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February 1, 2012

Get Your Trade On

The Travails of Trading and Central Banking

By Gregory Bresiger

Successful professional traders, even when they're riding high, need a medical plan that pays for psychiatric care and another job to fall back on when things go sour. They should also understand the power of the central bank. 

Street Freak, A Memoir

Those are some of the themes of this remarkable, at times raucously ribald, book. It details the trading industry's Darwinian warts, as well as those of our nation's most powerful bank.

Trading, says the author, is one of the purer forms of capitalism. Unlike many other professions-jobs in which results can't be seen in the short term and in which workers may be well paid for years no matter how incompetent they are or how unprofitable the business-traders have to face the indisputable truth of raw numbers every day: their P&L.

"Profits are profits. Losses are losses. And there are no evading losses," writes Jared Dillian, a former Coast Guard officer, who traded for Lehman Brothers and specialized in arbitrage and ETF trading.

"You see your P&L every day, and the negative number stares you in face," he writes. It's easier for most other people to fake it in their jobs for years, he argues, avoiding the unpleasant reality of the sometime futility of their work.

And given how brutally competitive the business is, the trader survival rate is low, notes Dillian, a scarred veteran of the trading wars. Among other things, Dillian suffered from bipolar disorder, had a nervous breakdown and needed hospitalization. But such was the nature of the trading game, where there are only ex-traders and survivors, according to Street Freak.

"If the markets are mostly a zero-sum game, then the winners stick around and the losers find other things to do with their lives," Dillian writes. He estimates the chance of a trader lasting 10 years as "about one in 500."

Dillian was not the one out of 500, yet he was very successful for a number of years. He traded for Lehman Brothers from around 9/11 until the firm's demise in 2008. He rose to become a star who headed its ETF trading effort.

But he was also a casualty of the trading wars. He had an emotional breakdown, though eventually he found a way out for himself. While at Lehman, he developed a popular newsletter that analyzed market trends and pinpointed the dangers of our monetary policies. He used those writing skills to survive in his post-Lehman life. He founded and runs a subscription-based financial market report. This fascinating book is the story of his voyage from Coast Guard officer to trader to newsletter editor.