Having covered all details with regard to the main types of trading activities and the way a trading floor operates, let us move into the typical career path of a trader. One thing should be settled from the get-go: the hiring process for traders is extremely competitive. Depending on type of the trading branch and/or product the trader is hired for, the investment banks put more or less emphasis on the academic credentials. One can notice that more and more MBAs and PhDs are filling the trading positions. The main reason is the high degree of sophistication required by the continuously evolving products on the capital markets.
Though there is no magical formula, a PhD or an MBA from an Ivy League school always comes handy when you apply for a trader position. In the recruiting process, top priority is given to the high GPA candidates with in-depth coursework in stochastic calculus, statistics and programming. However, the second-tier investment banks offer people with less glamorous degrees plenty of opportunities. Academic credentials often matter less than the trader’s ability to understand the market and predict its behavior. New traders must always possess a dynamic personality, intelligence and a rock-solid discipline to succeed in this field. The investment firms do spend considerable amount of money in attracting front-office people with exceptional know-how.
Candidates could take the direct approach and submit their job applications via the corporate web sites. Landing an internship on a trading floor at the age of 22 could very well mean a golden opportunity. Alternatively, individuals lacking particular qualifications could start their trading careers within the middle/back-office. Later on, the best and the most driven of the latter group could get upgraded to the trading floor. Regardless of the path taken, the trader must be able to understand the mechanics of pricing derivatives, the fundamentals in corporate finance, the macroeconomics and the money flow around world.
Apparently, a trader’s job looks simple enough. On one end of the spectrum, the plain vanilla trader should possess three key things: information, intuition and technical know-how. The first one is accomplished by using multiple screens, with platforms such as Reuters or Bloomberg, containing around-the-clock breaking news. Traders should possess a unique skill: to extract the information from scores of news. Sorting through the news could take more than one third of trader’s work day. Another third could involve watching the market. Very few people could figure-out the whole complexity of the forces that sum-up the direction of the market. The remaining third of the trader’s day is spent on market making, surely the job’s most repetitive task. On the other end of the spectrum, risk engineering and statistical arbitrage have been gaining massive ground over the last decade. These risky fields are based on the market’s stochastic fluctuations and pricing inefficiencies. The type of trader working in these fields is very quantitative, highly disciplined and efficiency oriented.
A new phenomenon could be seen on Wall Street lately: the gradual replacement of stochastic trading by program trading. The black-box machine is starting to play a more vital role in the new structure of any trading floor. Subsequently, expertise in the technical fields, such as mathematics, physics, engineering and programming, has never before played such an important role.
If you wish to become a trader, make sure that you possess all the pre-requisites and the reason for choosing such career is not called Ferrari. If those check-off, be ready for a bumpy but amazing ride. Good luck!
Toni,
How correlated are the Nikkei and Shanghai indexes with the S&P ? For example, the correlation coefficient between BET and S&P is 0.97 (decoupling when politicians start to “make their number”) but anyway, it is very very close to 1.
Thank you,
Bogdan
Bogdan,
You are right on the CORR. This is the first stage when people have to get used to the basic principles. As a quick fix you could allocate 40% to an index and the rest to FX and commodities.
First of all I would like to congratulate you for this blog, a very useful source of information and opinions from a professional guy like yourself.
Also, people like you make me proud to be a Romanian and your success makes you a role-model for me and another proof that even we, Romanians, can achieve great things in this enormous and very challenging financial field (on Wall Street,City of London etc.)
Now, what could be more gratifying for me than this article, as becoming a professional trader is my career goal. However, in Romania there are few opportunities to start a career (I am in the last year on my master degree) in this field but let’s hope things will improve from this point of view in our country. If not,… the borders are open and a lot of flights to London. That’s why, I would like to ask what do you think about the financial markets industry in Romania, and if you see any growing chances for this field.
Thank you again for this very useful article.
Regards,
Rares
Rares,
I am glad there is something in my blog you enjoy reading. I have my own opinion about the trading environment in RO. I could share with you my viewpoint, offline definitely.
Toni said :”I am glad there is something in my blog you enjoy reading. ”
With your permission, I would like to make a correction to that sentence
: I enjoy reading all the articles from your blog,not only this one, and this blog certainly gained a new reader 
.
As far as I now (at my 23 years I don’t have the connections to know in-depth details about this), the only companies in Ro that actually are involved in the trading field on foreign markets are the banks, on FX, and very very few asset management firms. That’s why “wannabe traders” have few chances here.
But we hope for a change.
Rares,
To more stuff you enjoy the merrier.
Like you noticed, the bulk of the trading going on in RO is the FX market (mainly plain vanilla products). As you probably know trading is much more than that. Now it is your call which way to go.
Toni,
You were talking about programming skills … what kind of languages are looker after ? Databases like SQL or C, C++ or ???
Dany
C++ , .NET, Java and so on and so forth…
Toni,
Thanks for the info.
1)specific for databases is it SQL right ?
2) why does the trader need all that programming skills when the IT department should do more besides setting LAN’s and attaching printers and all that ?
3) I don’t know but for me at 22, from what I read it looks like there is: advanced finance/economics education, advanced IT (programming even), advanced statistics and I guess also interpersonal skills and all that … For me that is just crazy ! I am not sure but I could make an analogy with the skills, responsabilities and qualifications being a surgeon …
Dany
Dany,
You have plenty of time to figure out what is good for you. Not to mention the fact the finance world would go through some changes in the near future…
Toni,
Yes there is plenty of time but I’m just shocked a bit by the amount of skills/knowledge needed (finance,IT,stats etc) .
Changes in the near future … hmmm … what do you mean … I didn’t see any notable financial reform even though it happened what happened … ?
Could you please answer me regarding 1) what do they use for databases, is it SQL,Drupal or ?
Thx and have a good one,
Dany
Dany,
Since I am not a developer, I cannot give you an expert answer. Definitely, SQL is part of the game, but it is much more than that. About the career path, don’t worry, you’ll figure it out … one day.
Toni,
A bit off-topic. When things like this happen (severe fin crisis), would anybody ask themselves what’s the point of 1200 pages risk management books with all those formulas/models and all that advanced calculus crap ?
I mean this is not “some investors lost money in the stock market” but damn it, a lot of people had/have no jobs to support their families or start robbing, committing suicide & other illegal stuff.
Dany
Dany,
Believe it it or not, the risk management models are as good as the pricing models are. I happen to know this from inside. From one point onward, the models become useless. I trully believe that.
Toni,
Ok, then it must have been a “black swan” right ?
Dany
Dany,
To me the whole story with the black swan is a non-sense.
Toni,
Ok then what’s left is the asset bubble right ? Asset bubble, been there seen that … why nobody saw this coming ? All the wall street “rocket scientists” … yeah right …
Dany
Dany,
As a matter of fact, I saw the first bond drawing blood in December 2006. In July 2007 the Bear Stearns hedge funds went under, and the rest is history. Many people saw the disaster coming…but not the quants, necessarily. However, nobody I know had a clear picture on the magnitude of total writedowns…
Toni,
If not the quants who? Financial visionaries like Roubini, Taleb & others ? Where were the finest PhD’s who spend countless hours in research, analysts from the investment banks, FED, risk management departments etc etc etc ?
CEO’s I don’t think so …
Maria
Maria,
To tell you the truth, I do not know ANYBODY who had a clue about the magnitude and the duration of the global crisis. However, there are few guys without PhD degrees that feel the markets million times better than any quant on the Street. Just trust me on that!
Toni,
Hmm … and I thought quants got it all and make it all … interesting … I will take what you said.
Maria
Maria,
You definitely had a distorted picture.
Toni,
That is very interesting. Like Maria said, I also thought quants got it all …
BMM
Bogdan,
No way…Most of the quants are completely off…
Toni,
Had I made a bet on this topic I def would have lost. Because for the that is so counterintuitive …
Anyway thx a lot,
Bogdan
No problem.
Tony,
2006 … to whom belonged that one ? I’m asking because if I remember well in 2006 where just the first signs of house prices tempering and falling down a bit in San Diego … the reaction in the first blood came that quick ?
Why the black-swan theory is so non-sense to you ? Please give me a good counter argument for that.
Dany
Dany,
The HPI peaked in the Q2 of 2006. Florida and California plus Las Vegas and Phoenix opened the show. The bonds I mentioned were HELOC type issued by…Bear Stearns. When you have negative equity on a property, HELOC becomes worthless…right? So, no surprise there.
On the black-swan topic, there is a long story behind. We will discuss it…one day.
Toni,
Zandi says in his book “signs that the boom was ending appeared in sping 2005, in places such as Boston and San Diego”
One more from mr “objective” Zandi or when you said FL CA LV you were referring like the big states who played a major role in the housing bust ?
Bogdan C
Bogdan,
I do believe that including Boston on that list is completely wrong. The housing bubbles were mainly in CA, FL, NV (Las Vegas) and AZ (Phoenix). That’s it.
Toni,
In your opinion, who takes most of the stress ? The broker, analyst or trader ? I def refer to stocks here.
Maria
Maria,
First of all, let me welcome you to my blog.
Strictly professionally, I do think that the borkers are under the most stress, then traders and last…analysts.
Toni,
Thanks. hmm again this is interesting … why brokers the most ? because they take all the “stuff” from the clients or ?
Maria
Just because they are the top of the piramidfront of the pack and they have to know everything that is going on in the world on that specific underlying market.
Toni,
Traders also have to know what is going on in the world no less then the brokers … and in comparison with brokers, that also have to make on the spot decisions whereas brokers not really … don’t they ?
I do therefore disagree with the ranking, unless you could bring in more arguments.
Thank you,
BMM
Bogdan,
You have the right to your opinion. Think about the specialist on the floor of NYSE vs. a flow trader at GS: who knows more about a listed stock?
Toni,
Yes … that makes sense …
What about the ranking on the BSE? It’s a different story from NYSE definitely.
BMM
Sorry to say, but I have no idea about the BSE…
Toni,
What is the main reason of placing “and last … analysts” on the back of the pyramid ?
Dany
Dany,
That;s very easy. Simply because they bear practically no risk…hence no stress.
Toni,
I see the trader’s risk but where is the broker’s risk ? My ex broker which I was saying was bearing no risk: just telling me basically what the analysis department conducted and putting my trades in their system, thus trader executing + informing me about “the news”. (I refer here to BSE, got no idea if the process goes in a different way at NYSE)
Dany
Dany,
You are a kid. Please, do not draw conclusions on a market that does not resemble reality. I have no idea what the BSE broker are doing. But I know what brokers do here.
Toni,
Why I keep hearing including analysts or professors not just journalists blaming Greenspan for the mess? Greenspan did raise interest rates way before the burst starting from June 30 2004 as it is shown (http://www.federalreserve.gov/fomc/fundsrate.htm) and historically, he did it right after each of the 8 past events … I really believe him when saying “I Didn’t Do It” … what do you think Toni ?
Maria
Maria,
Personally I respect Greenspan and I do not blame him for the subprime crisis. However, the prolonged low interest rates had some negative effect down the road, but this is a different story.
Toni,
It must have had some effects but there were a lot of other countries with low interest rates and housing prices booming even better than in US that did not suffer (at least not that much)… If I remember well Canada had low int rates, too big to fail financial institutions and housing market pretty good … isn’t it ? So … me too, I wouldn’t point the finger towards “Maestro”.
Maria
Yes and no. How many Canadian banks have assets over $1 trillion? Wat is the size of the housing market there? How much Structured Finance deals were issued by CAN banks?…And the list of questions can go on…
Toni,
I started online at the BSE but after I started to have other things to do, I passed the investment and portfolio with an assisted account with a broker.
I was surprised to know that I knew more than my personal broker which was in the market since 2005. And this in the condition that I’m definitely not showing off or I was an expert or so …
Dany
Dany,
I believe you 100%. That’s a good lesson for others like you. Do your homework first before you handle your money to a stranger. If they don’t know the subject they should not get any commission at all. Right?
Toni,
Definitely no … it was even a 1%/transaction. Anyway I had a bad surprise but I do have to mention … their analysts and traders maybe knew the subject better and after all, not the broker decides which is a buy and which is a sell … but still, it was at least embarrassing for me the situation in which I was speaking with the broker at the phone.
Dany
Dany,
For future reference oursource things that you cannot do or those that you do not have time doing them.
Toni,
Could you please give a recommendation for a book concerning financial/fundamental analysis and / or valuation regarding analysis of stocks ?
Thx
Dany
Dany,
I will get back to you after a careful analysis. Forget about stock valuation…it is a guesswork at the end of the day.
Toni,
I’ll be looking forward to that. I would really appreciate.
Regarding the stock valuation issue, it would be great if you could develop a bit more the “guesswork at the end of the day”. What do you actually mean by that ?
Guesswork in the sense for exemple, in DCF if you use a certain future “projection” taking into consideration a discounting an x or y amount now and suddenly using another one in a short/long period of time based on subjective / guessed based measurement inputs ?
Dany
Dany,
You got to be kidding me. Who in the world would be able to give me a reliable forecast for at least 20 quarters (4 x 5 years) of sales, COGS, B/S, Yield Curve, samd. The best price for a stock is the supply-demand driven price: the quote. Everything else is analysts’ blah-blah. Sorry, but this is the truth.
Toni,
I’m very interested too in a book name you were talking. I’ll be looking forward.
Coming back … you do have a point with valuation … anyway what makes the difference between a good analyst and the average analyst ?
Maria
The difference sholdd more or less around this one: access to information. Back in the days analysts and CEO/CFO played golf regularly and definitely had access to information.
Toni,
What about in terms of skills ?
Maria
Maria,
I assume a good analyst should have stellar analytical skills, a very good understanding of the sector and deep knowledge of macroeconomics and accounting
Toni,
What happened with PALM today ? that was crazy …
Dany,
As you know Sun evening it has been reported that PALM hired GS to find potential buyers for the company at around $1 billion. Yesterday, Huawei and ZTE seemed like a good match for money-losing smartphone maker.
Toni,
What’s the difference when one claims good quantitative skills or the other one good analytical skills ? Isn’t it the same ?
Maria
Maria,
They are not the same. Quantitative skills do require more knwoledge.
Toni,
Looking forward for the book, very interested too
BMM
Bogdan,
You can start with this book: “How Charts Can Help You in the Stock Market” by William Jiler. Let me know if you need a more advanced level!
Toni,
Can you bring in one for fundamental analysis ? thx
Dany
Dany,
That’s a different ball game. You need a comprehensive analysis, including accounting, finance, macroeconomics, business model knowledge, sector knowledge, taxation, and so on and so forth. Not to mention the fact that you have different types of capital markets products: stocks, bonds, currencies, commodities. Let me know where to start!
Toni,
Huhh … now that is something.
I was not clear enough that’s true. Specifically I’m thinking about fundamental/financial or financial statements analysis like some say … starting from liquidity/solvency ratios, valuation multiples etc to more advanced type of analysis … Of course, I guess there is not 1 only book which covers tha basics and the advanced stuff too … but we (the other guys which mentioned about the need of a this type of material) have to start from somewhere regardless if we know something or not.
Thx
Dany
Dany,
You got that right. Maybe a training course would help. If we find more people interested, I might accomodate that.
Toni,
I’m in for sure
Karl,
The same answer. I don’t like doing sloppy jobs. Why don’t we do the following: I will put togther something and distribute to everyone that might be interested. In the meanwhile, let me know via my personal e-mail (tonicany@yahoo.com) what topics would you like to hear.
Toni,
Sounds great for me … I will spread the word
BMM
Bogdan,
The same answer. I don’t like doing sloppy jobs. Why don’t we do the following: I will put togther something and distribute to everyone that might be interested. In the meanwhile, let me know via my personal e-mail (tonicany@yahoo.com) what topics would you like to hear.
Stocks all the way
That should be easy…
Toni,
I understand. Ok and if one knows pretty good technical analysis, is that a quant or a analytical skill ? It may sound dum but I asked some people in the filed in RO and I can’t find a common denominator.
I would be greatly interested in the fundamental/financial analysis issue discussed. I will let other people know too …
Maria
Maria,
I don’t like doing sloppy jobs. Why don’t we do the following: I will put togther something and distribute to everyone that might be interested. In the meanwhile, let me know via my personal e-mail (tonicany@yahoo.com) what topics would you like to hear.
Toni,
I see … I will let you know. Meanwhile could you please answer my q regarding TA if it is a quant or an analytical skill … I’m still confused by what “others” told me. Thx
Maria
TA is not quant any day of the week.
Hello, I have been reading your sites content for a while now, actually, probably since you started. It consists of very intriguing and informative content. I love to start my day off at times just by browsing through and seeing if there is anything new up on the site. Good work, I really hope you can get in touch with me and we can possibly have a chat together. Would love that.
Jenny,
You can get in touch with me, via e-mail: tonicany@yahoo.com