Welcome to day 2 (or 2.5 judging by the time he got it over to me
) of our new feature “Guest Trader”
If you missed Gavin’s first day you can catch it here.
Should you want to look back, in the future we have a new category named guest trader too.
Hello everyone,
Thanks for the great response yesterday! For those who are tuning in for the first time, this is the second post in a series of five. Yesterday’s post will give a good idea of what Ryan and the team at ForexLive are trying to achieve with this segment, and also gives a profile of me as a trader. Today’s post is an expansion on that.
I had a few thoughts which I intended to opine in this segment. It looks as though the comments are going to dictate the order. The first cat out of the bag is offices.
Mike indicated that in some parts of the UK (and possibly elsewhere), there is already office space available to rent which is shared with other traders. I’m curious to know if anyone here uses such a space, and how that’s working out for you.
I see some key advantages in working in an environment surrounded by other traders. Whether you are renting space or working for a boss at a hedge fund, there are advantages to going into the office for work. For us, I would see them as:
- the ability to share resources normally too expensive for a single trader needing to pay the bill;
- the possibility of creating a healthy competitive environment, or at least a workplace culture where each trader’s success can rub off on the “team” and provide a environment conducive to better trading (double edged sword, though). reduced distractions. Adding lots of other people and their noise to reduce distraction may sound counter-intuitive, but that all that activity is other traders researching and trading – exactly what you’re trying to do. Everything surrounding you would be trading related in some way;
- social reasons: the fact that you’re surrounded by actual humans during your working hours, not the same four walls. You have a community of other professionals with whom you can talk shop (how many of your other friends actually understand your profession well enough to have a conversation about it). Plus, you can ” debrief” after a tough week with a trip to the pub with other traders.
Of course, there’s also some potential pitfalls, whether you use the straight rental model, or are working for the man:
- Environments that become toxic. Sometimes there’s people that bring down morale. Maybe someone’s just an arse, maybe they’re under-performing and their negativity is rubbing off. Alternatively, politics can get nasty. This is easy enough to manage with a boss (as long as they’re not part of the problem). How can that be managed with space for rent without creating an equally bad popularity contest?;
- Business plan. The whole thing needs to pay for itself. People need to feels secure.
My thoughts? What about a hybrid model? There’s a couple of ways that could be achieved. Even some combination could be workable. The point would be maintaining some of the advantages of a structured business environment, whilst allowing traders the freedom to trade their own books with some extra resources. A “structured business environment” would imply their is a management team and goals for the team to achieve. This probably also helps with trading discipline. A model centred on allowing independent traders to manage their own books would also keep the workplace full of people that actually want to be there. Personality clashes may still need to be managed, but the structured business part of the model can deal with these without creating a popularity contest. With enough scale in a particular location, that could be managed by grouping people into “teams” which are dispersed through a large office space. How would I suggest working it?
- Traders buy an equity share, rather than rent space. The equity could be in a non public offer “hedge fund” which is used to fund the outgoings. Part of this would also be owned by management (more on them later). After outgoings, there is then the option to consider of whether to distribute profits, and/or have a salary/bonus system (if the equity share is large enough/performing sufficiently). It’s important to prevent the required equity from rising beyond inflation (it will become prohibitively expensive to join) or from running out of funds (lights go out). This would need to be carefully managed. Of course, the “shareholders” may elect to bring new non-owner traders who still contribute to the management of the fund, but do not buy in. The centre would need to be well established by then, though.;
- Traders contribute to the running of the non public offer fund that they part own and which keeps the lights on. That is the goal based environment which helps with discipline (that in itself could save many a trading career, I’m sure). It could be trades, research, algo writing, whatever. Some traders may become the local office manager. Nothing that can’t be run alongside (or in unison with) the trading of one’s own book. If a trader’s job does get in the way a bit, then how the fund remunerates for this needs to be looked at. Scale makes a serious difference here;
- If highly experienced traders can be attracted, then the office could be opened up to students, for a fee, and training provided in a live trading environment. This could, of course, lead to new traders joining the facility. Maybe students deemed highly successful, but lacking the capital for an equity share, could be offered a mentoring placement where they can “work off” their share (or come in as a non-owning contributor to the fund) as they build their own book. This could also be used to add new traders in smaller locations in particular, by providing the training and the ongoing work environment that maximises success for enthusiastic potential traders (as long as risk is managed properly for the office and for the trainees – we’re not talking dodgy seminars that pretend it’s all easy and walk off with your hard earned cash).
What extras could be funded for traders, if this is managed properly? My thoughts were:
- access to in-house risk managers, both to protect the equity fund and to assist traders with the biggest pitfall in their profession. In a multi city network (preferably covering at least one English speaking markets in each timezone), access to risk managers from a foreign office at night could facilitate 24 hour access. An advantage of scale;
- group buying of high quality software;
- bulk deal on prime brokerage available for the traders own personal use, or interbank access given enough scale;
- major feeds displayed on large screens throughout the office. For example, the ForexLive feed;
- Some ancillary services shared between offices (if there’s more than one office) such as accountancy. This is another reason why scale helps.
There’s a few things there that benefit from scale, and one that benefits from coverage of three continents. There’s more than one way to achieve a lot of this, I was merely thinking what I might do if I were setting it up myself. It’s a relatively recent idea that was floating around my head.
How many of you would consider joining if that sort of arrangement were available in your city? (doesn’t necessarily matter whether it’s by the share buy in or coming into an established centre later as a non-owner [keeping in mind this would still involve contributing labour of some form to the "keep the office lights on" hedge fund])
If you run a small fledgling hedge fund or prop trader without much scale. Would you consider locating your small team in such a shared environment? What have I missed, how would you improve on this still developing idea?
Please comment.
Now, today’s trade. Dollar/Sing (USDSGD):
USDSGD has been moving in a (purple) triangle since July 2011, but has recently been supported by an upward sloping trend-line (blue). We have had a false break of the triangle top already, but are poised near it again. Notice that we’ve produced a higher high, and the steepness of the blue line looks like it wants to eke out another.
Note on the longer term chart how far we fell to get here, and the series of higher lows. Also, note the Fibonacci retracement from the March 2009 high of 1.5586 to the 1.2003 low in July 2011. Notice the way we were capped by the 50% mark from April to July 2008, prior to the peak. Then we stalled around the 61.8 level in September 2008, and had a spike low there in December 2008. Then post-peak, we ranged between the 61.8% and 50% levels between September 2009 and July 2010. These fib levels coincide with good resistance levels, all between seven and sixteen big figures north!
I wonder if anyone looks at it and sees a possible pennant formation. The “flagpole” would be any more unsatisfying than some others I’ve seen. If it were, the 100% measured target would be near par! Asian central banks are whinging quite loudly about the yen depreciation which has been much more intense than other Asian markets, and this is a “managed” currency. A 26 big figure drop to parity? I’m thinking that pigs might fly!
I’m long this pair.
Tomorrow, as long as nothing has changed in the pair, I plan to look at the Euro. I’m pretty confident I can just start writing it now, and nothing will be out of date.
Also, my take on risk and income management is probably the other topic, based on yesterday’s comments.
See you then!
Comments welcome
