March 4, 2012

Why are people moving from Wall Street to Silicon Valley?

The latest trend at Wall Street seems to be to quit your finance job and move to Silicon Valley and create a startup. One hedge-fund executive said:
“If you're a smart Ph.D. from MIT, you'd never go to Wall Street now. You'd go to Silicon Valley. There's at least a prospect for a huge gain. You'd have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun.”

The problem with working at Wall Street today is that the payments you get, such as bonuses, are not as good as they used to be because of the current financial crisis. For example, Bank of America announced that it would be cutting the cash portion of its bonuses by 75 percent and give the rest in stock. One other reason is that many people who used to trade assets, such as stocks, they now have to compete with computers involved in High Frequency Trading (HFT). But HFT is not free money either.
Jason Roberts used to create HFT-algorithms and this is why he decided to quit his job and move to Silicon Valley:
  • If you want to use HFT to make money, you already need to have money and you need to negotiate low trading fees. Each time you buy a stock, you need to pay a small fee - and if you have a computer trading stocks, the fees might eat up your profits. Creating a new company in Silicon Valley needs much less money
  • It is hard to come up with trading algorithms which can make money. If you want to make money using HFT, you need a strategy no-one else is using
  • It is hard to get a new job because you can't show what you have created earlier because of the secrecy involved in HFT
  • Making money is fun - but losing money is not fun at all. If you want to make money at Wall Street, you have to accept losses, but everyone can't do that

Source: New York Magazine, Codus Operandi