To succeed as a trader, a trainee must first navigate the minefield of their first few months on the job. It is important enough that in Trader Construction Kit I devote an entire chapter to the challenges of assimilating into a trading desk. As the class of 2017 prepares to shake off their crushing post-graduation hangovers and seek their fortunes in New York, Chicago, Connecticut, London, Paris, and Frankfurt, here are some pieces of practical advice that I wish I’d had at the start of my career:
1. It’s not going to be like a job at a tech start-up.
2. A new hire is no longer a beautiful and unique snowflake.
3. Trainees don’t have a name until they earn one.
4. A junior trader will need support from a variety of other groups to succeed, so better start cultivating it.
5. There is a massive difference between academic understanding and practitioner mastery of the same material.
6. Learning and assimilating the corporate culture is everything.
7. There are a million ways to self-sabotage, choose none of them.
8. Opinions are formed very rapidly, and second chances are rarely given.
9. There are different rules for different people.
10. It’s a competition, so start competing.
1. It’s not going to be like a job at a tech start-up.
In contrast to well-funded start-ups where seemingly every n00b coder is welcomed with an avalanche of corporate-logo swag and a personal robot smoothie valet, new arrivals on a trading floor will typically face an altogether less hospitable greeting. In the best-case scenario, they will get the desk, chair, and computer previously employed by the most recent person to get fired. In a firm where “our most important asset is our people”, they may rate a terse “Hey” from the stressed-out zombie sitting across from them and, maybe, directions to the bathroom.
This coddling gap can be hard to stomach when, after being operatically berated by a belligerent MD with a hair-trigger temper, the recent grad sees an Instagram selfie by their ex-roommate on a kite-sailing boondoggle in St. Barthes to celebrate the killer launch of their new mobile app for pets. Guess who just happened to run into the Hadid sisters on the beach! Like? No! Do Not Like!
2. A new hire is no longer a beautiful and unique snowflake.
MBA students from top-flight universities have been groomed to be the future leaders of the world, special people with unique talents and limitless potential. PhDs from top-flight universities are even more special, like magical unicorns covered in genius dust. Imagine how they must feel when they arrive on the trading floor, chock full of potential and genius dust, only to be called a dumbass by a Cro-Magnon trader with a Bachelor’s degree from a community college. How dare they! I have an asteroid named after me. A big one!
The somewhat depressing revelation for many expensively educated hires is that, at a top-flight financial institution, gaudy degrees and cited contributions to basic science are extremely common. “Chess Grandmaster? We have four already. Now that you’re here, we have enough for a basketball team. You can play the String Theory PhDs from Risk Management.”
3. Trainees don’t have a name until they earn one.
Nobody on a trading desk bothers to learn a new person’s name until they do something to distinguish themselves, good or bad. To compensate, most new employees end up with some sort of a behind-the-back nickname, which can range from cruelly dehumanizing to totally bad-ass. Sure, everybody wants to be “The Punisher” or “El Diablo”, but sadly, most people end up as “Tuna Sandwich Guy” or “Lax Bro #4”.
They shouldn’t get upset, and they shouldn’t take it personally. It happens to everyone. When they become a senior trader (if they become a senior trader), it will be their turn to be too busy grinding their teeth and staring in horror at the wreckage of their crude oil position to pay attention to what’s-his-name sitting across from them wearing a Brine Lacrosse polo shirt and eating a tuna sandwich.
4. A junior trader will need support from a variety of other groups to succeed, so better start cultivating it.
As seen in this excerpt from Chapter 16 – Navigating the Corporate Culture of Trader Construction Kit:
“The modern professional trader is almost never a lone wolf. At anything other than the smallest shops, he will rely on a variety of support functions from deal entry to risk management to analytical and operational support. The ability to productively interact with the other groups on the floor and the other traders is critical.” [1]
Building those bridges as a new hire can sometimes be tricky, particularly when dealing with on-desk analysts and risk managers that were never considered (or passed over) for the open trading job. They will often choose to take out their frustrations on the person who was hired in a passive-aggressive fashion. This is doubly problematic if the newly-minted trader relies heavily on them for informational inputs, or is subject to their risk management oversight. There is no easy solution, but one productive approach is to remind the slighted analyst or risk manager that the only constant in a trading organization is turnover, and that maximizing their interactions with the desk (including its newest inhabitant) is the surest way to improve their chances at the next job.
5. There is a massive difference between academic understanding and practitioner mastery of the same material.
Some new hires (particularly those with asteroids named after them) feel compelled to prove this point early in their career by voluntarily lecturing the senior traders and management on their deep, penetrating insights into the market gleaned from their Advanced Topics in Finance capstone project. This tends to go poorly. Almost by definition, nothing a trainee trader says for the first three to six months is good for anything other than the amusement of the rest of the desk.
One of the primary tasks of any new trader is to identify their particular knowledge gaps relative to their more experienced colleagues, then seek to close them as rapidly as possible. They must read all of the relevant industry research and analysis, study the benchmark texts on trading (a list of resources can be found here), ask questions, and accept all offers from more experienced traders to sit with them and have them explain the nuances of their market. The lack of practical market knowledge is the most glaring deficiency common to all new hires, and it is completely understandable. You can read as many books about proper swimming technique as you want (including my forthcoming 624 page textbook, Swimmer Construction Kit…just kidding), but that body of theory does not compare with what you learn in five minutes when you jump in the ocean and try to keep your head above water. There really aren’t any shortcuts to understanding how a market works, which comes with time, focused observation, and continuous immersion.
6. Learning and assimilating the corporate culture is everything.
Again, from Chapter 16 – Navigating the Corporate Culture of Trader Construction Kit:
“The trading floor is a workplace unlike any other, and can vary significantly from firm to firm. The atmosphere on the floor is determined by the trading culture, and the trading culture is determined to a great degree by the head trader and his lieutenants. Some floors are hushed libraries of academic intensity, silent except for grinding teeth, mouse clicks, and the soft snap of Advil and Adderall bottles being opened and closed. In a more clubby atmosphere one might see formerly staid bankers slouching around at a hedge fund in polo shirts and deck shoes, alternating world-weary market chatter with shot-by-shot analysis of the last round of golf. At a global financial powerhouse the floor will be a football-field-sized maze of desks, screens, and over-dressed stress cases ready to out-intense the other ex-lacrosse bros for a chance at the Associate Junior Vice-President slot opening up next fiscal year. At a scrappy up-and-comer the trading room will be furnished with homemade plywood desks and lawn chairs, and the three founders will try to out-gamble their cash burn in their shorts and flip-flops while playing first-person shooters on the office Xbox.
Succeeding as a trader is dependent on being accepted on the floor, whatever its quirks and characteristics. It may feel disconcertingly like being back in high school.” [2]
Please note, I’m not suggesting that a conformist attitude is in any way mandatory. Ideally, the trader would have researched the firm’s culture as part of their interview preparation (some thoughts on that here) and chosen a firm that was a good match for their personality. What I am saying is that the early days on a trading floor are not the time to ruffle feathers, pick fights, or in any way piss off the people that the junior trader desperately needs to learn from to survive. An awareness of and sensitivity to the unwritten cultural rules will go a long way to helping the new hire integrate onto the desk.
7. There are a million ways to self-sabotage, choose none of them.
Chances are, a recent graduate at a finance firm will be living in a new, exciting city and getting their first taste of real money, which often leads to all sorts of extracurricular bad behavior. Beware, it is entirely possible to party yourself out of a job, particularly when taking into consideration…
8. Opinions are formed very rapidly, and second chances are rarely given.
One last excerpt from Chapter 16 – Navigating the Corporate Culture of Trader Construction Kit:
“As discussed in Chapter 14 – Managing Positions, sooner or later every trader will have to deal with a significant losing position. Young traders are particularly vulnerable, due to their relative lack of experience anticipating dangerous market conditions, aptitude at handling them, and absence of built-up credibility with the desk and senior management.
The first disastrous trade is frequently a career-defining moment for a young trader. If he manages the problematic position efficiently and acquits himself in a professional manner, he will earn respect and a continued ability to do business. Making a bad situation worse and exhibiting poor behavior will likely ensure that the trader’s first bad trade will be his last.” [3]
Most early-career traders fail to understand exactly how thin the ice beneath their feet is during the first few months until they find their footing and start to produce meaningful profits for the firm. The most common mistake is over-aggressively sizing their positions and risk tolerances relative to those of their more experienced colleagues. For a senior trader with a $50M target and $20M annual stop-loss, losing $1M is a bad day at the office, nothing more. The same loss for a junior trader would likely be devastating, particularly if they compound the error by not exercising good discipline, losing control of the exposure, and failing to show the proper degree of respect for the firm’s capital.
9. There are different rules for different people.
As I mentioned in the recent post titled Making The Transition from Support Group to Trading Desk (which can be read here):
“It can be difficult for support staff to understand (or stomach) that there are two sets of rules, one for the trading desk and one for everyone else. Profitable traders are often granted an almost incomprehensible degree of behavioral latitude, frequently going unpunished for actions that would mean discipline or dismissal for an employee that wasn’t currently up $50M for the year. It’s not right, and it’s not particularly fair, but it does happen.“
Trading is all about production. A proven money-maker, particularly a big hitter, will quickly develop a level of importance to their firm that will obscure almost any negative characteristics or actions. An unproven junior trader will not be cut anything like this level of slack, and it is critical that they understand this before overstepping their bounds and committing a damaging faux pas. They must also be aware that the latitude that profits grant is quickly erased by drawdowns and underperformance. It’s all jeans and flip flops and coming and going as you please when you’re up, but the second the P&L goes negative its back to 12 hour days in a suit until you earn it all back.
10. It’s a competition, so start competing.
I characterized the first few month on a trading desk as a minefield, which would logically suggest an approach built on caution, deliberation, and measured progress. The problem is, it actually a race through a minefield. Being first to get up to speed on the market means first to get a trading book, which means first to generate P&L, which means the best chance to be the top performer at the Junior/Assistant Trader level, which means the first to be promoted to Trader, etc. Everything on a trading floor is first, fastest, or best, and the reward for being any or all of those is money. Lots of money. Better get going. Chances are someone in your class read this post an hour ago and is already on page 34 of Liar’s Poker.
Good luck.
[1, 2, 3] Excerpts from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights reserved. No part may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the publisher, except by reviewers, who may quote brief passages in a review.