Looming restraints on proprietary trading might not be the biggest threat to traders' careers. While the rise of algorithmic and high-frequency trading has created trading jobs for quants and developers, it is rendering some other traders obsolete.
Schonfeld Group Holdings, one of Wall Street's larger private trading shops whose history dates back to 1988, reportedly eliminated 50 jobs this month because competition from computer-driven strategies is making tough for "lesser skilled traders" to survive.
The Jericho, N.Y.-based firm reduced its force of proprietary traders by about 15 percent, to 300, according to CNBC. Chief Executive Steven Schonfeld told employees in an e-mail:
It is getting much tougher for traders to make a living or get by. Direct competition from black boxes, stat arb, and high frequency trading which continues to grow at exponential rates is here to stay, and has caused under the circumstances to change our outlook for lesser skilled traders.
High-frequency trading accounts for 65 percent of U.S. equities volume, according to Aite Group data cited by Bloomberg News. Aite Senior Analyst Paul Zubulake told Bloomberg:
There is no doubt that manual point-and-click-type day traders are at a disadvantage... If you are in a marketplace, especially arbitrage, if you are not trading at a high speed, you cannot compete, you have no chance. A few years ago you could maybe survive by seeing something visual, but now the machine will take out the price inconsistency very quickly.
Previously, Schonfeld had been among the niche firms that opportunistically hired traders away from larger Wall Street houses amid the financial crisis. Its founder reportedly made $200 million in 2008.