This is totally awesome, mainly because prop traders are something a lot of people talk about, but few people really know about. Here, one London quant sits down and takes you through his job (which, in this industry, is life), step-by-step.The interview is from a must-read column in The Guardian by Joris Luyendijk called “Banking Blog: Going native in the world of finance.” If you don’t check it, you should, and Joris, if you’re out there, we’re fans.
In this instalment , Lauyendijk introduces his readers to “an inconspicuous-looking man, originally from continental Europe. He orders a vegetarian pasta and sparkling water.”
Check out some of our favourite parts below.
On how he does his job:
“Prop traders come in two varieties, too. The ‘pure’ prop traders have a view on the market that day and act on that. ‘Quantitative’ prop traders like me have a systematic view, meaning I build strategies and then trade them longer term on the market.
“How that works: I will have an idea about a pattern in the market, say, if the share price of two English banks with a broadly similar outlook diverge, they will most likely converge again very soon… Or I might look at the ways unusual rainfall in Argentina translates into higher wheat prices.
“That’ll be my ‘idea’. Next is statistical analysis…”I will also determine my ‘confidence range’: how likely is the pattern to play out?…”
On the greatest misunderstanding about prop traders:
“What outsiders are concerned about is speculation; if you trade large enough volumes you begin to impact the market itself, you ‘move the market’. I would never consciously try to raise the price of, say, rice, and starve children in China. Quite apart from the morals, it is actually very difficult to make a profit out of that. You drive up the price of something by buying more and more of it. The thing is, players in the market are going to notice that. And so they will quote rapidly higher prices to you since they realise that you want to buy a large chunk of the overall market with all your money. It is absolutely forbidden to do a quick in-and-out when you’ve pushed up the price yourself. It’s called price manipulation and regulators are really strict about that, you get sanctioned even if it happened by mistake and was really unintentional.”
On not working for a hedge fund:
Well, hedge funds work with other people’s money, and they can suddenly go into a panic and take their money out. That kind of thing can really wreck your strategy.
On his salary:
My salary is £150,000 a year plus bonus. This bonus can dwarf my salary and be multiples higher. In this business you can exactly pinpoint profits, and people like me get paid roughly a percentage of those profits.
And his parting words? He works really hard, and most of that work in his life has been dedicated to getting to where he is now — and that has made him humble.
“Speaking of humility, which I might seem to lack now, I wish I had any artistic skill. I can’t sing, paint or play any instrument. But give me some time and I’ll work on it.”
That we’d have to see. Read the whole interview at The Guardian>