[hfttrader]

Traders are not necessarily smarter than the average software engineer. (There are many very smart people in both fields) However, they are fairly irreplaceable. This is because to be good at finance you need to be both smart and experienced. The only way to get experience is to work in finance for several years, and as a result, the supply of traders is fairly limited. (compared to the demand) Generally, someone who starts finance will not make their firm any money for the first year, but after five years they will be earning their firm a lot of money. The supply of good traders is a lot smaller than the supply of smart people.

A second reason why they are compensated so highly is that they are working in a highly leveraged job where the labor cannot be easily be divided between multiple people. This is similar to how CEO's make a lot of money, because being a good CEO produces a lot of value for the company and the position cannot be split between multiple people. (I'm not trying to imply that traders produce as much value to society as CEO's do) Being a marginally better trader will make your firm millions more per year. Good hedge funds have 100-1000 million of assets under management per front-office employee. (For example, D.E. Shaw or Bridgewater Associates)