appeared in the market. Initially, those platforms retained the concept of the client, the dealer and the enquiry. And then they began to ruin everything. 

The electronic platforms allowed client enquiries to be seen by every other client, while also making the name of the first client anonymous. If, for example, BlackRock wanted to sell bonds, it would now do so anonymously on a platform where everyone could see the search for a bid. This completely transformed the competitive dynamic. – Once everyone could see bonds being sold and the prices offered, that transparency made it difficult to sell the bond on again for a higher price. Margins were immediately cut. Profitability was broken. 

Electronic platforms therefore destroyed the market dynamic. If you wanted to offload bonds in the new world, you needed to try a different segment of the market, where people were less aware of the price. Alternatively, you could buy a portfolio of bonds that would be acceptable to an ETF provider, sell them on, and arbitrage that price difference. 

Arbitraging ETFs is a completely different job, though. It’s less about the quality of the bonds and more about whether someone needs them to complete an ETF  – this is how you make money now.

You can’t do that as one credit trader on the phone, though. Clients were initially apprehensive about sending their enquiries electronically, but this has changed. In my last role, we received well over 30,000 electronic enquiries a day. You need an algorithm, not an individual, to work with that.

If you want to be a credit trader now, therefore, you need your thought process integrated and coded into the electronic platform. If you can’t explain what you’re doing and code it up, you won’t be able to respond as the enquiries arrive by their thousands. This is why there are fewer and fewer voice traders and more and more quant developers and strats on the credit algo teams.

Amidst these changes, the spreads have disappeared and the money has gone. Broader credit teams are huge and so are the technology costs. You can still make money off ETF arbitrage, but it’s getting harder and harder to do.

This is why I’ve left. I trade my own book now, mostly equities. There’s no point in going back to banking for a business model that makes no sense. I don’t want to be a small cog in a big machine at a market making firm. And I won’t go to a systematic credit fund because I don’t think credit algo trading can be scaled. It’s a flawed business model. Personally, I’d rather sit here and take my kids to school. 

This doesn’t mean there’s no future in credit trading. If you’re a quant with trading skills and you want to write blocks of code for strategies that get folded into the machine, then go ahead and do that. You’ll be well paid, but there won’t be the potential to make the really good money. It’s a salaried role. 

If you’re a young graduate joining a voice credit trading team in a bank, though, beware. You are being taken advantage of. Your job is dying and it will barely exist in a few years time. 

Ashton Hill is a pseudonym 

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