Sunday, July 21, 2013

A day in the life of ... A Trader

"Climbing isn't about conquering the rock. It is about conquering yourself." -- Jim Collins
The same can be said of Trading.

All most people know of trader's jobs is what they see in the news media and movies. Obscene amounts of money in compensation, scams, scandals, a lavish lifestyle, and then ruin in one form or another. From this a trader's life appears rather glamorous. Sadly, in reality, nothing could be farther from the truth.

The job of a trader is a very demanding one. It involves tracking the market closely for the asset class you trade, looking at various instruments within the context of the market, and taking positions either long (buy) or short (sell) in them. Once in a trade, the trader tracks the P&L of the position, cuts the losers, and rides the winners, and makes a tidy sum (for his firm) at the end of the day... or so the theory goes. All this of course, is much easier said than actually done, as any trader will tell you. This also explains why there are so many traders, and so few consistently successful ones.

Traders are of different types: Sell-side traders trade for investment banks. They make markets, executing orders for their buy-side clients, meet with their clients every once in a while, and sometimes take active positions to make the tidy P&L we spoke so fondly of in the previous paragraph.

Buy-side traders tend to execute trades sometimes at portfolio manager direction, or at other times, trade their own book.

Trades may last anywhere from a few milliseconds all the way to days and weeks depending on the reasoning and methodology behind how they are executed. The ideas behind trades may be fundamental (derived from sound economic principles), technical (based on charts), quantitative (based on numerical methods and data), or systematic (based on a model).

A typical traders day might look something like this:

0630: show up at work, digest all major news stories, study your 
till  book, prepare for the day. mark all open positions, look 
0730  at which ones are approaching take profit or stop-loss 
      levels, prepare to trade these 

0730: morning meeting with other traders in the sector to 
till  discuss ideas (whether this meeting exists is strictly 
0800  firm dependent)

0830: look at trade ideas, look for opportunities, look at the 
till  model, the market, events, study your book, enter and exit 
1800* positions. if buy side trader, can leave overnight orders 
      with sell-side traders before leaving for the day.
      if sell-side trader, might have one or more client 
      meetings during the day, in which case someone else from 
      the desk will cover for him.

      traders might run sophisticated models during this period 
      as well. some firms have fully automated trading systems 
      that are built and operated by teams of ex-engineers
      and code-gurus.

1830: if buy-side trader, leave boss a note on all overnight 
      orders. all traders note their day's P&L.
      go home, but be aware of market events

* different markets close at different times. also, part of the day might be spent chasing the clearing of earlier trades with the help of middle- and back- office personnel.