I read an interesting article today entitled 'Traders are made not born' that was from an online hedge fund newsletter. Thought some of you here my like to read it. I did not write it but it is a good article about how new traders are recruited and developed.
Karen Unwin of the Marex Trading Academy argues that funds should take a much more systematic approach to the recruitment, training and development of junior traders.
Most junior traders fail to make money - as few as three out of ten make the successful transition to senior trader and generate substantial profits for themselves and the fund. The cost of salaries and trading losses is high, and yet training is often unstructured. Junior traders are assigned to a senior trader, who may have a lot of trading expertise but little experience, or ability, in training and developing others.
The amount of skill and knowledge imparted varies a great deal from trader to trader, and there is no way of monitoring what they were supposed to learn, or whether they actually learned it. At some point the decision is made that the junior trader has gained enough experience to be allocated a degree of risk - and proceeds to either lose or make money.
The investment in salaries, high-cost office space, ad hoc training courses and the valuable time of senior traders and managers can add up to USD100,000 in the first year, before any trading losses are taken into account. Any other investment is managed carefully and assessed regularly against expectations - and investing in a junior trader should not be treated differently.
The old apprenticeship model is outdated, inefficient and expensive. Taking a structured approach to recruiting and developing traders, using modern learning methods, can improve the return on the investment that trading desks make when they take on graduates.
Identifying potential talent
It starts at the very beginning with the recruitment process. Large banks may have a sophisticated human resources function that makes sure the recruitment is as effective as possible, but most funds still rely on internships, CVs and interviews. The likelihood of a good fit to the role can be improved by as much as 60 per cent if applicants are tested for the required skills and attitudes, and structured interviews are used.
Internships are a useful way of identifying potential talent - although they only tell you whether the intern can perform the role of their internship, not the role of a trader. Their effectiveness can be greatly improved if the time is used to test the intern against specific trading skills and abilities.
Structuring development
Once the right people have been selected the next challenge is to speed up the training process and make sure there are no gaps in their knowledge and skills that will come back to haunt them - probably in a very expensive manner - only at a later date. Trader management needs to identify the knowledge and skills needed, across the spectrum, and plan how they should be acquired. This may be the time to bring in some external expertise. Not everybody who is good at trading can teach it to somebody else.
It is also important to make sure that the right attitudes to learning are fostered. Trading is an endeavour where you never stop learning, and you are 100 per cent accountable for your results. The juniors must take personal responsibility for their own development rather than sit waiting to be taught - an attribute you can look out for in the recruitment process.
Today's traders must be strategic. The closure of the floors has left behind the reactive, gut-feel trader. As the juniors develop, make sure they produce evidence of their strategies as they develop - if they can't describe it, they can't do it.
Monitoring your investment
Introduce a process of benchmarking of where a trader should be by certain points in their development and devise ways of measuring them. These might include areas of knowledge to have assimilated, trading techniques to have mastered and trading strategies to be devised and cleanly executed. These steps enable trader management to identify those who can, and cannot, make the grade at an earlier stage - thus saving money on salaries and trading losses.
The apprenticeship model doesn't have to be thrown out, but it does require an overhaul, from the way traders are recruited to the approach of their ongoing development. Trading is considered a very attractive career and there is no shortage of potential candidates - the challenge is in not wasting the money, time and effort spent on them.
Karen Unwin of the Marex Trading Academy argues that funds should take a much more systematic approach to the recruitment, training and development of junior traders.
Most junior traders fail to make money - as few as three out of ten make the successful transition to senior trader and generate substantial profits for themselves and the fund. The cost of salaries and trading losses is high, and yet training is often unstructured. Junior traders are assigned to a senior trader, who may have a lot of trading expertise but little experience, or ability, in training and developing others.
The amount of skill and knowledge imparted varies a great deal from trader to trader, and there is no way of monitoring what they were supposed to learn, or whether they actually learned it. At some point the decision is made that the junior trader has gained enough experience to be allocated a degree of risk - and proceeds to either lose or make money.
The investment in salaries, high-cost office space, ad hoc training courses and the valuable time of senior traders and managers can add up to USD100,000 in the first year, before any trading losses are taken into account. Any other investment is managed carefully and assessed regularly against expectations - and investing in a junior trader should not be treated differently.
The old apprenticeship model is outdated, inefficient and expensive. Taking a structured approach to recruiting and developing traders, using modern learning methods, can improve the return on the investment that trading desks make when they take on graduates.
Identifying potential talent
It starts at the very beginning with the recruitment process. Large banks may have a sophisticated human resources function that makes sure the recruitment is as effective as possible, but most funds still rely on internships, CVs and interviews. The likelihood of a good fit to the role can be improved by as much as 60 per cent if applicants are tested for the required skills and attitudes, and structured interviews are used.
Internships are a useful way of identifying potential talent - although they only tell you whether the intern can perform the role of their internship, not the role of a trader. Their effectiveness can be greatly improved if the time is used to test the intern against specific trading skills and abilities.
Structuring development
Once the right people have been selected the next challenge is to speed up the training process and make sure there are no gaps in their knowledge and skills that will come back to haunt them - probably in a very expensive manner - only at a later date. Trader management needs to identify the knowledge and skills needed, across the spectrum, and plan how they should be acquired. This may be the time to bring in some external expertise. Not everybody who is good at trading can teach it to somebody else.
It is also important to make sure that the right attitudes to learning are fostered. Trading is an endeavour where you never stop learning, and you are 100 per cent accountable for your results. The juniors must take personal responsibility for their own development rather than sit waiting to be taught - an attribute you can look out for in the recruitment process.
Today's traders must be strategic. The closure of the floors has left behind the reactive, gut-feel trader. As the juniors develop, make sure they produce evidence of their strategies as they develop - if they can't describe it, they can't do it.
Monitoring your investment
Introduce a process of benchmarking of where a trader should be by certain points in their development and devise ways of measuring them. These might include areas of knowledge to have assimilated, trading techniques to have mastered and trading strategies to be devised and cleanly executed. These steps enable trader management to identify those who can, and cannot, make the grade at an earlier stage - thus saving money on salaries and trading losses.
The apprenticeship model doesn't have to be thrown out, but it does require an overhaul, from the way traders are recruited to the approach of their ongoing development. Trading is considered a very attractive career and there is no shortage of potential candidates - the challenge is in not wasting the money, time and effort spent on them.