Trading has this image of being a very glamorous profession. Sure there are some people who make a lot of money. But it doesn’t come without a cost. Having spent time in a trading desk and lot more hours trading on my own I can tell you that being a trader is overrated. I do have my reasons, 8 of them.
1. Trading is a stressful job.
As an investor on the buy-side, you are making longer term bets and don’t have to worry about very short term movements. However, as a trader in a bank you have to constantly quote prices and keep predicting small movements in the markets. This can become very stressful as markets are always moving. The margin for error is very less. In a typical swaps desk, a 1 basis point movement can result in thousands of dollars in losses, so you have to be extremely accurate while pricing and entering trades. It can be even more stressful when you are in the negative territory it becomes increasingly tough to get out of it. If you lose 20% of your value, from 100 to 80, you need to make a return of 25% to get back to 100. So, once you are on the losing side of the trade there is automatically a lot of stress of getting back to the winning side. Your bonus and your job depend on it.2. Trading is boring after a while.
This might not apply to everybody but unless one changes asset classes (which is also very tough to do, and is adverse for your career progression), trading the same asset over and over for years can lose its charm. Sure the markets are moving all the time, there is always new information to make use of, to trade and make money from. But if you are trading the same currency pair or the same interest rate product for 5-6 years, there is no new skill that you develop and it becomes boring after a while. Often, the argument against this is that traders can earn enough money to retire in 10 years. Then life can be interesting again. That brings us to point 3.3. Not all traders do well in life, money-wise.
Gone are the days of million dollar bonuses. Prop element of trading is diminishing and more and more banks are now forced to focus on trading for the client orders (Flow trading and Agency trading). This means trading is becoming more of a risk management function than pure money making function. Further, regulators are putting caps on the bonuses. Some firms (like Barclays) have increased base salaries for traders so that they are compensated for when they are paid smaller bonuses. However, overall bonuses are expected to remain at this new lower level for a while. A trader now cannot think about retiring in 10 years with nothing to worry about. Further, the bonuses in trading can be very volatile with one big bonus year followed by a zero bonus year.4. Trading is not for people looking for Job Security.
The number of traders in the industry is very small. There are junior traders joining the industry every year and yet there isn’t an overall increase in the number of traders in banks. Rather, there has been a decrease in the years after crisis. Nobody can predict the market directions correctly all the time, and the industry is brutal enough to throw you out when you make a mistake. If you start at a bulge bracket firm as a trader, you still have some hope as the middle market firms will just offer you a job immediately. However, if you are not lucky enough to join a bulge bracket, in this environment losing job could mean you need to start over somewhere else. There are very few traders who make money every year consistently. And sooner or later, everybody gets fired. Sometimes, people even get fired when they have made a lot of money, so bank doesn’t have to pay them fat bonuses.5. Junior Traders do all the dirty work.
One of the things that people like about trading is that they have work only when the markets are open. That is not completely true and traders have a lot of daily tasks to do even after market close. This is especially true for junior traders who do a whole bunch of stuff from booking 100s of tickets all day to running risk reports, PnL reports, limit checks to bringing coffee, taking lunch orders and anything else that the senior traders want them to do.6. Traders are not the happiest people.
The nature of work in trading is such that you have to be very strong headed, aggressive and flexible to the market at the same time. Managing a book can be very stressful when a single news event can wipe out all your gains that you made over 6 months. Sure, this doesn’t happen every day but traders are forced to be extremely careful every minute. Normally, the flow traders won’t have time to talk to people, or even to teach the juniors. However, when juniors make mistakes there is no holding back. Often you will hear shouting and screaming at the desk. Imagine doing this 12 hours a day, 5 days a week for years. This spills over and affects the behavior in their personal lives as well. Some traders are able to separate out their work life and their personal life. Some get divorced faster than they got married!7. Traders don’t add value to the society.
This is not entirely true but makes up a good title. The biggest argument in favor of traders her is that they provide liquidity to the market which enables people make investments at fair price. Somebody has to do it and it’s an important thing to do. I’ll give this point to the traders. At the end of the day, if a trader makes good money it is more an individual and maybe a bank thing to be proud of. But this seems to be the aim, with market liquidity argument being a side effect of this superior motive.8. Very few traders retire early.
Often people think that they can just save a million dollars and then live off the interest for the rest of their life. As we grow older, if we are in a network of highly paid individuals, our expenses can grow very fast. So, saving a million dollars and retiring might not work after 10 years when you realize you need a 200k per year to support your acquired lifestyle. Some people do make enough to support 200k per year lifestyle without working again. I know a few guys who made a ton of money, bought a boat, and went sailing for a couple of years, then came back looking for a trading job again. If you don’t have other interests in life, it is very tough to retire.
This post is not meant to disrespect traders at all. However, this is to acknowledge that it is a challenging job. This might excite somebody and does every year when thousands of people apply for trading jobs worldwide. At the same time, hopefully it will help a few in their decision when they are planning to apply for that ‘glamorous’ trading job.
Note that the life of a trader varies depending on the asset classes or the complexity of the product. And not all the factors above will be applicable for each trading role.
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