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Conquering Fear in Trading

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October 1, 2010

Cover Story: Upping the Ante

A Competitive Job Market Pushes Traders to Beef Up Their Analytical Skills

By John Hintze

The trader of tomorrow will be less a seeker of stealthy executions and more like a highly skilled quality-control engineer, finely tuning his trading platforms to adjust to changes in an increasingly complex market.


In fact, steadily improving technology and a growing emphasis on quantitative analysis appear likely to transform the trader's traditional job of executing strategies for portfolio managers and buyside customers efficiently and anonymously.

"This is the real problem for traders: They're becoming the equivalent of specialized buggy-whip artisans-they have very finely honed skills, but those skills are becoming useless," said Benn Steil, director of international economics at the Council on Foreign Relations and the principal of Efficient Frontiers, a capital markets consultancy.

Rather than working individual orders with the array of electronic tools now available (perhaps at times picking up the phone to find a natural match), traders in the future will spend their day processing real-time information about the current market and their own trades' performance.

When performance dips or there's a market-changing event, they will respond by tweaking their algorithms' parameters, or even switching to new ones.

And so the traders of tomorrow will require a deep understanding of technology, not only for efficiency, but so that they can spot the next wave of instruments to put in their toolbox.

As today, they'll need strong communication skills. But rather than using those skills to determine where a specific security or sector is headed, they'll have to be fluent in programmer-speak and quantitative analysis, to understand in detail how their algos work-and differ from each other-and which of the latest developments can give them an edge.

Buyside traders will have to know enough about market structure and technology to grill sellside and vendor executives about their latest products and services. Sellside traders will need to understand more about a range of markets. And that's just the beginning. But at the end of the day, a traders' market feel, coupled with his ability to adapt and develop new skills will always be a requisite for success.

Still, if successful traders today hope to see their children follow in their footsteps, then their kids should start honing their quantitative skills now, so that they are grounded in mathematics and computer science as soon as possible.

Phil Krauss, director of trading at Harris Investment Management in Chicago, said he now looks to fill a junior position with someone who has a strong background in quantitative analysis. The replacement for an experienced trader, he said, must have a programming background, and preferably algo trading experience.


Quant Skills