Does anyone know how the performance of an execution trader in a fund house be evaluated? Beating the VWAP? or something more? Appreciate for any sharing.
Execution traders sometime execute the orders, some times they send the orders out for brokers to work. In that case, they are given a budget to spread the commissions around. In return, they often get either research, access to IPOs or something else of value. So in this case, they would be evaluated based on how much money they spend on executions, the quality of the executions and the value of the relationships that money creates.
Beating the vwap is pretty hard, and how much money they spend on execution is usually beyond their control. I would say number one thing is not messing up any orders. Number two would be always being available when the PM gives you an order and getting it executed quickly.
Seems like simple stuff but it becomes challenging given the volume and complexity of trades. Many orders are conditional and executed based on certain formulas and price triggers. Many instruments are illiquid and difficult to trade without large slippage
I worked in an investment firm (boutique fund) and what you said is completely opposite of what an execution trader does. He is allowed to "work" the order over several days. Not execute it quickly. VWAP is always achieved. You are commenting from a retail trader's view. For fund management it is completely different set of guidelines.
Interested to know what kind of guidelines there. I would soon have an interview at a fund house and would like to know more how to measure the performance of the trader. Generally speaking, how do you define a good execution trader?
http://www.marketwatch.com/story/chapter-1-the-inmates-run-the-asylum I know this is not the answer you looking for, but read about Todd Harrison who was the execution guy for Jim Cramer (yes that guy), back when Jim and Jeff were running the hedgefund. It might give you an idea how what to say during the interview to impress you're employer. 18-parts series.
I worked at a hedge fund, granted as an analyst but dealt with the trader sometimes. Guess it depends on the nature of the order. Many of our orders had to be executed quickly, so we were often takers of liquidity, therefore we were always worse then vwap. Guess if you're just sitting there for days and providing liquidity, you could expect to beat the vwap.
...to your point vwap wouldn't be an appropriate benchmark in this case, so to the original question, it depends. I've even seen job descriptions for 'execution trader' that were basically IT jobs managing code. I've also seen execution traders given incredible leeway in not only executing orders but given freedom to take beyond negligible prop risk (arguably positions not in line with the fund's objective, but that's a whole other discussion) - really depends on the circumstance/fund.
Occasionally, executions trader is a job to deal with a differnet time zone and different corporate culture. Say, you may be working as an execution trader for Japanese stocks from New-York. The guys who gave the buy or sell order will likely be gone from the office by the time you start working the orders.