Q&A with a Junior Trader at a Bulge Bracket Firm in New York
My day begins at 6:30 a.m. I get in before my trader gets in to go over yesterday's trades to make sure that everything that was done yesterday matches with the trade details that are generated by our back office. The next thing I do is go over news headlines for each of our stocks. When my trader gets in around 7, I must have all of our starting positions confirmed, and somewhat more interesting, I discuss any news in our stocks to get an early idea of what my trader is thinking and to plot strategy for the day. This exercise is particularly important during earnings season, and although we try and stay as flat as possible overnight, the reality is that this is a customer-driven business, and we frequently carry substantial positions.
Although the market opens at 9:30 a.m., it is always trading on Instinet and other electronic crossing networks. We relay any noteworthy trades or indications to our salesforce, and also review yesterday's AUTEX trade volumes. AUTEX is a self-reported trade volume advertisement that each broker-dealer updates throughout the day. We have an internal research system that carries all the written notes that our firm's research analysts have written overnight. Of course I start with the notes that mention the stocks in my sector, but I'm a real market enthusiast and I try and read everything. It's great to be trading an industry-focused group of stocks, but it's also important to stay current with the bigger stock market picture. One of the major responsibilities I have had has been to build relationships with our firm's research analysts and to communicate timely market information from them to my trader, and also to the salesforce.
A fixture of our morning routine is the morning meeting, which is different from the morning research call. The morning meeting is an opportunity for the entire sales and trading department to get together and exchange information about large trading situations and any relevant news that may have been released overnight relating to the desk's positions. It's also a chance for us to grind the axe, so to speak. We try and anticipate what will happen throughout the trading day, especially if we had a large situation that we or our competitors are working on. We're also working closely with the sales desk to determine what is the best way to get customers to trade with us, and how to make sure that this incremental business is profitable.
Economic statistics are normally released at 8:30 a.m. I maintain an economic calendar since these numbers are frequently market-moving statistics. The market tends to focus on several economic figures at a given point in time. For example, when the economy is strong, everyone is worried about inflation, so the CPI and PPI are very closely watched. In recent years, with the economy has been weak, we've been very focused on initial jobless claims and the monthly employment report. The bond market normally reacts first, then the S&P futures react and often there are big head fakes, especially if there are large revisions in previously reported statistics.
Following the economic reports and some breakfast (which I fetch from the firm's cafeteria), my trader and I work on our indications. Indications are basically advertisements that we post to the buy-side to solicit interest in our stocks. These indications (buy or sell) are based on our prior day's customer activity, and our proprietary view on the stock. Our proprietary view is based on a combination of fundamental and technical factors. In theory, the way -- indications are supposed to work is that we go out as a large buyer of say, Intel. A buy-side customer who wants to sell Intel notices our buy indication, and the trade volumes that we've been advertising. It's very possible that he then gives us a call and we negotiate a bid for some portion of the stock that we think he has for sale, and this generates an order that we are able to work throughout the day. Of course, most of the time these indications don't go nearly as well as expected. (Quotes are essentially advertising, and a trader might find that when it comes to actually hitting a bid or taking an offer, the other side may not honor the price, or may not want to leave a working order.)
The next thing we do is adjust our markets to reflect our opening indications. Other dealers are jostling in the box for position. Buyers (or dealers who want to project the image that they are buyers) are joining the bid or moving the bid up. Sellers move to the offering side, and if they have an interest in lowering the opening price (or projecting the appearance that they are sellers) will lower the offer. It's OK for markets to be locked (bid price equals offer price) or crossed markets (offer price is lower than the bid price), before the opening, but by 9:30 a.m., markets need to be unlocked and uncrossed.
Q: What happens when the market opens?
The first five minutes of trading are pretty crazy. The buzz that has been building in the trading room since 9:00 a.m. explodes with the opening bell, and the trader focuses on the larger situations, and pretty much leaves the rest of his pad on autopilot. My job is to make sure that we're not giving away the shop on these smaller situations. I've earned substantial trading responsibility, and my trader doesn't feel the need to micromanage every single situation. I take orders, work the orders and in the process, I am building up my relationship with the salesforce here in New York and in the regional offices. Traders need to command the respect of the salesforce, and it's been really important for me to make prices and to work with the salesforce to meet the needs of the clients. The more trades I do, the more respect I'm able to earn from my trader, from the salesforce and ultimately from our customer base.
Q: How do you learn the business?
I'm also always keeping involved in the situation that my trader is working on, and keeping abreast of the larger situations on the desk. I can actually scan each trader's profit and loss on the screen, so generally looking at who's making or losing the most money is a good place to start. Learning in this business is pretty much all experiential, so the more I learn from others in terms of what works well in what situation with which individuals makes me a better trader. I need to pay special attention to the cast of characters involved -- what works well for one customer doesn't always work well for another customer, and it's important to keep learning from my own mistakes as well as the mistakes of others.
But make no mistake about it, a trading desk is all about business, and you can really do yourself a big disservice by asking stupid questions at the wrong time. Keep a notebook, write down your questions and at the end of the day after the market is closed, try and work these questions into your conversation with the trader. There's a smart way to ask questions and a stupid way to ask questions, so be smart about learning. Having said that, there's a grace period for every new hire, so the time to ask stupid questions (i.e., "How do I read this quote?") is at the beginning of your tenure.
Q: What makes a good trader?
Well, we've already touched on a couple things. It's important to be able to assess a situation and to make good prices given what's going on in the market and also the particular customer that's involved in the transactions. This comes with experience. Good traders don't crack under pressure but are able to think clearly and make the right decision, regardless of how much money they're making or losing. A good trader balances his need to make money with the interests of the customer.
Q: What do you enjoy most about the business?
It's a fast-paced environment and there's always something going on. I enjoy the challenge of thinking fast on my feet, pricing securities and making markets. Every day we start with nothing except our wits and enthusiasm, and it's our job to consistently make a profit. The trading environment is the closest thing to a true meritocracy that you'll ever find on Wall Street, and it's good to know that if I do a good job and make money for the firm, I'll be compensated accordingly.
Q: What's the worst part about your job?
We always eat lunch at our desk, and it's my responsibility to place the order and to pick up the food. Enterprising trading analysts always keep a stash of menus -- you can never have enough lunch options, and traders appreciate variety. Sometimes I think that I didn't sign up to be an overpaid lunch delivery boy, but it's all part of the process and everyone has to pay their dues. Sales-traders also eat their lunch at the desk, but they're a little less harried and can afford to take a little more time with the menus, since there's normally a lull in trading activity. Traders, however, can't afford to take their eyes off the screen, since even over the lunch time lull, prices are fluctuating.
Q: What happens to the trading analyst that just can't make it?
Trading is a meritocracy and you are only given responsibility commensurate with your ability to get the job done. Unsuccessful analysts generally are not given the same opportunities to trade as successful analysts, and typically at the end of the two-year program, if they haven't been able to provide a value proposition to the desk, then they're not hired on a full-time basis.