Joris spoke to this trader about the complex world of derivatives and the more relaxed culture in continental Europe. Join him from 7pm in the thread
'The culture is so different. We try to build relationships with clients who invest money in real companies, for the long term'. This comes from a recent interviewee who specialised in shares (equity) and who was lamenting the rise of derivatives – financial products such as options, swaps and futures that can be almost infinitely more complex than simple shares. Today's interviewee is one such derivatives trader:
"Fifteen years ago this job was completely different. Earlier practitioners would be standing up for 10 hours in the 'pit', estimating option prices by plugging numbers into a basic calculator (big fat finger error risk!), shouting and waving hand signals. These days you sit in front of many computer screens, clicking and updating code. Lunch would occasionally be my left hand drinking soup and my right hand on the mouse. Trading options is ideal for someone who likes being in front of a screen."
News programmes continue to illustrate financial news with evocative footage of shouting men in a trading pit. But almost all of those have gone. This is how the interviewee's day starts:
"I switch on my seven screens. There are many programs to log into. I sort each data feed to update me preferentially on news in the underlying names I trade and on macro developments. I ensure my connections to all relevant exchanges are functioning. I calculate hedge limits and input them into the order book. I make sure all this is done before 8.45am, as the market opens at 9am. At 9.01am there can be some juicy trades – you want to be fast."
Equally interesting to see is just how mathematical trading has become. If you're an outsider to finance like me, or you are working in an area of finance far removed from derivatives trading, you are unlikely to follow everything the interviewee says about his work. Still it's worth skimming if only to get a sense how far removed this kind of work is from the old idea of a market where buyers and sellers physically meet to haggle over the price of something tangible like a cow or a loaf of bread. One sentence to get you in the mood:
"Firstly I look at option 'greeks' (first-order derivatives such as 'delta', 'vega', 'theta' and 'rho' and then second-order derivatives like 'gamma', 'vanna' and 'charm'). When you're trading 'vol' (the annualised standard deviation of returns of the underlying instrument) you're hypothesising on how much an instrument is going to move. You want to optimise your various ratios (gamma/theta) at different strikes to ensure that you have bought and sold optionality at good levels."
There is much more good stuff in the full interview, for example about being a migrant worker from the third world, and this observation about the difference between London and the smaller financial centre in continental Europe he used to work in:
"Seniors [in continental Europe] don't make juniors get food orders. No need for pinstripes. It was completely natural for the secretary to join us for a drink. And it wasn't like London where sometimes you can't take your full annual leave without worrying what signal that may send out."
Or look at this:
"Some derivatives traders take nearly three hours every day to calculate the value of their positions (...) You're asking how a risk manager would oversee a dozen traders like that, each in his own little field. Well, as an options trader you are your own risk manager – particularly at a smaller firm."
• Please read the interview in full if you are thinking about leaving a comment. The interviewee will be joining the discussion after 7pm London time today.
Read on
• This banking blog features interviews with more than 80 insiders across the world of finance. Here is a guide to help you find your way. For insiders there is this index of interviewees ranked by activity. Are you by any chance working in human resources in a bank, or are you a trader in government bonds? Please help this blog: jlbankingblog@gmail.com. Anonymity guaranteed.
• This recruiter has some incisive things to say about the "post-national" financial workers, such as today's interviewee, that the recruiter works with: "Solidarity for the new global elite is not geography-based or tied up with a state."
• This derivatives trader does work at a major bank: "The trouble is, regulators are idiots. I am sorry to put it so bluntly but you can't expect it any other way."
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| READ THE ORIGINAL POST AT www.guardian.co.uk |