A panel of headhunters gives its assessment of typical London pay packages. Base salary: usually at least 100,000; bonus: highly variable but if linked to P&L can be as much as 800%.
It is rare for any individual to be told 'the sky's the limit' on their earning potential, but for senior propriety traders with a good track record and a successful trading strategy this appears to be the case.
'Successful prop traders have been among the most sought individuals across all banking functions during 2003 and 2004,' says Richard Melkonian, head of Napier Scott's trading division, who argues that the trend looks set to continue.
He says that last year saw a move away from the banks and towards hedge funds by some of the most successful propriety traders. Hedge funds tend to remunerate in stricter accordance with their P&L, thus giving prop traders a larger share of the cake.
Little wonder: according to Richard Fraser, the typical prop trader is nothing if not aware of his or her financial value. 'Proprietary trading is an option for the financially ambitious, often perceived as the pinnacle of a trader's career,' says Richard Fraser of RJF Global Search.
Given this financially-induced exodus, banks - left with junior staff and propriety traders with less of a track record - have been obliged to change their tune and are now improving remuneration terms for propriety traders.
Melkonian says, 'Banks are now seeking more to upgrade than increase headcount and to this end the successful prop trader who can demonstrate where they made the trade, along with how and why, continue to increase in value.'
However, a prop trader's worth is not merely determined by which type of institution he or she works for. Age and experience are, surprisingly, of less significance than one would expect; rather more important is track record but so too, over the long-term, are the product and sector traded.
Prop traders trade anything from interest rates to equities, exotics and foreign exchange - their choice of product will have a direct bearing on their pay packet. However, last year was difficult due to the lack of market volatility, which led to notable underperformance at some banks. Those who excelled in these becalmed trading conditions are deemed to have increased their worth.
What then is the magic number that financial institutions are looking to see their prop traders make? Anything above 5 million is seen as excellent and likely to lead to 'sky's the limit' remuneration. Melkonian says a trader with a consistently profitable five-year track record, who has broken the 5 million barrier with low P&L swings, should expect a basic in the region of 90,000 to 110,000 and a bonus in excess of 400,000.
Fraser broadly agrees, noting that especially where the agreement is for the prop trader to be paid a percentage of profit - and for some of the more successful, this would be as high as 20% - the final salary could be 'in the millions'.
And the outlook for this year? Just when it seemed life just couldn't get any better for the prop trader, it looks like it might. With markets generally recovering their nerve and volatility returning, the prospects of prop traders making more lucrative trades look better than ever.
'The ability to make money trading this year should be considerably better than it was in 2004,' predicts Melkonian.
Figures and Commentary by Napier Scott and RJF Global Search