working with traders
Sun, 18 Jan 2015
I’m a big believer in the value and fun of talking and listening to a wide range of people, so I make a point to not just have friendships with people that work in banking/trading. It isn't surprising, then, that many of the people I talk to have a limited understanding of what banking/trading culture is like. That's not a criticism of them - I've got a pretty limited sense of what it would be like to work in a hospital or a major manufacturing company. I so often hear people who think it is like the Wolf of Wall Street - an awful environment which people would only work in for the money, not my experience at all.That, and the fact that i have a few friends considering a move into banking, made me feel there was some value in writing a post on what I like (and don’t like) about working in a trading environment. I hope it might also be interesting to people who are trying to ensure that other organisations are good places to work.
I’m now in my fourth role working with traders (the only jobs I can compare it to are auditing/consulting) - for a total of 10 years. The roles have been quite varied: analysis and pricing structures for a government treasury's traders, controlling valuation models for a bank, helping a bank's commodities traders manage trades, and now helping an energy trading company's traders use their models and systems to manage their trades. I should stress that none of them have involved me trading - that would terrify me - so I can’t fairly comment on what it would be like to actually trade.
I might as well get the subject of pay out of the way first. I'd caution against believing too much of the media hype about trader salaries and bonuses. Obviously multi-million dollar bonuses make better newspaper headlines than the reality that these sorts of bonuses are very much the exception. That isn't to say the pay is bad, and I won’t deny it is part of the motivation for being in the field. But it is rare to see people succeed who are solely or even predominantly motivated by the money. I expect that most of my colleagues would stay in their current job even if they could make the same money elsewhere.
In trading there is a very clear metric that defines performance (and pay): daily trading profit and loss. On the whole it is a sensible one for the company and the employee. It is transparent, it is what is ultimately valued by the shareholders, and it feels fair. That’s not to say that any of us believe that making profit is 100% down to skill and effort - we know there’s a lot of luck. But traders know how they’re being measured, so it feels fair.
Being assessed on profit does a very good job of discouraging long unproductive hours of work. If the markets are closed and nothing really needs to be done, people tend to go home - it is generally far more productive to be refreshed for the next day (or enjoy life with family and friends - yes, people in trading organisations are human!).
Traders and the companies that employ them are well aware of the danger of taking too short term a view, and in my experience it is rare that a trader will cheat or destroy a relationship to increase one day's profit. I reckon there's still room for improvement in this respect, and times when flawed incentives lead the industry as a whole to get it wrong, but I'd still say the majority of what goes on by traders is in what the company perceives to be in its best long term interest.
For me, the best part of the job is that you're surrounded by smart, engaged colleagues working together on interesting problems that are directly valuable (in the sense that your employer will make money from them). There is a lot of variety: some problems are technical, some involve lateral thinking or an understanding of how people and markets behave.
I like that we are incentivised to recognise that we don't know everything. Despite the stereotype, all the traders I've worked with knew that they were dependent on others (eg IT, analysts, risk management) to achieve their results. Mistakes and losses are tolerated and expected, lying or refusing to learn from them isn't.
Most petty politics that I’ve seen in companies seems to stem from insecurity. In trading organisations, most people know that even if their current job disappears there are plenty of other similar employers who they can work for. And, because the organisations are quick to eliminate people they don’t need, those that work there have good reason to feel fairly secure. As a result, I’ve always found our field to have less nasty politics than most other companies and institutions.
Good motivated people are worth a huge amount to managers and the companies. This gives them a very good incentive to treat them well, not just in terms of compensation but also in terms of removing pain points (eg managers that no one wants to work with). I also generally feel that though it isn’t a perfect meritocracy, there's at least a clear financial incentive to be more meritocratic.
There's a lot of money at stake on a trading floor, so it can get high pressured. Occasionally you get shouted at (it usually means the trader has made a mistake) but they are generally quick to apologise. And you still get lighter moments of joking and betting on sporting events. That said, the worst behaviours (bordering on bullying) that were once a lot more common, are now pretty rare.
For me, the biggest negative of the field is the feeling you can sometimes get that your work lacks a wider purpose. You can tell yourself that you are creating market liquidity, or that you're lowering costs, or ensuring efficient allocation of capital - but i don't need you to tell me that these sound weak. I'm sure most people in the industry have questioned the lack of purpose at some point or other. Some I'm sure regret their path, but maybe feel they couldn't survive the pay cut or wouldn't actually be capable of doing a more meaningful job. Others find meaning in other areas of their life - through family, or community organisations, or a startup they are planning on the side - this is something that I’ve been thinking about. And i suspect that plenty learn to deal with the lack of purpose and just enjoy the work.
I can’t promise that I’ll always want to stay in trading - but to date the positives have definitely outweighed the negatives, and led to me to mostly love my time working in this environment.
One word of caution: just because a company employs traders doesn't guarantee that the positive aspects I’ve mentioned extend throughout the company. Some organisations actively discourage non trading departments from displaying trading culture, and it is often inappropriate for risk managing or controlling functions to have incentives tied to trading performance. That's definitely something to look out for if you're looking for a trading culture but taking a job in a non trading area of a trading company.