Industry Insiders: Trading
INDUSTRY INSIDERS CONTINUES AS WE EXPLORE OTHERS ROLES IN FINANCE.
For each post in the series, we asked two experienced professionals in different roles to explain exactly what they do in layman's terms.
We covered Research and Investment Banking in previous posts and the rest of this edition will cover Trading and Private Equity.
This week, we’re getting the scoop on TRADING.
JM (27 years old) and BP (26 years old) are two hard-working and successful traders that work at global, large financial services firms in London and New York City. A huge thanks to both for taking the time to share insights on their respective roles!
Q: What is your official work title?
JM: FX (Foreign Exchange) Options Trader
BP: Credit Trader
Q: How would you explain your job to a 15 year old?
JM: Imagine you go to a video game store, where you can buy and sell used games. The store is responsible for setting the prices of the games and managing the inventory of games it owns.
Similarly, a trading desk manages an inventory of financial securities and provides clients (hedge funds, asset managers, corporates, etc.) the ability to buy or sell those securities. Prices are mainly driven by global economics and geopolitics, so we have to follow developments in that space very closely as things are constantly changing.
BP: Credit trading is similar to many other businesses where you buy something from one counterparty and then sell it to another with the hopes of making a profit. In this case, we are buying bonds that have been issued by a company such as Amazon. These bonds are similar to mortgages that people have when they buy a house. Our firm buys bonds from one group at a lower price and sells at a higher price to make a profit.
Q: What are some things/projects you are responsible for?
JM: I am responsible for trading a specific set of currencies out of London. In general, the work on a trading desk is less focused around long-term projects and is more about the day-to-day management of the risk in a trading book, which in turn should lead to generating profits. There may be smaller projects and tasks on the side that could be related to advancing systems, improving the relationship with a specific client, or even managing the new analysts on the desk. Still, the main focus is on risk-management and profit and loss (also known as PnL), so you need to be prepared to perform on a daily basis which makes trading unique when compared to other jobs in the industry like investment banking, research or even management consulting, that are all more centered around longer-term assignments (where you can make up for being a little lazy one day by working longer hours the next day!)
BP: I am responsible for trading investment grade issuers (high quality bonds) in the TMT (Tech/Media/Telecom) sector, and writing commentary, providing analysis and information to external clients and internal teams.
Q: Tell us about “the good, the bad, and the ugly” of your role?
The Good: As a trader you are assigned a lot of real responsibility quickly. If you are good at your job, you might be given the opportunity to generate profits early on, which also means that making mistakes might lose your firm and clients their money. Hierarchy is relatively flat so a director’s views will not be valued over an associate’s views purely because of seniority.
A trader gets a lot of exposure to senior colleagues from day one. Not only are you sitting next to your managing director for 10+ hours a day, but I’d say the entire team on a trading desk tends to become very close and you often end up hanging out in more social settings as well.
The Bad: As much as I’d like to say trading is a meritocracy, working at a big bank still comes with a lot of politics, so you’re sometimes forced to play the game with senior management, sales, etc. However, it’s probably less so the case if you are absolutely crushing it in terms of profits, but even then I don’t think you are entirely spared from the politics.
The Ugly: Things can get stressful and there’s no way around that. People yell (sometimes at you!), you’ll come across the occasional smashed keyboard and may even see tears on the floor every once in a while. This can be hard to manage, especially as a junior member since your college experience doesn’t really prepare you for such a change in your work setting. Then again, as a trader you have to enjoy the high-pressure nature of the job to some extent.
The Good: The adrenaline rush, high stakes, and competitive environment.
The Bad: Stressful days and some sleepless nights
The Ugly: Markets are unpredictable which can translate into bad years and potentially being fired if you haven’t generated enough profits
Q: What skills have you developed in your role?
JM: Working on a trading floor requires you to be in constant communication with the rest of the people on your desk, sales, brokers, middle office, and clients at times. This means you need to be very vocal (and sometimes very loud) or you get lost in the noise. Not communicating promptly or clearly enough will often lead to costly errors.I’m naturally a quiet person, so this aspect of being on a trading floor really pushed me outside of my comfort zone when I first started. This is is probably where I’ve grown the most since starting work. More importantly, you learn to think clearly under pressure and multi-task when everything is extremely time-sensitive.
BP: Communication skills have improved significantly. Valuing different types of bonds and analyzing client flows are key to surviving in the business. Understanding other markets and how they influence credit.
Q: What skills do you have to have to be successful in your role?
JM: In addition to having attention to detail, being self-motivated, and the ability to multitask, a good trader not only needs to be able to perform under pressure in a fast-paced environment, but they need to enjoy it as well. I’ve seen a few unsuccessful analysts come and go, some of them who are very smart, but just couldn’t adapt to the environment on a trading floor. They might realize that they prefer research which is more academic in nature.
BP: Communicating effectively and math/excel skills are important. The ability to understand company financials, ratios, and industry trends. A competitive personality will align well with other traders.
Q: What do you enjoy most and least about your job?
JM: I genuinely enjoy the day to day of the job, having to come in and perform everyday at your best is a challenge. The product I trade is complex enough that I still find it intellectually stimulating even after having traded it for a few years now. I’ve always enjoyed teaching, so training the juniors on the desk or managing the interns is something I find pretty gratifying.
You often take your “work home with you” which means you’re stressing out even when you have no work to do. This is especially true in foreign exchange where the markets are open and trading while you sleep. I suppose PnL can influence your mood even when you are outside of the office, but it’s something you learn to deal with.
BP: Unlike investment banking, our hours are much better with a typical day starting around 7 am and ending at 5:30 pm. I also like the thrill of taking on risk and potentially making/losing money. What I enjoy least is that the job can be stressful at times and I sometimes get woken up at midnight to talk to colleagues at our Hong Kong or London desks.
Next week rounds out our Industry Insiders Finance edition with Private Equity!