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Ex Insti Trader... AMA

  • #1
  • First Post: Mar 17, 2018 11:32pm Mar 17, 2018 11:32pm
Hi all,

I have been working in the financial markets for just over 7 years now and have recently quit my job to pursue a different career. I was a Spot Trader for 4 1/2 years and have been on the Options Desk for the past 2 1/2 years. In this time I have been in 2 BB banks and 1 smaller European bank. While my experience is of course not representative for the whole industry I would say I have a pretty good grasp of how the markets work and what drives them.

I want to use this thread to answer any questions you may have about what it is like to trade for an institution or anything else you might want to ask me. I know that there is a few other people in this forum that have a lot of experience working for banks/funds or whatever so please feel free to chime in and discuss!

Why am I doing this?
I have been a long term lurker in several trading forums because I always found it interesting to see what the retail sentiment is like.I have been online more again since I quit working and just want to give back in a way. I also noticed that there seems to be a lot of misconception of what is driving the markets (especially short term movements) and havent really found many threads where this is discussed.

Anyways shoot away if you have any questions....
  • #2
  • Mar 18, 2018 12:26am Mar 18, 2018 12:26am
Glad to know someone trying to help the community. Don't mind if I have a few questions of my own.

1. Which banks did you work for?
2. In your opinion, what is the difference between the "trading styles/strategies" of banks/institutions vs retai?
3. Please elabourate more on the "misconceptions"
4. If possible, how did your bank determine their trades?
5. What are your current views for the FX markets now? Any particular currency of interest to you right now?

It would be greatly appreciated if you could answer them!
I look for value wherever it can be found
  • #3
  • Mar 18, 2018 12:57am Mar 18, 2018 12:57am
how do you profitably trade the markets?
  • #4
  • Mar 18, 2018 1:09am Mar 18, 2018 1:09am
Quoting synicz
Glad to know someone trying to help the community. Don't mind if I have a few questions of my own. 1. Which banks did you work for? 2. In your opinion, what is the difference between the "trading styles/strategies" of banks/institutions vs retai? 3. Please elabourate more on the "misconceptions" 4. If possible, how did your bank determine their trades? 5. What are your current views for the FX markets now? Any particular currency of interest to you right now? It would be greatly appreciated if you could answer them!
1) I would rather not share the names of the banks but it was a large US bank, a large Japanese bank and a small European bank
2) Tough to answer that on a general level as there is quite a broad spectrum of strategies in both the retail and institutional world. When it comes to prop position i think the time horizon of your average bank trader is much longer than your average retail trader. But a lot of the profit the bank makes also comes from the flow especially in EM currencies where you still have a bid ask spread. Other than that you will always try to extract some value from your order book. But you really have to differentiate between the banks prop positions and the handling of the customers flow as these are two completely different stories. Also in all my time in banks I have only met 1 trader who took his positions purely by looking on the technical side of things. I think thats much more common in retail traders.
3) I think a lot of people underestimate how many moves especially around fixing times (used to be ECB fixing now shifting more towards the WMR fixings) are purely based on supply and demand and have very little to do with market sentiment or technicals. But if a few funds have orders on the same side bc they are adjusting positions or there is some MA activity then this is simply what drives the markets for these few minutes. Also on quiet days things like option expiries can provide quite a good guidance of what might happen which is completely overlooked in the retail world.
4) The teams I have been in I would say 80% fundamental 20% technical. But in a bank you naturally get a better sense of market sentiment because you see the flows of funds or big corporations so that gives you and idea of whats going on. But again the time horizons of prop positions i took were much longer than what seems to be common in the retail world. Of course I would scalp around when i think there was an overreaction to some news or lean against some orders but the directional positions were normally at least held for a few weeks.
5) On the spot side I am short EURSEK, EURUSD and Cable and I am long USDHKD & USDCHF. On the Bond side I am long US 10y/2y spreads. As much as I dislike Mr. Trump i think his views on trade will be good for the USD in the medium term. Once the whole political insanity calms down a little bit i think the increasing yield spreads should do their work and we should see a stronger Dollar. However it can be a bumpy ride until then.
  • #5
  • Mar 18, 2018 1:13am Mar 18, 2018 1:13am
Quoting shrips
how do you profitably trade the markets?
Find what works for you and dont try to copy somebody elses strategy.
I am convinced that not everybody can be profitable at trading since I believe there is a very unnatural thought process necessary in order to make money.
  • #6
  • Mar 18, 2018 1:16am Mar 18, 2018 1:16am
Is it more or less possible to be profitable being an intraday trader?
  • #7
  • Mar 18, 2018 1:27am Mar 18, 2018 1:27am
Quoting MoneyFocus
Is it more or less possible to be profitable being an intraday trader?

Thanks for your very detailed response alphaviech!
To add on to that question

How common are these group of traders in the institutional community?
My personal observation is that there is widespread obsession with intraday trades and/or very short term trades (Few days horizon). What are your thoughts on the ability of traders to forecast/trade short term price movements? Or does the institutional world subscribe to the notion that most short term price movements are purely noise?

Also, what are your thoughts on Technicals Analysis and/or Price action? Since you seemed to have downplayed their importance in the institutional community.

I am very sure your answers will shed some light to the retail community, based on your replies so far!
I look for value wherever it can be found
  • #8
  • Mar 18, 2018 1:27am Mar 18, 2018 1:27am
Quoting MoneyFocus
Is it more or less possible to be profitable being an intraday trader?
Of course its possible but i think it is essential to find a way to keep your overhead (spreads & comission) low while maintaining great execution quality.
I do not think that I could daytrade profitable in a retail setting but I am sure there is enough people that can.
  • #9
  • Mar 18, 2018 1:32am Mar 18, 2018 1:32am
Quoting alphaviech
{quote} Of course its possible but i think it is essential to find a way to keep your overhead (spreads & comission) low while maintaining great execution quality. I do not think that I could daytrade profitable in a retail setting but I am sure there is enough people that can.
I think you misunderstood me. What I was asking is the odds. Do you think the odds of being profitable in intraday trading for retail traders are higher or lower against say, someone who is willing to hold their positions over longer timeframes?

Could you explain a little more why? Based on what you have shared, I'm guessing your answer is lesser odds.

Thanks.
  • #10
  • Mar 18, 2018 1:52am Mar 18, 2018 1:52am
Quoting synicz
{quote} Thanks for your very detailed response alphaviech! To add on to that question How common are these group of traders in the institutional community? My personal observation is that there is widespread obsession with intraday trades and/or very short term trades (Few days horizon). What are your thoughts on the ability of traders to forecast/trade short term price movements? Or does the institutional world subscribe to the notion that most short term price movements are purely noise? Also, what are your thoughts on Technicals Analysis and/or...
I would say there is Traders that in/decrease positions a few times during the day but it`s pretty much impossible to run a book and do this purely on a "day trading" basis and be square overnight.

Yeah i guess that obsession with intraday trades is human nature... We are impatient and want instant gratification. Again I liked selling into rallies/buying dips when I thought that there was an overreaction to news but other than that I never bothered to try and predict which direction the next 15 pips move might be. One thing that is unbelievable for me is how tight many retail traders seem to put their stops... Like opening a position and stopping it out after 10 pips thats something you barely if ever see in Banks.

Ok maybe I should have written that a little bit different before - I think it is reall important to have a good grasp of technical analysis especially in pairs like EURUSD where a lot of people look at the technicals because it cane give you good clues where some buying/selling interest might be. But i always used technicals to decide where I should put my T/P orders and not to make my decision of which direction I want to position myself. I hope that makes sense. But something that always blew my mind is retail trades looking at technicals in absolutely obscure crosses that almost nobody trades.
  • #11
  • Mar 18, 2018 2:07am Mar 18, 2018 2:07am
Good stuff alphaviech. Thank you for sharing
Pride always comes before destruction.... -Proverbs 16:18
  • #12
  • Mar 18, 2018 2:08am Mar 18, 2018 2:08am
Quoting MoneyFocus
{quote} I think you misunderstood me. What I was asking is the odds. Do you think the odds of being profitable in intraday trading for retail traders are higher or lower against say, someone who is willing to hold their positions over longer timeframes? Could you explain a little more why? Based on what you have shared, I'm guessing your answer is lesser odds. Thanks.
Ah yeah sorry I misunderstood the question.
Yes I perosnally think its harder to trade profitable intraday than it is to trade long term.
Two reasons
a) I find it harder to predict short term market movements
b) If you daytrade the costs you incur through spreads and comission can be quite significant whereas they dont really matter if you trade long term. Think about it this way if you pay 1 pip in comission/spread and have a 20 pips target/ 10 pips SL or pay the same comission and have a 500 pips target/250 pips SL then you can lose money in the first scenario and make money in the second scenario even though you have the same risk reward and get the same percentage of trades right
  • #13
  • Mar 18, 2018 2:41am Mar 18, 2018 2:41am
Many thanks dear Alphaviech, I think this topic was missing in the forum . Actually, many of my questions were answered above and more cheap questions are still tickling my mindthat i was wondering if you could clarify more.

1- Are all banks and big players always profitable or sometimes they also can face trouble for bad decisions?
2- when a big movement is running, do all banks are making this or some more powerful of them are acting?...in fact, i want to know whether all of them have the same idea about the trend direction or probably some other banks are struggling with them?
3- why sometimes we see big movements in days which there is no powerful news, how they decide to move the market in a specific direction?
4- It's been always a big question for me if banks know the news before release or not? if yes, how? (everybody has seen that sometimes markets have big movements (1-2 min) before release)

Many thanks in advance
  • #14
  • Mar 18, 2018 3:11am Mar 18, 2018 3:11am
Quoting Ssbrf
Many thanks dear Alphaviech, I think this topic was missing in the forum . Actually, many of my questions were answered above and more cheap questions are still tickling my mindthat i was wondering if you could clarify more. 1- Are all banks and big players always profitable or sometimes they also can face trouble for bad decisions? 2- when a big movement is running, do all banks are making this or some more powerful of them are acting?...in fact, i want to know whether all of them have the same idea about the trend direction or probably...

1) Haha hell no! I think nobody that is always right would be stupid enough to work for a bank. But again you have to differentiate between taking prop positions and between handling the flow. Especially in G10 Flow trading is automated to a large degree and a lot of the trading decisions are more about how you set your system than anything else. Customer flows are warehoused and analyzed to see who can be hedged comfortably at a profit and who you have to be careful with. But of course you can be on the wrong side of things.
2) As stupid as this sounds the Fx Market is not really big as such a big share is controlled by relativley few banks. I mean if you work at Citi you can see 10% or whatever it is these days of all the fx transactions. So if you work at one of these banks you automatically get a good idea of what the general flow looks like. And since all the big banks have the same or at least similar customers its only natural that they will come to the same conclusion of which direction the interest is...
3) Again its not like you just go in the morning flip a coin and say ok lets sell some euros. A lot of these moves dont make any sense even if you sit in a large bank and I think the size of position banks take these days on Spot desks are much much smaller than many retail traders would think. Its more about the flow being one sided on these days and banks taking advantage of that.
4) I have never been in a situation where that was the case but I assume UK news have been leaked before. But to banks or funds or other players who knows.
  • #15
  • Mar 18, 2018 3:47am Mar 18, 2018 3:47am
Quoting alphaviech
{quote} 1) Haha hell no! I think nobody that is always right would be stupid enough to work for a bank. But again you have to differentiate between taking prop positions and between handling the flow. Especially in G10 Flow trading is automated to a large degree and a lot of the trading decisions are more about how you set your system than anything else. Customer flows are warehoused and analyzed to see who can be hedged comfortably at a profit and who you have to be careful with. But of course you can be on the wrong side of things. 2) As stupid...
Many thanks dear friend
  • #16
  • Mar 18, 2018 3:49am Mar 18, 2018 3:49am
Quoting alphaviech
{quote} Find what works for you and dont try to copy somebody elses strategy. I am convinced that not everybody can be profitable at trading since I believe there is a very unnatural thought process necessary in order to make money.
Hi alphaviech,
An excellent thread.
I am particularly interested (and agree) in your statement that profitable trading perhaps requires an unnatural thought process. Could you elaborate on what you see that as being?
Many thanks
  • #17
  • Mar 18, 2018 4:19am Mar 18, 2018 4:19am
subs. Thanks and
Regards
  • #18
  • Mar 18, 2018 6:19am Mar 18, 2018 6:19am
Great idea Alpha.

1) Hedging delta is theoretically a continual process but my understanding is that in practice it's done with discretion in chunks. How did you manage it on the desk on a daily basis?
2) did you have any rough and ready ways of pricing up options without going through the full mathematical model?
2) The move to automation is winding its way around every dept. How long do you reckon until spot desks are fully automated?

thanks fella appreciate it
  • #19
  • Mar 18, 2018 7:30am Mar 18, 2018 7:30am
Hi Alpha,

1. Where do you get fundamental news from ? Can you recommend some good sources?
2. If fundamentals are more important, why is forex trading now replaced by hft market makers? Are the algos good at analyzing news now or do they just use client order books for longer term prediction.
3. You mentioned you are hold spot positions for weeks. The swap rates at a lot of brokers are far worse than if you traded using ccy futures. Do you have a good broker who offered you good rates?
4. Why do you have to start a new career from scratch if you can trade well? Why not continue being a private full time trader? Are you able to share why you don't do trading anymore since it is a dream job for so many.

thank you so much for sharing.
  • #20
  • Mar 18, 2018 7:49am Mar 18, 2018 7:49am
Hi Alphaviech,

I would like to thank you the good thread you started.

All the best,

Cheers

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