A Day in the Life of an Exotic Derivatives Trader

The author of this article works as an associate for an investment bank in NYC trading exotic derivatives. The author holds a master degree.

5:30 am: Alarm goes off. Told myself last night that I'd go to the gym downstairs in my building for a quick workout before work today. Not happening. Back to sleep. I really do go through this process most days. I probably should stop even bothering to set my alarm for this time.
6:00 am: OK now I'm up. Shower, get dressed, get on subway to work. You'd be surprised how few people are out on the street at this time.
6:40 am: I'm at the desk now in lower Manhattan. I log in to my PC, start up all my applications. I have a pricer, risk management system, Reuters, Bloomberg, chats, broker screens, etc. There's a reason I have to use 6 screens piled on top of each other. One of the most senior sales guys is already in, wants to refresh a price I showed him yesterday for an important customer. Quickly make it for him. Don't have to think too much about it since I thought about this one yesterday. Just have to get it into my pricing toy and check that vanillas are truly trading where the system says they are before I show the price.
7:00 am: Good morning, London. I announce that I am ready to start my day formally to my London counterpart, who fills me in on what happened in the markets in Asia and London morning, how we've made or lost money since yesterday, what horrible trades got stuffed into our book, and how we've hedged and/or are planning to hedge them.
7:15 am: London goes to get lunch. I'm in charge of trading deltas for a little bit until he gets back.
7:30 am: Start running risk reports for our book. Since the markets moved since yesterday and there have been some trades done overnight, our positions have probably changed a bit. They probably haven't changed a huge amount, but it's good to keep on top of it since small changes unwatched do add up.
7:45 am: Breakfast is served! The new junior on the desk brings everyone coffee and breakfast. It wasn't so long ago that I was doing this.
8:00 am: A flurry of price requests from custies in London and New York come in just as I'm chatting with my partner in London about our positions. We split up the work and get down to making price after price. It's important that prices go out quickly and it's even more important that they're correct prices. You can't spend five minutes coming up with a price for a commonly traded product even if it is exotic. As I'm taking a bit long to get every price out I remember I should make some prices for the brokers as well - they get a request from a bank and ask each other bank anonymously to price it for them and proceed in an auctioning process until they match a buyer and seller and take a small commission on the trade - this is the best way to know exactly where the commonly traded exotic products are trading. This will in turn make me faster with price making since I won't have to think as much. Sadly as markets change every day, you have to continually follow the pricing in the broker markets every day and can't take a break. Otherwise you'll get run over on a big customer trade. So after all the prices go out to the customers I make all the unmade prices in the broker market as well.
8:30 am: Talk risks and positioning with my London. What risks are we running in terms of the greeks? How have they been performing? What deals are they from exactly? Should we keep them? If so, should we add to them? What's the best way to go about adding to them? There's not just one product that we can trade that gives us certain greeks. To get stuff done it's helpful to be a little clever about what we ask the market so people don't know exactly what we're trying to do. Any deals in our book that we think could turn into big headaches? What can we do about them now to help us if/when they become issues later? We've also got a reasonably sized prop book. We decide to punt something. So far this year we've just about broken even in the prop book, hopefully that'll change.
9:00 am: Time to execute what we've decided to do in our conversation. We both ask our various brokers for a bunch of stuff. We'll be working those interests for a while, probably.
11:00 am: The day has slowed down. We've gotten prices back on all our interests. Some we've gotten done, some we're still waiting, some are just too far away or wide to do anything with. Oh well.
11:30 am: Corporate sales asks us some weird structure. No clue why a corporate would want to do this, but we show a price. Corporate sales shows the company a price much worse than what we showed them. The corporate trades and has its eyes torn out.
11:45 am: I quickly get lunch from the cafeteria and bring it back to my desk to eat. No lunch breaks in this job.
12:00 pm: London's making an exit. I'm in charge of trading deltas now.
12:30 pm: Get an email with a resume attached from a current graduate student at my old program. Says a professor referred him to me. We don't really have all that much in common and his resume looks about the same as everyone else's. No real reason to go to bat for this guy unfortunately - I save that privilege for actual friends and even then I probably couldn't do anything.
1:00 pm: Some announcement has come out. The market's moving. I'm short gamma. Awesome. Stopping out like an idiot. I curse out loud in complaint to the trader next to me. He's also short gamma and doesn't feel sorry for me.
1:05 pm: Just got paid for one of my interests. I was on the offer. Probably should have raised my offer when the market started moving. Not really impressed with myself. Won't be mentioning that in my end of day report. History will only be recorded as I got the interest done.
1:10 pm: Stuff still moving around, which is just when sales like to ask us for something to pitch to a client. I suggest someone sells me some gamma at an off market price. Nobody finds it funny. They ask for some prices. I make them.
1:30 pm: Customer asks for a refresh of one of the exotic prices I showed earlier, now that market is calmer. Is it any tighter now? Sure. He trades with me. Salesperson does the delta hedge for me. I ask a vanilla in the market against some of the risk I've just taken on.
2:00 pm: Day seems over. Nothing much going on now. Chat with the other guys on the desk about weekend plans.
3:00 pm: Our most prized customer asks a pretty large exotic price request. I'm a bit nervous. I can't get this wrong. I show sales a price for it and promptly hide under my desk.
3:10 pm: Customer comes back, my ask was too high, doesn't trade. Worse things have happened. He says he'll be back tomorrow morning. Good. Then it can be my problem as well as my London's jointly. Truthfully it's this sort of stuff we make a lot of money on - doing this product with a customer and then hedging the component parts using vanillas. I'll send an email out to the rest of the exotic team explaining my price and asking for their opinions.
3:30 pm: Couple small trades done here and there, nothing earth shattering. Just take them into the risk and don't bother hedging (except of course for the deltas).
4:00 pm: Now the day is really over - hedge fund guys must have a nice life since they all seem be out of their offices already. Then I remember how often hedge funds unwind trades with us because the PM that put them on had been fired.
5:00 pm: Finish up all my end of day routines and send out a few emails. I like my job but they really do make you earn your money. I finish every day pretty mentally exhausted.
5:30 pm: Looks like I can head out now. Usually I can leave around now, definitely by 6pm. There are some days though I may have to wait for my Asia to get in, which is about 7pm. If there's a disaster in the markets I might be staying well past 7pm to help them catch up, get up to speed, and start the day. The latest I've ever stayed was 11pm but that was a big outlier. 9pm is a more reasonable estimate of how late I would stay if something awful happened. Thankfully this is rare anyway. Say goodnight to the other guys on the desk and go home.
6:00 pm: Make it home. Change. I'm not a fan of business casual outside of work.
7:00 pm: Meet up with my girlfriend for dinner.
9:30 pm: Have to get to bed early if I'm going to make it to the gym at 5:30 tomorrow morning...

 

[Author]

It was a masters degree in a quantitative field linked to finance - so not a masters in math or physics or electrical engineering, etc., though you will find those degrees in the field.

 

[abc]

"masters degree in a quantitative field linked to finance"

Masters in economics / quantitative economics/ OR ?

 

[NSelectrical]

could you tell us how you got to be a trader. As in your academic and career path which landed you here. And the schools you attended. Thanks!

 

[Author]

Responding to ABC and NSELECTRICAL:

I haven't given out very specific information here because I do want to stay anonymous - I don't want anyone in the market knowing I'm posting stuff up here. But here's my general background:

I am American, went to a very good but non-target (in NYC, anyway) undergrad and majored in math. I then did a masters degree at a top name target university (think ivy league or equivalent), in as I described earlier as a quantitative field linked to finance. In that degree I studied both applied mathematical material, like stochastic stuffs and programming (simulation and applied stuff like that), as well as finance courses - but in the derivatives / capital markets realm specifically. That's as specific as I'd like to be here. In between academics I did internships at a hedge fund and at a bank in risk management. By the time I was looking for a full time job, hedge funds simply were not hiring (not that that was necessarily what I wanted to do, it just was not an option, and certainly not a the hedge fund at which I had spent time since the division I was working in was shut down) and I knew I did not want to accept the offer to join the bank in risk management full time (because I didn't like risk management, though the people were very nice), so I continued to look for jobs elsewhere. Another bank was hiring at my grad school for a junior trading job. I knew next to nothing about what they actually did, but I interviewed (of course several rounds), got the offer, they made it sound cool and exciting, and so I accepted. And I've been there since and it's actually been pretty cool and exciting, so I guess they've lived up to their promise. It has its ups and downs though. Anyway, hope this response helped!

 

[NSelectrical]

thank you

 

[Author]

Just a quick response to Alex's posting a while back about 5:30am and zero quantitative work. Well, really just about the zero quantitative work since there's no way around the early morning wake up (though I do know people who live close by work and wake up as late as 6:30). It really is not true to say that there is zero quantitative work involved in this job. First of all, you've got to be able to understand pricing and risk management of derivatives, which is itself quantitative. Second, I often find myself scripting up payoff structures in C++ (or something close to it) in order to price non-standard products using a monte carlo engine as well as coding in VBA to create spreadsheet tools that search for trade opportunities or present ways of viewing risk. Third, I work very closely with the quant group in model development, improvement, and implementation, which involves a lot of testing and sifting through quantitative concepts. At the end of the day, we are not quants and so do not do as much rigorous quant work as they do, but we certainly have a good amount of quantitative work to do.

 

[Deepanshu]

Hi Author,

Quite an insightful article on the work life of a trader. thanks!

 

[srm]

This was a really interesting article. Thanks for sharing your perspective. Is there any particular resource/exp that you find most useful, looking back?