Friday, December 24, 2010

How To Become A Proprietary Trader - IV

A Day In The Life of A Trader
The daily work of all traders is similar. However there are variations according to the trades they do. Observing a trader at work, you may wonder if the job really warrants all those diplomas and other credentials. After all, it looks simple. Let’s take a look at the daily activities of a trader of any kind before we enter the world of a proprietary trader.

The basic trading job is driven by three factors: information, intuition and technical know-how. A trader keeps his eyes on the eight or nine screens in front of him, such as Reuters or Bloomberg, delivering world news continuously. Apart from the journalist himself, the trader is the second person in the world to get wind of breaking news. He will also observe a flow of scheduled company releases and economic statistics, among other news. There are also audio announcements, often unrelated to the text on the screen, from the trader's dealerboard, the system which connects him to brokers. Reading information takes up 45% of a trader's work day.

In order not to miss any breaking news, a trader seldom leaves his desk. He even minimises his visits to the toilet or Starbucks. As for lunch, he may ask the trading room interns to help buying.

Another time-consuming task involves watching the market and acting intuitively. The trader must make a subjective interpretation of the information they have. He forms an opinion on the market's direction by observing all the signs making up the price action, including price fluctuations and the liquidity of the orderbook. This is a matter of intuition, and it also takes up 45% of his time.

The remaining 10% is spent on market making as to issue quotes to his clients. The trader uses an Excel spreadsheet with the useful "pricer" functions invented for quantitative research, calibrates it to correspond to the market and then pushes the F9 key each time a client asks for a price. This may sound repetitive and boring.

All traders including market makers, plain vanilla securities traders, structured products traders and proprietary traders have similar daily activities. Then what is specific with a proprietary trader?

A Proprietary Trader (or prop trader) has carte blanche to speculate with the investment firm's funds on all markets. Unlike other traders, he does not provide quotes to clients. He also doesn’t need to share the profits with the structuring, sales and research teams. The prop trader only share his portfolio profits with the Bank.

In terms of working hours, a proprietary trader works typical 8 am to 5 pm. However, his work schedule depends mostly on the markets they trade. For example, a New York-based proprietary trader who focuses on Asian financial markets may have to work at night because of time differences. A trader in Hong Kong trading Australia market have to go to the office as early as 6am in order to pick up the latest market news and discuss investment strategies with his team. Nevertheless, be prepared to work long and flexible hours.

Want to become a proprietary trader? I'll talk about career path in my next post.

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