Life’s better at the top, isn’t it?
A fat cat trading account, huge bonus at the end of the year, and money to burn on the “trader lifestyle.”
Or is it all it’s cut up to be?
Could it be that many traders don’t know what they want?
Is it better to trade for the currency desk at the Bank of America with a coffee in hand?
Or in your underwear sipping on a green smoothie?
Is the millenial generation a bunch of Gordon Gekkos? And why do trading “virgins” have the decided advantage in the markets?
All this and more in this episode…
Download (Duration: 23:55 / 27.3 MB)
In this episode:
00:58 – working at a bank?
03:31 – most of their salary is in the bonus
05:38 – fail safe tools
06:41 – how many of these traders enjoy that job?
08:08 – sociopaths
11:00 – the whole truth
13:21 – working at UBS?
15:21 – limitations by the institution
17:03 – making money
22:06 – something positive
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Walter: The limitations that are placed on you as an institutional trader are going to be very very different to limitations that you place on yourself as a retail trader, knowing what’s possible, talking to other traders and sharing information over the internet.
Announcer: Two traders; Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: Welcome back to the Two Traders Podcast. I’ve got Darren on the line here and Darren, today we’re going to talk about this idea where some traders have the goal of eventually working at a bank. So the currency desk at a bank or a private fund or something like this.
I guess, what I’m wondering is what are some of your thoughts on having this as a goal? Why is it that some traders want to do this? To me, it seems a little bit weird, but I’d like to get your thoughts on it.
Darren: It’s not something that I’ve come across greatly with the traders that I’ve spoken to or worked with. I suppose the appeal of it is a large salary and really there’s no risk. I suppose to some extent it may appear like it’s taken some of the uncertainty away from you because they’re going to give you salary and bonuses and it probably feels like a shortcut to achieving your goals.
From what I gather, it’s not particularly a good lifestyle. Most of the traders that I talked to tend to be a little bit more mature and they’re not necessarily just looking to get rich but maybe looking for a better lifestyle.
It’s not something I come across but I suppose when we see these traders in the news or we hear about them, generally they’ve got a couple of Ferraris or they’re talking about their bonus. I imagine those upsides are very appealing to a lot of traders.
Walter: Yeah and the way I think of it is, probably you’re right, it’s sort of a safe route to go they feel like, “Well, at least i’ll for sure, have a lot of money to trade and I’ll for sure make some money.” But I think… maybe as a stepping stone. If your ultimate goal is to have your own fund, maybe you would want to work at a bank or at a private fund for some time before you step away and run your own show. Although, that transition is often difficult for other reasons that probably we can get into maybe in different episode.
But I guess, that to me, make sense in some regard. In a lot of ways, I agree. I don’t really know why? Cause most traders, like you say, are more interested in the freedom than anything else. It might be that they’ve had a job for a long time and they’re just waiting to get out or maybe they’re transitioning into retirement. It might just be they don’t want to work for somebody and they want to work for themselves. They see this is a great balance between life and work because they don’t necessarily have to work that much because you basically get paid per trade. You get paid for risking capital. You don’t get paid for sitting at a desk or talking on the phone or making so many sales or whatever.
There is one thing that I think people miss out on or they don’t consider this. I know a few traders who have jobs like these. This is something that a lot of people don’t really think of when they get into it. Most of their salary, and you just touched on it, most of their salary is in the bonus.
If you’re working at one of these private funds or you’re working at a currency desk, or really in a lot of the finance, it depends but in a lot of finance full stop, what you’ll find is that you make a very small salary. At the end of the year, you get this huge bonus which is basically what you’re banking on.
I know a trader who just, a few weeks ago, he is working at a hedge fund, he found out he wasn’t going to get his bonus after the fund’s performance last year. That can really hurt because what that means is you might have to reconsider all of your expenses when you think about it. He has had to do this now. He has to reconsider all of the things that he spent money on in the previous year. Sort of banking on the fact that he was going to get this big fat bonus that was going to dwarf his salary in January and it didn’t materialize.
This is something that you have to consider as well. It’s not always going to be the case that, you can count on that fat cat bonus coming through. That’s basically how people lived their lives when they had these jobs. They assume that they’re going to get this big huge bonus.
Obviously, we’re talking about situation when you’re working for a company. We’re not talking about a situation where you’re actually one of the founders of the company because that’s totally different. If you actually go and apply for a job and start working with people that you don’t really know, that’s the kind of what we’re talking about here.
If I were to make a list of things that you probably didn’t consider but probably should: One, is the long hours, which you’ve touched on. One is the fact that you’re going to get most of your salary and bonus in some years but you’re probably occasionally, not going to get that bonus. You’d like to think that it’ll happen every year but most definitely, it won’t, not if you stayed there long enough.
The other thing to consider is that, you’re in a very structured environment. If you’re working at a bank or fund, there’s a sort of these fail safe tools and hurdles put in place so that you don’t ruin the entire company as a trader. Those things are often overlooked when traders transition to trading for themselves or starting their own fund.
The fact that you have these fail safe things in place and you have things like, risk managers and people watching what you’re doing, I don’t know about you but a lot of traders I speak to, they don’t have that set up in their life. What that means is they don’t have the same advantages that bank traders have and fund traders have. Those are some of the things that you also have to think about. Just because you’re a really good trader at the Bank of America doesn’t mean you’re going to be a really good trader at a Joe Blow Fund, Incorporated. That’s something to consider.
Darren: I wonder, as well Walter, how many of these traders actually enjoy their job. Whether they actually enjoy their life being a trader for a fund or a large institution. That’s something I think we quite often overlook in a lot of scenarios. When there’s a large amount of money involved and the kind of money takes the focus there. When you’re actually in the situation, you realize that it’s not the money that ultimately is going to get you where you originally intended to be. Obviously whenever we do anything work-wise, we try to improve our lives. I think often the money becomes the main focus. I think that’s a problem for retail traders as well when we just stop focusing on the money and the results rather than looking at the bigger picture and what we really want to achieve from trading, that can be sort of a bad mindset to get into.
Walter: Yeah, absolutely. Yeah.
Darren: Do you know any traders that love their job and want to stay there until they retire or are they just trying to make enough money so they can get out and do something else?
Walter: Yeah, absolutely. You’re reminding me, I was speaking to a woman about two weeks ago. She said that her son was a trader and he was a futures trader for a company, for a hedge fund and he hated his job. He ended up taking all the money that he got out of that when he left his job and he went opened up a bunch of those cycling gym where they have spinning class. He and his friends, that’s what they did. They took their money from their job and they went to open up a bunch of cycling gyms cause that was some kind of his passion. It was just some kind of a stepping stone that he used because he absolutely hated it.
I think you really touched on something here which is, some of these guys, they’ve done studies on traders and they find things like, interestingly enough, that the best traders are literally sociopaths. If you think about it, you’re in this high-pressure environment right? I think that there aren’t very many people that would disagree with that. Let’s just assume you’re in a least somewhat pressured environment, you’re surrounded by sociopaths or at least a few of them, and you may or you may not get paid at the end of the year. I mean that is really a difficult situation to be in when you’re in this sort of a pressure cooker.
There are some really good things. When you come in as young person, they’re going to assign you a mentor. They’re going to teach you the ropes. They’re going to show you some things that you probably had no chance at learning in college which is great. At the same time, like you say, these guys might not love their lives.
I knew some traders who were in Southern California and they would fly to London just because they could. Blow wads of cash on booze in whatever else their vices were. You can only imagine. Then they would come back like they would do that on the weekend. That was part of their way of blowing off steam. I guess proving to themselves why it was so fun, so enjoyable to have this job at a hedge fund because you could just blow off and go to London and spend thousands of dollars on your weekend and come back. Then when people say, “what did you do?” You’d say, “Oh, I went to London and partied for 48 hours.” or whatever.
This kind of thing, is that really what your whole goal is in life? Or is that just something that’s transitory and you do not really spend… It’s not really what you’re after in life. Maybe just something that’s kind of cool when you’re young. You’re really excitable and you just want to go out and party and this is some kind of a tool to do that.
Darren: Yeah. I think so. We’re bombarded with that message nowadays anyway, aren’t we? That’s what we’re told is living and what we should be working towards. Obviously, as we grow up, we realize that isn’t necessarily the whole truth. Me personally.
You touched on the point that you get an education by going to work for these institutions, funds, companies, whatever. I think nowadays, if you’ve got enough drive and ambition, that information is all available for you for free on the internet anyway. If you’re a smart guy then believe in yourself a little bit, and do some trial and error. It doesn’t cost you anything to open a demo trading account and use trial and error.
Obviously, again, most of the information tells us that it needs to be done in a specific way and unless you learn these specifics then you’re not going to be successful. We’re kind of funneled down a narrow corridor. It takes quite a person to be able to break out of that and start thinking for themselves.
Walter: Absolutely. Yeah, that’s absolutely it. That’s part of the thing, I think. That’s a good point. You bring up this idea that you’re going to have a mentor, you’re going to have this education, they’re going to show you the ropes when you go into a job, like you’re at the currency desk at a bank but the beauty of the internet is, you can get what you need out there. It’s all out there on the internet for you. It’s waiting for you. You can also find mentors on the internet. You can find whatever you want really on the internet, can’t you?
The idea that, as a goal, to go… The ultimate job is to go and work for the currency desk at UBS or whatever. If that’s your ultimate goal, I would ask why is that? Is it because you want the prestige so that when you go back to your high school reunion, you can tell everyone that you’re a currency trader at UBS. Or is it because of the money and you feel like that’s the best way to make a lot of money? You don’t have a lot of money in your trading account now so you can’t scratch together much and you feel like you’re kind of behind the eight ball there so you’d rather go and trade someone else’s money?
Is it because, you think that you won’t learn really how to be a trader unless you go and find the mysterious systems that they’re using at the bank? Is that really what it is? Because to me, another thing that I learned is when you talk to these people who have been in these institution for their whole career, they are jealous in some regards. The older ones are jealous of people like you and I.
Most of the people listening to this, they’ll say things like, “you’re a virgin. You don’t know what it’s like in the real finance world.” They’re saying, that’s a good thing that you’re a virgin.
One of the things that comes across is that if you’re just some trader who’s learned a few systems, let’s say you’re break-even here, and just starting to make money. You’ve just gone through that break-even stage and you’re just trying to make money right now. The potential that you see in terms of your trading, is probably the potential that you have, is probably completely different to the potential that a trader would see at an institution.
What I mean by that is, this is all related to leverage and kind of risk management right? But, what happens, your goals that you have at a fund and what’s likely to be considered really good performance, to the average profitable trader who’s just the retail trader, that might be considered not so good. You know what I mean? “I don’t know. I think I can do better than that.”
In other words, the limitations that are placed on you as an institutional trader are going to be very very different to limitations that you place on yourself as a retail trader. Knowing what’s possible talking to other traders, and sharing information over the internet
That’s another piece here that people don’t consider. You can actually do really, really well if you don’t have these limitations placed on you by the institution that says, “No, we’re only really trying to make two and a half percent this month,” or “We’re really trying to shoot for three percent this quarter.” These sort of things, it’s a different game. It’s completely a different game because of their leverage, because of their clients, because the way it’s set up. It’s not quite the same as it is if you’re a retail trader who is doing this for yourself. I think that’s another thing to consider.
Darren: Yeah. I think. I saw something on TV where it’s quite a problem in the States where all of the smartest people coming out of the University there are going to work on Wall Street. Whereas before, they would go and be scientists or surgeons. Now that everyone wants to work on Wall Street, the only reason must be money. I can’t think, if there’s any other reasons that’s drawing these people to do.
It’s not like you’re working in an amazing environment. It’s not like you’ve got a nice, relaxed workplace. It’s more of like… high stress. I guess that the turnover is quite high as well. I guess you’re given a short amount of time to prove yourself. At the same time, you’re expected to maintain that level of result. I’d imagine the job security is pretty low as well.
I think people are just being drawn by money so much now. It Kind of feels a little bit like the 80’s to me again where as long as we’re making bucks, then it’s okay. I’m glad I’ve kind of never been like that. As you know, I’m just like a complete contrarian. I could never work for anyone anyway. I’ve always rather start my own small businesses and try on my own. Whether that’s been good or bad. I don’t know. I would struggle being told what to do everyday anyway.
Walter: Yeah. It’s funny how these sorts of things attract people like that. It’s really about the freedom. I guess that’s the main thing there is. I know you’re basically saying the same thing. Most of the traders that you come across aren’t really after that. They’re looking for the freedom so it’s a different world. They’re looking for more time in their lives. They’re looking for the opportunity to make money based on the risks they take rather than the time that they punch in at some cubicle or whatever. Commuting to a job and all, just sounds crazy to probably many of you listening.
I’ll say these, I’ve heard the same things you’re talking about Darren, in terms of like, the graduates in the US. The graduates are getting king sucked into Wall Street. They’re not trying to find a cure for cancer anymore. They’re trying to figure out a way to make more money on the Euro or S&P 500. These Physicist are getting sucked into building algos or stuff like that. I am sure that is going on.
One of the things that really excites me about the current generation coming through is they’ve also done studies that they talked about which company is the most prestigious. I could probably post a link underneath this one too where we can post some of these stories we’ve talked about here. Which company is the most prestigious one. What they’ve found is that, the current generation is going through university now. Whereas before, it was like I wanted to work for IBM or I wanted to work for these banks or whatever these company is. What is happening now is that they’re looking toward these charitable organizations.
People are actually spending a lot of time whether it’s between graduating from a university and going for a real job. They’re actually going and working for basically causes outside of just making money. Maybe the cream of the crop is being sucked into Wall Street.
The vast majority of the current generation is really more interested in helping out. That’s kind of a welcome change. I think that’s something that in some ways is different from the way that we grew up. The way that I grew up with, growing up in a time, when greed is good and all of that is in the media is pretty crazy when you think about it. I think it is refreshing.
I used to have an account with a broker and they had given me a guy, that would talk to me right? He was like my guy and if I ever needed something, I would talk to this guy. One day I was talking to him and he was like, “yeah! so I’m leaving the company”. I’m like, “Oh! really” so he said “Yeah, I‘m leaving the company”. He said “and I’m going to go…” He was going to go do some charity work in Asia or something. That was what really what he wanted to do. He really didn’t like working that job at the retail Forex broker.
That’s really interesting. He was a younger guy. I talked to his boss, the owner of the company, and he said “I still don’t know why he wants to do that, but he does”. He was an older guy. He was more like in our generation, you grow up with these things, these principles. It’s just interesting to me to see that this kid was really excited to leave his well paying job and go do some work for other people. I think that’s some kind of interesting twist on what’s happening.
It’ll be interesting to see where the world is at in twenty years, if I’m around, in thirty years and see how things have changed. If people are born inclined to give back and help out. See if we could help out some areas of those world that basically need it. We’ve got some huge problems on the planet and I’m not sure if working in Wall Street or even really when it comes down to it, building your own trading account in your underwear or in your living room at home. I don’t think that’s going to do much either. We just have to think about these things in terms of what is it really all about. Are you here to help or are you here to just take as much as you can?
Darren: Yeah, definitely. I’m glad you came up with something positive, I do tend to be a bit negative when I think about the world really. It’s good to hear some positive news. I’ve heard that companies that sort of ethical, tend to be doing better now. they’re good companies to invest in. I think it will swing back the other way as it did in the eighties. It all went a bit crazy. People started feeling uncomfortable with it when it was blatantly obvious what was going on. Hopefully we’re at the end or getting towards the end of that cycle, that sort of greed cycle now, will change. If you’re trading, as a retail trader, as we all know, greed is one of the most destructive emotions in your trading. It does help you as a trader to think a bit more outside the box as well.
Walter: Yeah. I’m with you on that one. Sounds good. Next time, Darren maybe we can get into this question that came up from the comments on our Two Traders Podcast website. They were asking if we could get into this idea of a trading mentor versus a trading school. What are the differences and advantages, disadvantages. That was something that they wanted to talk about. Another person had a specific question about your trading so maybe we can get into that question too, about your style of trading in the next episode?
Darren: Yeah, that would be really good. That is all we’re going to talk about today. So yeah.. See you then Walter.
Walter: Okay. see you . Bye