Traders, not bankers, are the masters of London's finance universe

Times

a day ago

This was supposed to be the year of the dealmaker as animal spirits revived. But once again it is the traders at banks and hedge funds that are the top dogs. Nowhere is this more so than in London.
My first job in the late nineties was on one of the largest bank trading floors in the City. I vividly remember the roar of the floor: hundreds of traders shouting prices down the phone to their clients, yelling trades across the floor to colleagues and tapping away furiously on large clunky Bloomberg terminals.
Investment banking dealmaking in IPOs and M&A has always been big business for banks. But this sector has struggled since the pandemic, despite signs that deals are returning thanks to the AI boom: the US software maker Figma saw its share price rise 250 per cent on the day it listed. Yet investment banking revenues are a shadow of previous bubbles, and the majority of it comes from less sexy debt underwriting.
By contrast, the trading desks of banks have grown much faster — mainly due to high volatility in markets, the enduring success of 'buy the dip' strategies, and a massive growth in hedge fund trading.
Just take a look at the earnings of the major banks: Goldman Sachs has seen its markets revenue double since 2019, but its investment banking business hasn't grown. And despite a concerted effort by adding deal makers, in the second quarter of 2025 Barclays' revenues in equity capital markets were only £81 million, while M&A advisory was just £123 million; its markets business revenues were £2.3 billion.
Much of the boom in trading has come from hedge funds and other leveraged players, which raise finance from the major banks. This business now makes up a third of the markets revenue at firms such as Goldman and Barclays.
According to the US Treasury, the pace of hedge fund borrowing has increased significantly. This is partly owing to rising markets and higher assets under management (AUM). But leverage has risen considerably for the largest 50 hedge funds in the world.
These days, the star traders are just as likely to be at a hedge fund than a bank. 'Pod shop' hedge funds are at the vanguard. These are distinct from other hedge funds because they have large numbers of separate investment teams. The largest, Millennium Management, has more than 320 of these 'pods' of traders.
Pods can be like running your own business but outsourcing all the non-investment functions. The central pod shop team raises money (typically one master fund), speaks to clients and manages infrastructure such as technology. Firms such as Citadel, which employs more than 265 PhDs, are known as pioneers in data and have the scale to win in the AI age.
Pod shops aim to be market neutral, relying on portfolio diversification and lashes of leverage to eke out adequate consistent returns. Each pod is an expert in a specific area whether it be trading tech stocks or European interest rates but is set strict limits in terms of diversification, liquidity and market exposure. Risk limits are tight with capital pulled from pods when they have drawdowns and pods closed if they are down 7 per cent.
The biggest ten pod shops may have only $300 billion of AUM, but they have 20,000 employees. The largest are of the scale of an investment bank.
Given their trader mentality and the Darwinian survival-of-the-fittest approach, pod shops tend to hire from other hedge funds or bank trading desks and have a high employee churn rate of about 15-20 per cent a year. Just like bank trading desks, the vast majority of their traders are young men below the age of 40.
While most pod shops are based in the US, they have sizeable London offices, cementing the UK's enduring position as a hot spot for trading. At the same time, there has been a significant growth of multi-strategy hedge funds that have similarities to pod shops but with a more centralised approach to investing. The largest of these, a British hedge fund with a London headquarters, is Marshall Wace, which has more than $70 billion in AUM and 700 employees.
London has always had a conveyor belt from bank trading desk to hedge fund. This includes the founders of names such as Rokos, Brevan Howard and Capula. There is some movement of talent to the UAE, but several of the fastest-growing, newer firms in the industry including quant fund QRT (Qube Research & Technologies) and credit fund Arini are London-based. In the adjacent universe of high-frequency trading, XTX Markets illustrates the vibrancy of London's trading community.
Investment bankers are natural salespeople who like to go on TV to talk up dealmaking, but bank and hedge fund traders are where the money is. And it is likely to remain that way for the time being.
But a word of caution: the image that you conjure up when you hear the word 'trader' may need to change. The world of the alpha trader who relied on their gut instinct, market chatter and the huge firepower and risk appetite of their banks to take large positions disappeared after the financial crisis.
Exchanges are now all electronic, and customers such as big hedge funds are increasingly data-driven and execute electronically; most of a bank's trades are priced by algorithms with the quant and tech guys making the trading floors of today much quieter. It has been said that at its height, in 2000, Goldman Sachs employed 600 US cash equity traders and that two decades later there were almost none, as the business was being done with algorithms.
In complex derivatives, less liquid financial instruments or very large trades, there remains a need for the human trader — but the computers keep getting better.
Rupak Ghose is an adviser to fintech companies and a former financials research analyst