Return of the Fed Rise: Can Apprentice Traders Triumph Over Their Masters?

By Oliver Blower, CEO of VoxSmart

Oliver Blower

“When I left you, I was but the learner; now I am the master” – the immortal words of Darth Vader when reunited with his old Jedi Master, Obi-Wan Kenobi. Not unlike Obi-Wan battling his old apprentice in the upcoming Disney+ series, seasoned traders have a rich plethora of experiences to draw upon, which could prove invaluable with the Fed planning a further five rate rises between now and year-end. In contrast, the young apprentice traders have only ever known a world of ultra-low rates and low inflation, until now.

As we enter an era that increasingly looks as though it will be characterised by rising interest rates, ultra-low bond yields, and an increasingly more challenging investing environment, the junior traders who have cut their teeth on trading desks over the last decade are faced with a problem. Many of these Millennial or even ‘Gen-Z’ traders have only ever invested in these conditions, and now need to look for alternate ways to help them navigate their portfolios through choppy waters and uncharted investing territories, faced with clouds of macroeconomic uncertainty shrouding the route to high returns.

Indeed, it would seem on the face of it that those older heads – the Kenobi’s of this world, well-schooled in the ‘old-skool’ and the ways of the investing force – have the advantage right now, as they will be able to rely on hugely valuable experience picked up in the ‘pits’ of the 1980’s and 1990’s. However, this doesn’t have to be the case. Technological advancements mean that younger traders can now more than hold their own in a world of rising interest rates. Younger traders have the advantage of coming up and being molded by a period of increased automation, with far greater transparency due to the copious amount of regulation that has been introduced over the last decade, such as MiFID II and MAR, which came into effect during the last decade.

This is where communications surveillance technology is able to help not only level the playing field – but give a real advantage to those who embrace it in the right way. For years it was always seen as a middle or back-office technology, due to it being considered purely compliance driven. The reality is, it has now evolved into being something that enhances performance and is actually able to generate revenue. Regulatory compliance has traditionally been the bedrock of communications surveillance within financial institutions, however due to advancements in areas such as Natural Language Processing (NLP) and Trade Reconstruction, it can be utilised to enhance what the trading floors are fundamentally interested in – making money. From tracking missed revenue opportunities to assessing which broker relationships are bearing the most fruit, this technology is able to do so much more than act as another layer of compliance monitoring.

Those who embrace the power of technology have a unique opportunity to gain the higher ground as we enter a very different investing landscape. This return of the rate rise is a timely reminder that whilst the experience of the older heads can be valuable, given the right conditions the apprentice can indeed become the master.