By Karin van Wyk
Traders, those gladiators of financial markets to quote Willem Reitsma (i), and what they do, seem mysterious and awe-inspiring to lesser mortals outside of the industry or those of us aspiring to get there. What do they do on a daily basis? Are there more than one kind of trader? What qualities should one have to be successful (apart from being a party animal, I hear!)? There is no better place to find out what makes traders tick than to ask a trader. The Sanlam Investment Management Dealing Desk gave us some pointers.
Who are these people?
Traders are the people that buy and sell financial instruments. It sounds simple, but it is far more complex than first meets the eye.
Firstly there are traders in many different businesses. In the financial world you’ll find traders at Banks, Insurers, Stockbrokers and Investment/Asset managers. Within these institutions there are a variety of traders differentiated by their skill and instruments they trade in.
In all these institutions there are Bond and Money market dealers, trading fixed interest instruments and their derivatives. Equity and Equity derivative traders, deal in instruments listed on stock and futures exchanges around the world, while Foreign exchange dealers would be found at the treasuries of all the banks, where they make or loose big amounts of money with every small move in the currency rates. Also at most of the banks you’ll find commodity traders trying to maximize profits applying their skill in the precious metals, base metals energy or soft commodities markets. In the local soft commodities markets we experienced a big growth in the trading of Agricultural Futures. Even in this market the traders, deal for their own account (proprietary) or on behalf of clients (farmers and agricultural co-ops) hedging their exposure to the future price movements of the produce.
Proprietary traders are a different breed. They utilize the capital of their business to make markets in financial instruments. They also take directional bets in these instruments or arbitrage mispricing between instruments listed on more than one exchange or related securities.
Traders are administrative aces. Yes, that is correct, that most despised of talents (usually within the province of the female sex) is actually of prime importance. For example, if you misread the order price or book a deal incorrectly, dire financial consequences may follow and clients cannot be expected to bear losses arising from administrative negligence. So you will be on the line.
They enjoy change because markets change rapidly, causing volatility, and they should be up to date with the latest market movements and trends. They gather information by reading all available information and must be able to evaluate what impact that information would have on the various counters that they are dealing with.
They are excellent communicators because they need to communicate price and market news with regard to a specific counter clearly and succinctly to a portfolio manager or other intermediary.
They are computer literate because dealing systems are electronic and even communication is increasingly being done electronically. The leading buy side dealing desk send their instructions to intermediaries in an electronic format these days.
They work in open environments where they work with many other people. The dealing desks are usually open plan, so you have to make peace with having a not so private, private life.
They have to be masters in diplomacy, because they work with dynamic people (a euphemism for difficult). The combination of a “dynamic” portfolio manager and a moving market can be fatal to the career of a trader.
They have to adhere to certain compliance rules that eliminate.
And finally, good looks and charm can only help, says the SIM boys.
A typical day of a trader
Every day in the life of a trader is different. There are so many influences on the different markets and instrument traders are involved in. As an example: Any movement in currencies affects not just the currency traders but also commodity, equity and bond traders. Any price movement in a commodity, let’s say Gold, affects the actions of commodity traders and equity traders, as this price changes not just affect the price a trader would buy or sell the physical gold at, but also the valuation of a gold mine and its price an equity trader would purchase or sell a share in a gold mining company.
The daily routines of traders differ. The sales traders at stockbrokers doing the most turnover on the JSE are generally early birds. They’re in the office at the crack of dawn, scanning world market reports and preparing updates to provide to their clients as they arrive for work. Traders working at the different institutions are bound by the routines created by their investment teams. Traders generally attend a meeting every morning providing feedback on the markets they traded in. Thereafter they would receive instructions from different portfolio managers to execute in the markets. These portfolio managers could manage anything from a hedge fund or unit trust to a pension fund.
Traders trading with propriety monies do not have any routine. They just need to make as much money as possible with the capital at their disposal. These traders come and go as they like and generally avoid attending meetings, but would mostly be glued to their screens during the hours their particular market are open.
The JSE (Equity and Derivative market) have certain hours of trading, while the Bond and Money market haven’t got such strict opening and closing times.
Tips for aspiring traders
The Trading Team gave the following tips to aspiring traders:
- SAIFM —> RPE
- Technical courses
- CFA (especially if you want to grow further in other fields)
- Presentation skills
- Extroverted personalities
- Other languages
- Social skills & involvement
(i) Trading as a profession- Financial Gladiators – Do you have what it takes, Willem Reitsma SA Financial Markets Journal, October 2005.