Blog: Against the Gods – A day on a London trade floor
|Datum:||23 januari 2018|
Working in energy or finance as a trader or analyst can seem rational and automated but it also involves dealing with randomness. Find out about a dynamic and diverse day in the life of a trader in this blog by a professional from a London trading floor.
“Against the Gods”, refers to Peter Bernstein’s 1990s book that tells the story of probability and how long it has taken man to come to grips with the concepts of uncertainty and risk. Having spent the last 8 years on trade floors in Geneva and London has shown me how far we have come since the days we believed events were due to the whim of the gods, but also how we still struggle to overcome our tendency to be fooled by randomness. In spite of rapid automation trade floors remain very human places, where the need to fit every price move into an overarching narrative ensures trading at times still resembles more an art than a science.*
On the trade floor the day starts between 6:30 and 7:00 am, and whatever they say you never really get used to it. This allows for about an hour to incorporate the latest news, weather runs, and price action from the Asian trading session into our models before our morning meeting. This is not your run-of-the mill corporate meeting, but more of a pre-game huddle in which everyone gathers around the senior trader to give a quick update on their respective markets (don’t expect to get more than a minute to get your point across). This kicks off the trading day and will see traders adjust their positions in line with their updated beliefs, while analysts return to their desks to fine-tune their models and work-out new trading ideas.** This does not happen in splendid isolation though.
Generally analysts sit only a few feet away from traders, and news, ideas, and assumptions (and a fair share of bad practical jokes) will flow back and forth during the day. As a result, a trade floor is a cacophony of sound where a melting pot of characters from all over the world engage in a continuous discussion of risks, trade ideas, and all current events under the sun.*** It is hands down the most diverse work environment I know of in terms of nationalities, albeit one still dominated by men.
Luck or skill?
By lunchtime when the market slows down traders will send an intra-day profit-and-loss (PnL) update to management, and head out for a quick lunch before liquidity returns in the afternoon session. During the afternoon session the opening of US markets brings another wave of activity and new information, covering both the Asian close and the US open makes London an ideal location for a trade floor. Around 5 PM most European markets close and trading books are marked at end of day prices to generate a daily PnL estimate, showing every trader and analyst how right or wrong the market judged their positions today. This process of marking every trading position to market makes the trade floor a surprisingly humble and honest place. When 40 to 60% of the days the market calls you wrong, you either become humble and honest or sooner or later you blow up spectacularly.****
In the short-run it is not easy to distinguish between luck and skill, but in the longer-run you can be sure that the trade floor is one of the most meritocratic institutions in the corporate world. This also explains its tolerance for some very eccentric characters and behaviours that would not fly anywhere else apart from maybe the tech scene.
Around 6 pm it is time to wrap up the day with a pint to calm the nerves or a game of footy to blow off steam, because whichever way you turn it the trade floor is a high stress environment.
(Author is a Trading Analyst on a London trade floor, however author’s name is not published because it’s his personal story, not formally approved by his firm).
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*Simple and very short-term trading strategies are increasingly automated, but a surprisingly large share of trading is still done on the back of human intervention for the moment.
**Note that on many ‘proprietary’ focused trade floors the distinction between traders and analysts is quickly fading, with analysts executing on the back of their own models/trade ideas.
*** To an analyst that needs to do some actual number crunching noise cancelling headphones are indispensable!
**** To be wrong 40% or 60% of the time roughly distinguishes a good trader from a bad trader (no proprietary trader is right all the time, or even close to being right all the time).