The author of this article works as a prop trader for a securities firm in an emerging market. With a Bachelor in Engineering, he started out as a financial engineer whose job was to develop VBA applications to back test trading strategies for a senior trader. Three months into the job, the trader left and the author was promoted to run his own trading book. He has been trading over a year since. Here is a day in his life. SHARE YOUR STORY
6.15 - Clock alarm sounds. Immediately press snooze button
6.30 - Hear the alarm again and get up. An extra 15 minutes of sleep has been gained.
7.00 - Leave the house for office downtown
8.00 - Have a breakfast at a small diner next to my office building
8.20 - Arrive at the office
8.30 - Check e-mail, read news on Reuters and Bloomberg, and check out what happen in the world last night
8.45 - Briefly discuss the markets with other traders
9.00 - Download data and run my own VBA trading application
9.10 - Check data feed for correctness. I find that some data are not published correctly, so I call IT department to fix it.
9.30 - Casinos open. Monitor current positions as well as wait for the trading signal from my model to open or close the position. Index arbitrage, ETF arbitrage, inter-market arbitrage, pairs trading, calendar trading, arbitrage between warrants and their underlying stocks are strategies that I currently employ.
10.00 - After I am confident that my trading application and the data feed run smoothly, I spend my time to either revise the current model or develop a new model. I highly recommend Ernest Chan's Quantitative Trading: How to Build Your Own Algorithmic Trading Business (Wiley Trading)
10.30 - I pause researching for a moment because my trading application issues an alarm for me to cut loss the position that I opened yesterday. Hesitate for few seconds before executing the cut loss order and subsequently think about changing my job to pursue a career that can give me more job stability and less stress. Note that, I execute the order by myself since we are still emerging here. Anyway, it is fine for me as I trade in low-mid frequency.
11.15 - Make bet (open a new position) on another strategy according to the model
12.00 - Go to lunch with my teammates, sadly, all of them are men
12.40 - Back to the office and check out what happen during lunch time and update the data on my trading application
13.00 - Telephone rings in the trading room. Our boss asks one of my teammates to meet him in his room.
13.20 - My teammate, who has been working as a junior discretionary trader for half years, comes back to the trading room after finish talking with the boss. He first says that he will not be here anymore and then reveals that the boss pressures him to move to another department in back office but my teammate refuses. In other word, he is sacked. Thrilled! Who will be the next? Again, think about my career choices.
13.30 - Casinos resume. I do mostly the same as the first part of the day, which is sometimes quite boring because I have covered most of trading strategies that can be utilized in my country, where they lack of sophisticated financial products. This may also mean that there is limited opportunity to make $$$.
13.31 - Quickly think about getting an MFE to fulfill my intellectual thirst. Meanwhile, the junior trader is collecting his personal stuff.
14.00 - My almost ex-teammate goes to talk with HR
14.30 - Fortunately, this afternoon I have closed the position with profit.
15.00 - Say good bye to my ex-teammate. Still, I don’t know how much he costs the firm.
16.00 - All casinos that I cover are now closed. Check out what happen in each regional market and how Europe markets open.
16.15 - Review all of my trading activities today and make sure that I book the correct position on my trading application.
16.30 - Submit a trading summary report and prepare for a quarterly meeting with management committee in the next 15 minutes.
16.45 - Attend the meeting, where a trading performance is discussed. Some market outlooks are exchanged.
17.30 - Finish the meeting. Before going home, I pick up my annual medical test results. I find that some results are not good as they exceed the normal limits. I think I should have exercised and relaxed more.
17.35 - Go home by bus. (I choose to go home by bus rather than a helicopter since I do not want to finish my story like Nero Tulip*)
18.00 - Think about pursuing an MFE while traveling on the bus. Ask my self the following: Suppose I finish an MFE, can join a global top-tier investment bank/hedge fund, and obtain a lot of $$$, will it make me happier?
*Editorial note: Nero Tulip is a character in Nassim Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. Some have suggested that Nero Tulip is the author's portray of himself.
Nero Tulip became obsessed with trading after witnessing a strange scene one spring day as he was visiting the Chicago Mercantile Exchange. A red convertible Porsche, driven at several times the city speed limit, abruptly stopped in front of the entrance, its tires emitting the sound of pigs being slaughtered. A visibly demented athletic man in his thirties, his face flushed red, emerged and ran up the steps as if he were chased by a tiger. He left the car double-parked, its engine running, provoking an angry fanfare of horns. After a long minute, a bored young man clad in a yellow jacket (yellow was the color reserved for clerks) came down the steps, visibly untroubled by the traffic commotion. He drove the car into the underground parking garage—perfunctorily, as if it were his daily chore.
That day Nero Tulip was hit with what the French call a coup de foudre, a sudden intense (and obsessive) infatuation that strikes like lightning. “This is for me!” he screamed enthusiastically—he could not help comparing the life of a trader to the alternative lives that could present themselves to him. Academia conjured up the image of a silent university office with rude secretaries; business, the image of a quiet office staffed with slow thinkers and semislow thinkers who express themselves in full sentences.
Unlike a coup de foudre, the infatuation triggered by the Chicago scene has not left him more than a decade and a half after the incident. For Nero swears that no other lawful profession in our times could be as devoid of boredom as that of the trader. Furthermore, although he has not yet practiced the profession of high-sea piracy, he is now convinced that even that occupation would present more dull moments than that of the trader.
Nero could best be described as someone who randomly (and abruptly) swings between the deportment and speech manners of a church historian and the verbally abusive intensity of a Chicago pit trader. He can commit hundreds of millions of dollars in a transaction without a blink or a shadow of a second thought, yet agonize between two appetizers on the menu, changing his mind back and forth and wearing out the most patient of waiters.
Nero holds an undergraduate degree in ancient literature and mathematics from Cambridge University. He enrolled in a Ph.D. program in statistics at the University of Chicago but, after completing the prerequisite coursework, as well as the bulk of his doctoral research, he switched to the philosophy department. He called the switch “a moment of temporary sanity,” adding to the consternation of his thesis director, who warned him against philosophers and predicted his return back to the fold. He finished writing his thesis in philosophy. But not the Derrida continental style of incomprehensible philosophy (that is, incomprehensible to anyone outside of their ranks, like myself). It was quite the opposite; his thesis was on the methodology of statistical inference in its application to the social sciences. In fact, his thesis was indistinguishable from a thesis in mathematical statistics—it was just a bit more thoughtful (and twice as long).
It is often said that philosophy cannot feed its man—but that was not the reason Nero left. He left because philosophy cannot entertain its man. At first, it started looking futile; he recalled his statistics thesis director’s warnings. Then, suddenly, it started to look like work. As he became tired of writing papers on some arcane details of his earlier papers, he gave up the academy. The academic debates bored him to tears, particularly when minute points (invisible to the noninitiated) were at stake. Action was what Nero required. The problem, however, was that he selected the academy in the first place in order to kill what he detected was the flatness and tempered submission of employment life.
After witnessing the scene of the trader chased by a tiger, Nero found a trainee spot on the Chicago Mercantile Exchange, the large exchange where traders transact by shouting and gesticulating frenetically. There he worked for a prestigious (but eccentric) local, who trained him in the Chicago style, in return for Nero solving his mathematical equations. The energy in the air proved motivating to Nero. He rapidly graduated to the rank of self-employed trader. Then, when he got tired of standing on his feet in the crowd, and straining his vocal cords, he decided to seek employment “upstairs,” that is, trading from a desk. He moved to the New York area and took a position with an investment house.
Nero specialized in quantitative financial products, in which he had an early moment of glory, became famous and in demand. Many investment houses in New York and London flashed huge guaranteed bonuses at him. Nero spent a couple of years shuttling between the two cities, attending important “meetings” and wearing expensive suits. But soon Nero went into hiding; he rapidly pulled back to anonymity—the Wall Street stardom track did not quite fit his temperament. To stay a “hot trader” requires some organizational ambitions and a power hunger that he feels lucky not to possess. He was only in it for the fun—and his idea of fun does not include administrative and managerial work. He is susceptible to conference room boredom and is incapable of talking to businessmen, particularly the run-of-the-mill variety. Nero is allergic to the vocabulary of business talk, not just on plain aesthetic grounds. Phrases like “game plan,” “bottom line,” “how to get there from here,” “we provide our clients with solutions,” “our mission,” and other hackneyed expressions that dominate meetings lack both the precision and the coloration that he prefers to hear. Whether people populate silence with hollow sentences, or if such meetings present any true merit, he does not know; at any rate he did not want to be part of it. Indeed Nero’s extensive social life includes almost no businesspeople. But unlike me (I can be extremely humiliating when someone rubs me the wrong way with inelegant pompousness), Nero handles himself with gentle aloofness in these circumstances.
So, Nero switched careers to what is called proprietary trading. Traders are set up as independent entities, internal funds with their own allocation of capital. They are left alone to do as they please, provided of course that their results satisfy the executives. The name proprietary comes from the fact that they trade the company’s own capital. At the end of the year they receive between 7% and 12% of the profits generated. The proprietary trader has all the benefits of self-employment, and none of the burdens of running the mundane details of his own business. He can work any hours he likes, travel at a whim, and engage in all manner of personal pursuits. It is paradise for an intellectual like Nero who dislikes manual work and values unscheduled meditation. He has been doing that for the past ten years, in the employment of two different trading firms.
A word on Nero’s methods. He is as conservative a trader as one can be in such a business. In the past he has had good years and less than good years—but virtually no truly “bad” years. Over these years he has slowly built for himself a stable nest egg, thanks to an income ranging between $300,000 and (at the peak) $2.5 million. On average, he manages to accumulate $500,000 a year in after-tax money (from an average income of about $1 million); this goes straight into his savings account. In 1993, he had a bad year and was made to feel uncomfortable in his company. Other traders made out much better, so the capital at his disposal was severely reduced, and he was made to feel undesirable at the institution. He then went to get an identical job, down to an identically designed workspace, but in a different firm that was friendlier. In the fall of 1994 the traders who had been competing for the great performance award blew up in unison during the worldwide bond market crash that resulted from the random tightening by the Federal Reserve Bank of the United States. They are all currently out of the market, performing a variety of tasks. This business has a high mortality rate.
Why isn’t Nero more affluent? Because of his trading style—or perhaps his personality. His risk aversion is extreme. Nero’s objective is not to maximize his profits, so much as it is to avoid having this entertaining machine called trading taken away from him. Blowing up would mean returning to the tedium of the university or the nontrading life. Every time his risks increase, he conjures up the image of the quiet hallway at the university, the long mornings at his desk spent in revising a paper, kept awake by bad coffee. No, he does not want to have to face the solemn university library where he was bored to tears. “I am shooting for longevity,” he is wont to say.
Nero has seen many traders blow up, and does not want to get into that situation. Blow up in the lingo has a precise meaning; it does not just mean to lose money; it means to lose more money than one ever expected, to the point of being thrown out of the business (the equivalent of a doctor losing his license to practice or a lawyer being disbarred). Nero rapidly exits trades after a predetermined loss. He never sells “naked options” (a strategy that would leave him exposed to large possible losses). He never puts himself in a situation where he can lose more than, say, $1 million—regardless of the probability of such an event. That amount has always been variable; it depends on his accumulated profits for the year. This risk aversion prevented him from making as much money as the other traders on Wall Street who are often called “Masters of the Universe.” The firms he has worked for generally allocate more money to traders with a different style from Nero, like John, whom we will encounter soon.
Nero’s temperament is such that he does not mind losing small change. “I love taking small losses,” he says. “I just need my winners to be large.” In no circumstances does he want to be exposed to those rare events, like panics and sudden crashes, that wipe a trader out in a flash. To the contrary, he wants to benefit from them. When people ask him why he does not hold on to losers, he invariably answers that he was trained by “the most chicken of them all,” the Chicago trader Stevo who taught him the business. This is not true; the real reason is his training in probability and his innate skepticism.
6.15 - Clock alarm sounds. Immediately press snooze button
6.30 - Hear the alarm again and get up. An extra 15 minutes of sleep has been gained.
7.00 - Leave the house for office downtown
8.00 - Have a breakfast at a small diner next to my office building
8.20 - Arrive at the office
8.30 - Check e-mail, read news on Reuters and Bloomberg, and check out what happen in the world last night
8.45 - Briefly discuss the markets with other traders
9.00 - Download data and run my own VBA trading application
9.10 - Check data feed for correctness. I find that some data are not published correctly, so I call IT department to fix it.
9.30 - Casinos open. Monitor current positions as well as wait for the trading signal from my model to open or close the position. Index arbitrage, ETF arbitrage, inter-market arbitrage, pairs trading, calendar trading, arbitrage between warrants and their underlying stocks are strategies that I currently employ.
10.00 - After I am confident that my trading application and the data feed run smoothly, I spend my time to either revise the current model or develop a new model. I highly recommend Ernest Chan's Quantitative Trading: How to Build Your Own Algorithmic Trading Business (Wiley Trading)
10.30 - I pause researching for a moment because my trading application issues an alarm for me to cut loss the position that I opened yesterday. Hesitate for few seconds before executing the cut loss order and subsequently think about changing my job to pursue a career that can give me more job stability and less stress. Note that, I execute the order by myself since we are still emerging here. Anyway, it is fine for me as I trade in low-mid frequency.
11.15 - Make bet (open a new position) on another strategy according to the model
12.00 - Go to lunch with my teammates, sadly, all of them are men
12.40 - Back to the office and check out what happen during lunch time and update the data on my trading application
13.00 - Telephone rings in the trading room. Our boss asks one of my teammates to meet him in his room.
13.20 - My teammate, who has been working as a junior discretionary trader for half years, comes back to the trading room after finish talking with the boss. He first says that he will not be here anymore and then reveals that the boss pressures him to move to another department in back office but my teammate refuses. In other word, he is sacked. Thrilled! Who will be the next? Again, think about my career choices.
13.30 - Casinos resume. I do mostly the same as the first part of the day, which is sometimes quite boring because I have covered most of trading strategies that can be utilized in my country, where they lack of sophisticated financial products. This may also mean that there is limited opportunity to make $$$.
13.31 - Quickly think about getting an MFE to fulfill my intellectual thirst. Meanwhile, the junior trader is collecting his personal stuff.
14.00 - My almost ex-teammate goes to talk with HR
14.30 - Fortunately, this afternoon I have closed the position with profit.
15.00 - Say good bye to my ex-teammate. Still, I don’t know how much he costs the firm.
16.00 - All casinos that I cover are now closed. Check out what happen in each regional market and how Europe markets open.
16.15 - Review all of my trading activities today and make sure that I book the correct position on my trading application.
16.30 - Submit a trading summary report and prepare for a quarterly meeting with management committee in the next 15 minutes.
16.45 - Attend the meeting, where a trading performance is discussed. Some market outlooks are exchanged.
17.30 - Finish the meeting. Before going home, I pick up my annual medical test results. I find that some results are not good as they exceed the normal limits. I think I should have exercised and relaxed more.
17.35 - Go home by bus. (I choose to go home by bus rather than a helicopter since I do not want to finish my story like Nero Tulip*)
18.00 - Think about pursuing an MFE while traveling on the bus. Ask my self the following: Suppose I finish an MFE, can join a global top-tier investment bank/hedge fund, and obtain a lot of $$$, will it make me happier?
*Editorial note: Nero Tulip is a character in Nassim Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. Some have suggested that Nero Tulip is the author's portray of himself.
Hit by Lightning
Nero Tulip became obsessed with trading after witnessing a strange scene one spring day as he was visiting the Chicago Mercantile Exchange. A red convertible Porsche, driven at several times the city speed limit, abruptly stopped in front of the entrance, its tires emitting the sound of pigs being slaughtered. A visibly demented athletic man in his thirties, his face flushed red, emerged and ran up the steps as if he were chased by a tiger. He left the car double-parked, its engine running, provoking an angry fanfare of horns. After a long minute, a bored young man clad in a yellow jacket (yellow was the color reserved for clerks) came down the steps, visibly untroubled by the traffic commotion. He drove the car into the underground parking garage—perfunctorily, as if it were his daily chore.
That day Nero Tulip was hit with what the French call a coup de foudre, a sudden intense (and obsessive) infatuation that strikes like lightning. “This is for me!” he screamed enthusiastically—he could not help comparing the life of a trader to the alternative lives that could present themselves to him. Academia conjured up the image of a silent university office with rude secretaries; business, the image of a quiet office staffed with slow thinkers and semislow thinkers who express themselves in full sentences.
Temporary Sanity
Unlike a coup de foudre, the infatuation triggered by the Chicago scene has not left him more than a decade and a half after the incident. For Nero swears that no other lawful profession in our times could be as devoid of boredom as that of the trader. Furthermore, although he has not yet practiced the profession of high-sea piracy, he is now convinced that even that occupation would present more dull moments than that of the trader.
Nero could best be described as someone who randomly (and abruptly) swings between the deportment and speech manners of a church historian and the verbally abusive intensity of a Chicago pit trader. He can commit hundreds of millions of dollars in a transaction without a blink or a shadow of a second thought, yet agonize between two appetizers on the menu, changing his mind back and forth and wearing out the most patient of waiters.
Nero holds an undergraduate degree in ancient literature and mathematics from Cambridge University. He enrolled in a Ph.D. program in statistics at the University of Chicago but, after completing the prerequisite coursework, as well as the bulk of his doctoral research, he switched to the philosophy department. He called the switch “a moment of temporary sanity,” adding to the consternation of his thesis director, who warned him against philosophers and predicted his return back to the fold. He finished writing his thesis in philosophy. But not the Derrida continental style of incomprehensible philosophy (that is, incomprehensible to anyone outside of their ranks, like myself). It was quite the opposite; his thesis was on the methodology of statistical inference in its application to the social sciences. In fact, his thesis was indistinguishable from a thesis in mathematical statistics—it was just a bit more thoughtful (and twice as long).
It is often said that philosophy cannot feed its man—but that was not the reason Nero left. He left because philosophy cannot entertain its man. At first, it started looking futile; he recalled his statistics thesis director’s warnings. Then, suddenly, it started to look like work. As he became tired of writing papers on some arcane details of his earlier papers, he gave up the academy. The academic debates bored him to tears, particularly when minute points (invisible to the noninitiated) were at stake. Action was what Nero required. The problem, however, was that he selected the academy in the first place in order to kill what he detected was the flatness and tempered submission of employment life.
After witnessing the scene of the trader chased by a tiger, Nero found a trainee spot on the Chicago Mercantile Exchange, the large exchange where traders transact by shouting and gesticulating frenetically. There he worked for a prestigious (but eccentric) local, who trained him in the Chicago style, in return for Nero solving his mathematical equations. The energy in the air proved motivating to Nero. He rapidly graduated to the rank of self-employed trader. Then, when he got tired of standing on his feet in the crowd, and straining his vocal cords, he decided to seek employment “upstairs,” that is, trading from a desk. He moved to the New York area and took a position with an investment house.
Nero specialized in quantitative financial products, in which he had an early moment of glory, became famous and in demand. Many investment houses in New York and London flashed huge guaranteed bonuses at him. Nero spent a couple of years shuttling between the two cities, attending important “meetings” and wearing expensive suits. But soon Nero went into hiding; he rapidly pulled back to anonymity—the Wall Street stardom track did not quite fit his temperament. To stay a “hot trader” requires some organizational ambitions and a power hunger that he feels lucky not to possess. He was only in it for the fun—and his idea of fun does not include administrative and managerial work. He is susceptible to conference room boredom and is incapable of talking to businessmen, particularly the run-of-the-mill variety. Nero is allergic to the vocabulary of business talk, not just on plain aesthetic grounds. Phrases like “game plan,” “bottom line,” “how to get there from here,” “we provide our clients with solutions,” “our mission,” and other hackneyed expressions that dominate meetings lack both the precision and the coloration that he prefers to hear. Whether people populate silence with hollow sentences, or if such meetings present any true merit, he does not know; at any rate he did not want to be part of it. Indeed Nero’s extensive social life includes almost no businesspeople. But unlike me (I can be extremely humiliating when someone rubs me the wrong way with inelegant pompousness), Nero handles himself with gentle aloofness in these circumstances.
So, Nero switched careers to what is called proprietary trading. Traders are set up as independent entities, internal funds with their own allocation of capital. They are left alone to do as they please, provided of course that their results satisfy the executives. The name proprietary comes from the fact that they trade the company’s own capital. At the end of the year they receive between 7% and 12% of the profits generated. The proprietary trader has all the benefits of self-employment, and none of the burdens of running the mundane details of his own business. He can work any hours he likes, travel at a whim, and engage in all manner of personal pursuits. It is paradise for an intellectual like Nero who dislikes manual work and values unscheduled meditation. He has been doing that for the past ten years, in the employment of two different trading firms.
Modus Operandi
A word on Nero’s methods. He is as conservative a trader as one can be in such a business. In the past he has had good years and less than good years—but virtually no truly “bad” years. Over these years he has slowly built for himself a stable nest egg, thanks to an income ranging between $300,000 and (at the peak) $2.5 million. On average, he manages to accumulate $500,000 a year in after-tax money (from an average income of about $1 million); this goes straight into his savings account. In 1993, he had a bad year and was made to feel uncomfortable in his company. Other traders made out much better, so the capital at his disposal was severely reduced, and he was made to feel undesirable at the institution. He then went to get an identical job, down to an identically designed workspace, but in a different firm that was friendlier. In the fall of 1994 the traders who had been competing for the great performance award blew up in unison during the worldwide bond market crash that resulted from the random tightening by the Federal Reserve Bank of the United States. They are all currently out of the market, performing a variety of tasks. This business has a high mortality rate.
Why isn’t Nero more affluent? Because of his trading style—or perhaps his personality. His risk aversion is extreme. Nero’s objective is not to maximize his profits, so much as it is to avoid having this entertaining machine called trading taken away from him. Blowing up would mean returning to the tedium of the university or the nontrading life. Every time his risks increase, he conjures up the image of the quiet hallway at the university, the long mornings at his desk spent in revising a paper, kept awake by bad coffee. No, he does not want to have to face the solemn university library where he was bored to tears. “I am shooting for longevity,” he is wont to say.
Nero has seen many traders blow up, and does not want to get into that situation. Blow up in the lingo has a precise meaning; it does not just mean to lose money; it means to lose more money than one ever expected, to the point of being thrown out of the business (the equivalent of a doctor losing his license to practice or a lawyer being disbarred). Nero rapidly exits trades after a predetermined loss. He never sells “naked options” (a strategy that would leave him exposed to large possible losses). He never puts himself in a situation where he can lose more than, say, $1 million—regardless of the probability of such an event. That amount has always been variable; it depends on his accumulated profits for the year. This risk aversion prevented him from making as much money as the other traders on Wall Street who are often called “Masters of the Universe.” The firms he has worked for generally allocate more money to traders with a different style from Nero, like John, whom we will encounter soon.
Nero’s temperament is such that he does not mind losing small change. “I love taking small losses,” he says. “I just need my winners to be large.” In no circumstances does he want to be exposed to those rare events, like panics and sudden crashes, that wipe a trader out in a flash. To the contrary, he wants to benefit from them. When people ask him why he does not hold on to losers, he invariably answers that he was trained by “the most chicken of them all,” the Chicago trader Stevo who taught him the business. This is not true; the real reason is his training in probability and his innate skepticism.
