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A Day in the Life of a Trader

A trader buys and sells securities, which include currencies, stocks, bonds, and options, to make a profit. The worth of these securities are derived from the value of an underlying asset-and commodities (oil, gold, cocoa, coffee, sugar, etc.). Traders are employed by hedge funds (partnerships that invest in stocks, futures, options, and currencies), the fifteen or twenty largest banks in the United States and Europe, and large companies. Primary markets are located in New York, London, Singapore, and Tokyo. A company trades to “hedge” its exposure, much like a gambler “hedges” bets. For example, Microsoft sells products in Europe, where the Euro is the common currency. Today, the value of one Euro may be equal to $1.00, but in six months that value could be $1.15, meaning the value on the books is worth more when converted back into dollars. The company, therefore, has to offset its foreign exchange exposure. While all markets are cyclical, trading currency is generally the most fast-paced, and the currency trader’s days are almost always frantic. “I’m a market-maker, I make prices. I’m constantly looking at screens on which the numbers are always changing,” says one trader. “At the same time, I have to listen to six brokers shouting different prices all at the same time. I have to listen to what my colleagues are doing and what the spot desk is doing in the back. I have to listen to marketers calling me for prices for their clients. Over time, you learn how to deal with mayhem.” A trader’s day starts at 7:30 a.m. and ends at 5:30 p.m., and the work is creative as well as routine. “You go through the same motions and your mind is set to work in the same way, but you have to be creative with ideas in order to make money. You need discipline, which is related to routine, and you must be able to make quick decisions, think fast on your feet, and be a risk-taker. Traders are disciplined and creative gamblers at heart. There’s no way you can be calm in this job. Once in a while, I break a phone or a computer. I don’t know anybody who is polite and calm during the day.” Trading demands a particular temperament and an aggressive, type-A personality. Though culturally diverse, the industry is still very much an old-boys’ club comprised of nearly 90 percent men. “There’s a definite culture and attitude among traders of spending and splurging and carousing with women, and you are expected to take part.”

Paying Your Dues

An assistant or junior trader helps traders with routine work such as recording trades or managing the process of “getting the trade to the books” by following SEC compliance rules. However, an assistant won’t advance very quickly; therefore attending business school while armed with a background in finance and math is essential. An MBA can earn a trader a lot more responsibility. There is tremendous competition for jobs, and getting into a top investment bank is difficult. While a particular pedigree isn’t important, attending an Ivy League school is advantageous.

Present and Future

The U.S. investment market was born in 1790 when the federal government refinanced all Revolutionary War debt and issued $80 million in bonds, the first publicly traded securities. Five securities were traded in 1792-three government bonds and two bank stocks. By the end of the War of 1812, the market for securities in New York began to expand as stocks traded along with government bonds, bank, and insurance stocks. In 1817, New York brokers established the New York Stock Exchange, renting rooms at 40 Wall Street and adopting a constitution with rules governing business conduct. During the 1830s, railroads dominated trading, and the turn of the century saw the first published Dow Jones Industrial Average, with twelve stocks and an initial value of 40.74. World War I was a turning point, as America emerged from the war as a creditor rather than a debtor nation, and Wall Street replaced London as the world’s investment capital. Over the next decade, more than 1,700 foreign issues were offered publicly in the United States. Trading will continue to be profitable, and online trading is quickly revolutionizing the industry as more people on Main Street take to Wall Street. The object of trading will always be the same, but the methods in which business is transacted are quickly changing as decimalization takes hold (allowing trading to the penny), along with round-the-clock markets.

Quality of Life

PRESENT AND FUTURE

In the first couple of years, a trader will be responsible for a smaller account and allowed to take fewer risks than other players with more seasoned market experience. “Experience is the most important factor. Over time, once your employer trusts you, you’ll be allowed to take more risk,” says one trader. A new trader will earn a fairly small salary (by banking standards) of $80Ð$100,000, plus a year-end bonus, ranging from nothing to $100,000, though this varies greatly by field. Equity derivatives, for example, did very well in the last two years with the growth of Nasdaq, while some other fields didn’t fare as well.

FIVE YEARS OUT

Bonuses are revenues shared by the team based on the group’s and bank’s performance, and the senior traders get a larger piece of the pie. After five years, traders’ bonuses can reach $500,000, as they are responsible for larger accounts and allowed to take greater risks. “I’ve heard stories of people who made a lot of money year after year, and then one year just blew everything they’ve made. There are also people who haven’t done well but made a fortune from one great idea.” Traders with a good reputation will be lured by headhunters and often jump from one employer to another.

TEN YEARS OUT

Most traders are in their 20s and 30s, work for two or five years, and then take the high road. The basic exit strategy is to simply retire. “If they’ve survived ten years without a heart attack, most traders take their $10 or 15 million and move on. Some who want a less stressful job start a small hedge fund and work out of the suburbs, attracting money from other investors. Others open a bed and breakfast in Vermont.”