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Been trading for a while, ever thought of doing it professionally?

We are often approached by people who ask us if it’s possible to transition from being an independent trader/investor to working at a hedge fund or a proprietary trading firm.

The reality is that technology has allowed retail traders access to information, financial data, and trade execution that were once only available to a select few professional firms. This has contributed to the creation of an ever-growing number of people who have developed valuable trading and investing skills independently, and who could also put them to use professionally in a buy-side firm.

So…what should you do if you’ve been trading for a while and are now thinking of doing this professionally?

The benefits are well-known: Buy-side finance has some of the highest compensation levels of any profession in the world, and the jobs tend to be challenging and intellectually stimulating. However, cracking into the industry is no easy feat. (To learn more about buy-side vs sell-side, check out these articles by Mergers & Acquisitions and Investopedia.)

Everybody is unique and has different backgrounds and education/career trajectories, so, rather than an overall analysis of who hedge funds are looking for, we would like to focus on how you can use your trading experience to stand out.

Know your Style

Being a jack of all trades is not something that is generally viewed favorably in the industry. Hedge funds tend to be highly specialized. They may have a specific strategic approach (long/short, global macro, etc), a theme (tech, value, etc), a preferred analytical approach (fundamental, algorithmic, etc)… As a result, it will be much easier for you if you specialize in a specific trading or investing style before interviewing for a job. This refers not only to the products you generally trade (equities, options, futures, etc), but also the approaches you take. You should be able to discuss your strategic approach with the person interviewing you, and be able to give some concrete examples of how this was applied in real life.

Hedge funds work hard to avoid what’s called “style drift”, that is when they keep on changing strategies. Consequently, you should probably also avoid personal style drift and stick to one or two approaches that work for you. I’d rather hire someone who has, for example, been trading grain futures with a very specific approach for three years, than someone who has bought and shorted all the futures contracts available, hundreds of different options, and half the stocks on the S&P, without any rhyme or reason. That is not to say that having knowledge about different markets, products and strategies is a negative thing (on the contrary!), but if you’re talking about your personal trading strategies it’s best not to be all over the board.

Have a Track Record

In the age of Robinhood anyone can call themselves an investor or a trader. Buying a few stocks and currencies and a couple of call options do not make you one. You need to be consistent to stand out and your past performance can help you do this. You should be able to show a good track record (of at least around 18 months).

It doesn’t have to be perfect, nor should it have necessarily beaten the market. But you need to be able to explain why you did what you did, what worked, and what didn’t.

Good traders will try to keep track of what they do, so having something like a trading journal can be a great complement to the performance statistics that you can download from your brokerage platform. Hedge funds understand that daily profits of, say, 20%, are exciting but impossible to maintain, so they’ll be looking at the overall returns of your trading, for example over one year period. Returns of around 10% annually can be fine, especially if you can show how, while you were producing these returns, you had hedged your positions against possible market crashes, which would have allowed you to profit from a down market as well. Now, obviously, if your track record shows a loss of 76% then you’re better off not showing anything, and it may be better to take some time to gain some more knowledge before returning to the markets.

Lastly, your track record should have evidence of independent thought: If all your profitable trades have been purely due to successful trend-following momentum stocks (chasing up a stock like Tesla), it is unlikely they will see much of value other than a lucky streak.

Get Professional Mentorship

While the first two steps are important, the reality is that hedge funds and other buy-side firms receive thousands of applications and it is highly unlikely that they will want to hire a self-directed trader just on a good strategy and a track record. As we discussed in our previous article on hedge funds, they’ll be looking at your educational background, professional experience, and skills. If you have access to someone who works at a hedge fund, you should try to get under his wing and learn as much as possible.

But, if you’re like most people, that is not something that is easily attainable. Programs like TrendUp Now not only help you develop the necessary skills for these positions, but also connect you with professionals in the field that will provide you with personalized advice and possibly connect you with relevant opportunities.

Have Past Relevant Experience

If you do a quick job search for reputable hedge funds and other buy-side firms, you’ll see that most jobs require some previous relevant experience.

This is the classic catch-22 where if you can’t get a job you can’t get experience which makes it hard to get a job.

For some opportunities, you can overcome this by showing professional experience in any finance-related field, even if you were not in a trading or analyst role.

But the reality is that nothing beats a good internship at a fund.

TrendUp Now provides internship opportunities to its qualified students so by the time you apply for jobs in the field you have the relevant experience you need to quickly stand out from the rest.