A Day in the Life of a FX Spot Desk Trader (Part 1)

06:00 Alarm goes and I’m out of bed. Hopefully I havemanagedto sleep all through the night, although on odd occasions I will get a phone call or a text message if anything particularly important is up.Not sooften these days though. The people I work with know how much Ivalue my beautysleep. Quick shower and shave and I’m usually out thedoor some time before0630

06.30 On the way to the tube station I will have aquick scanthrough the news headlines on my phone, check my e-mails, check the spot market levels in Asia etc. By the time I get to the tube station myphonehas downloaded all the early morning research pieces that I’vebeen sent so Ihave something more stimulating than the free papers toread on the train. It’sa pretty short hop down to Bank (usually aroundtwenty minutes), but by thetime I’m there I usually have a betteridea of what has happened of noteovernight. Over the years I’ve found Ihave improved immensely at ‘skimming’the morning reading, and can fita surprising amount into the time available.

07:00 Usually around this time I arrive at theoffice. Thejunior on the desk is more often than not already there a fewminutesahead of me, and he has some early morning stuff to do for us, which, these days needs minimal supervision from either myself or any of theothermore senior traders on the desk. Nothing earth shattering – aquick check ofhighs and lows in Asia, a look to see if any barrieroptions should have beentriggered, and he also writes a few quicknotes to put on our internal chatroomsystem here for the whole of thetrading floor. It’s a good exercise for him tobe able to get up tospeed quickly and to be able to precis and disseminatebefore theinformation becomes stale. To give him his due he’s gotten pretty good at it since he started with us around 18 months ago. While he’s doingthis,I’ll be logging into all the trading systems we have on the desk,and talkingto a few market contacts either electronically viaindividual or group chats onBloomberg, Reuters etc, or down asqwawkbox line.

The conversations vary wildly depending on who I am speakingto.Some conversations will be with contacts in Asia, getting a bit morecolouron what was going on overnight, some will be with Londoncontacts at assortedbanks, hedge funds, prop trading houses etc, whileother conversations will bewith counterparts in the U.S. who may havewoken up in the night to see what’sgoing on. Some of them arehabitual overnight traders, some merely take a lookat their screens ifthey happen to wake and some will have been woken as aresult of ‘calllevels’ left with friends and colleagues stating specifictradinglevels at which they wish to be disturbed. A friend at a New York based hedge fund calls me up and we chat for a few minutes about the markets,what’shappening at home, baseball scores (he’s a long suffering NYMets fan) andanything else. His wife is out of town this week visitingfamily and I’ve knownhim long enough to know that he usually getsrestless when that happens andmore often than not ends up trading abit more overnight than would usually bethe case.

07:09 As we’re speaking euro/yen is plummetingthrough someshort term stoplosses, gathering pace on a thin and illiquid dayinLondon. My friend has a core ‘long risk’ position that he’s verycomfortablewith, but he will job in and out around that to keep thescoreboard tickingover so to speak. He actually sold some eur/jpy andnzd/jpy via my Singaporeguys in Asian time, and as we’re sittingchatting he asks me to work a bid tobuy half of that eur/jpy amountback, just below where the market’s sitting. MyYen trader has juststepped off to grab a coffee, and so coincidentally I amactuallycovering the yen seat myself for a few minutes. So I’ll watch my mate’s order here. He leaves me with a little discretion as to how and wheretoexecute (as he trusts me not to abuse him). All taken care of, hehangs up andgoes back to sleep, knowing I’ll call him if there’sanything he needs to know.

07:18 Price request comes in from a sales guy on thefloor,asking for a predatory corporate customer of his. – “gbp/jpy in 50 please”. I make him a price – “48/60”. “YOURS – you get 50at 48”replies the sales guy, a little too quickly for my liking. Thissmells abit. The customer in question has a bit of a reputation for ‘drive-bys’, a practice frowned upon in interbank FX circles, whereby aclientwill call several banks within a few seconds and executemultiple large clipsof the same currency pair in the same direction.So that the end result is thatthe client ends up paying away a spreadappropriate for, say, only 50 millionsterling when they might have hadten times that amount to execute in total.And then you have severalbanks tripping over each other in order to try andget out of thosepositions. Sure enough, it’s a mess. gbp/jpy looks heavyimmediately,and I can hear the dollar / yen voice broker over my speakersgettinghit repeatedly. I am definitely going to have my work cut out here, but I am looking to sell some yen in any case, around these levels, for mybuddy inNew York. Another salesperson, this time from the desk thatservices theworld’s central banks, is asking us a price “Georgie” (oursterlingtrader). “Bid in the cross please mate – just 25, usual guy,full amount,in competition”.

By ‘The Cross’ George knows he means eur/gbp. eur/gbp istradingaround 81/83 at the time, having ticked down from 85 right as the guy started asking for the bid.. “I’ll take that one George” I shout.“Mike– show 81.5, maybe 82 if you have to. Make sure we get theseplease”. Inotice the newest of the summer interns looking over from theend ofthe desk, a bit puzzled. I beckon to him. “Meat” (his nickname– freshmeat), come here, watch and learn. Meat plonks himself down in the empty seat next to me. “81.5 you got ‘em Rich” Mike shouts out. Ijustgot my 25 Euros. I immediately hit the Reuters Matching system, offering out 10 million of the Euros at 82. I get paid for (i.e. manage tosell) twomillion only, and then the price starts moving lower. 80given, then 80offered, 79 trading, 78 trading. I shout across toGeorge “pick me upanother 27 somewhere down here please George. Georgestarts working his keypadfuriously, pausing a couple of times to leaninto the microphone on hisdealerboard and talk to his sterling voicebroker. Not much later his pricecomes back “79.5 or thereabouts”.“Into me at 80” I shoutback. I’ll buy the Euros from George at 80 andanything better than that he cankeep in his P+L account for hisefforts. As an exercise I get Meat to startjotting down a few numberson my paper pad, as the deals from the othersalespeople and traderswill take a little while to be booked to me.

What have I done so far? Bought 50m gbp/jpy at 143.48 Bought25m eur/gbp at 0.90815 Sold 2m eur/gbp at 0.9082 Bought 27m eur/gbp at 0.908007:25 Netting the 3 eur/gbp deals out shows me having bought 50m Euros at0.908067. “so what do we do now?” I ask Meat, he looks at me a touchblankly. I point at the order manager system on my monitor, showing me all theorders that we are working for clients. One of them, my friends order to buyeur/jpy is blinking pink and red, indicating that it is very close to beingtriggered. The notes column reads ‘Rich, Smalls Discretion, partial ok’, whichmeans I am watching it personally, I have a little bit of latitude on the levelto fill the guy at, and if we get some but not all of his order done that’s okas long as we call him. I see realization dawning on Meat’s face. “Err – weneed to buy more eur/gbp”. “Correctamundo” I reply, doing a poorimpression of Samuel L Jackson in Pulp Fiction. “Check out the big brainon Meat!!. So how much more? Quickly now”. Meat taps a few numbers throughon the calculator. After a couple of goes at it he gets the right answer. Justover 5 million more. 5 million is a standard amount quoted by the voice brokersall the time. Price at the moment is a touch higher again. “82/84, twofour, two four in a fiver, two four” he repeats. I thumb the talk buttonon the speaker for the guy at Icap and say “Take five Parrot” (Parrotis the broker). “Five at 84 George” He replies. “It’s Richactually. Thanks mate”. Meat recalculates the eur/gbp average immediately.I bought 55 million Euros at 0.908097 average. And now it’s easier to see whatI’ve done.

I bought 55m Euros at 0.908097, meaning I sold 49.993million gbp (55 x 0.90897). But I had previously bought exactly 50m sterlingagainst yen at 143.48. So the sterling amounts from all those trades almost exactlynetted out, leaving me long 55 million Euros against yen, at a price of130.29375. I look up at the screens again. eur/gbp is going nuts. 85 paid, 90paid, 98 paid, 0.9100 bid, 0.9110 bid. It’s dragging everything else with it.And gbp/jpy is falling through the floor. Some uk news must be out. One of thebond traders is pasting something into our internal chat session for all, thetraders here. Rumours hitting the market of the chancellor being called to ameeting with Moody’s, one of the ratings agencies. The market knee-jerkassumption is that the UK’s perfect AAA sovereign rating may be about to be cutand sterling is selling off on the back of it. With dollar/yen sidelined onthis news and hardly moving, but euro higher as a result of all the eur/gbpbuying, euro/yen is of course climbing steadily. I quickly phone my guy in NewYork back. “Hi mate – you’ve done 55 at twenty nine and a half so far.Real low’s been around 32 but I got a break and legged into some. Now Darling(the UK Chancellor), is allegedly meeting Moody’s and euro sterling’s off tothe races. Want me to scoop the other ten in for you?” (his original orderwith me was for anything up to 65 million). “Nah” comes the reply.“Just work it back down there again that’s cool. Thanks man. Book em at 31dude and thanks for hooking me up”. His drawl so laid back he couldn’tpossibly hail from anywhere else than California. “Pleasure mate. I’llcall you if it all boots off. Go back to sleep”. “Later hesays”. He hangs up.

I look at gbp/jpy. It’s getting destroyed. Half the banks onthe street were sitting long and wrong when the news started to filter down, asa result of that little drive-by. So they were all falling over themselves toget out. But there must have been some sort of a bid in usd/jpy lurking aroundsomewhere, as that side of the equation has hardly budged, and cable (sterlingagainst the US Dollar) has taken the full brunt of both the panic selling insterling yen and also the knee-jerk sterling selling on the back of the Moody’sstory. So we definitely dodged a bullet there.

07:35 “So what’s the moral of that little storythen Meat?” I ask him. His reply, about the need to be aware of all therisks you are running on the desk, and of where and when you can offset oneagainst the other is of course both correct, and at the same time exactly whata young intern, keen to impress is going to say. But there’s a simpler moral,and it’s a market phrase it’s time he learned. So I stand up, and so doesGeorge, and so does Mike. And we all shout it out to him in Unison “I’DRATHER BE LUCKY THAN GOOD”. At that point Lucky (Luke, the yen trader)re-appears. And he’s brought me a coffee. Happy days. I let him settle back inand then I instruct the junior to square any of the tiny balances in my bookand make sure the euro/yen trade is booked ok. Profit on that few minutes ofwork – 6,800 Euros. And my guy in New York still walked away very happy. Jobdone. I stand up and head off the desk, and over to my office. I have a coupleof meetings that will take a bit of time.

08:05 The first of my two meetings this morning (Ihave another later in the afternoon). In this case it’s a conference call withthe two senior spot traders in our Singapore office. It’s a regular monthlycatch-up that we have, just to make sure we’re all singing from the same hymnsheet so that clients are going to get consistent prices and service from usregardless of what time they want to transact. Foreign exchange is a twentyfour hour market, five days a week and we’re busy around the clock. Asian timeis a touch quieter, and liquidity concomitantly poorer, but we’ve always beenone of those banks that has prided ourselves both on the quality of liquidityand relationships that we can maintain out there, and also on the fact that wework very hard to pass that competitive advantage on to our clients. The threeof us have a good general chat. I fill them in on the gbp/jpy trade (as theyhad got half the story from the internal chat system). Apparently at least twoother banks, less fortunate in the stuff they had in their order books as abackstop, had already had their chief dealers calling the client up stating inno uncertain terms that this kind of thing is not acceptable any more.

Everyone in the market, both in London and in Asia had seenthe trade going through, and it was indeed a total mess. They ask me if I amgoing to say anything. I decide against it on this occasion, but also decideagainst using it as some sort of a marketing ploy to say how happy we were to seethe flow from the client. I take a less is more approach in this case. Complaintoo much and the client will just stop doing business altogether. Smile toomuch and you’re tacitly condoning their actions. We move on.

Next up for discussion is a slightly thorny topic ofStop-loss orders. Specifically those left by clients towards the end of theAsia trading day, which then get passed to the London desk around 8am GMT. Wehad been having a few issues of late where the Asia guys had decent sizedstoploss orders on the books and passed them to London, at which point, whilethe dealers in London were sifting through the orders to see what was there ofany size, the market started moving, and flew through the level almost beforeanyone had had a chance to react, let alone cover the resulting position. Thefirst time it had happened everyone (including myself) had simply put this downto bad luck, but after it happened a second time, and after I heard a rumor ofthe same thing happening to a mate at another shop, I had started to reach theconclusion that there was possibly more to it than that. I left the guys inSing under no illusions as to what I wanted done about this. The desk were notto ‘run’ the stop, but were equally asked not to wait until the last minute totry and start executing the stop. Procrastination, in this case, seems almostuniformly fatal so I make sure the traders know they have my full permission toposition themselves ‘defensively’ when this client left stops. Maybe he’sleaving some of the order with us and some away, or maybe he’s just reallyreally good with his technical levels. Doesn’t really matter, the main thing isthat until it becomes apparent that it’s just bad luck, I am assuming that thestops will be tricky to execute, and taking steps accordingly. To be honestit’s in the client’s interests too as he’ll get far less slippage that way. Therisk is that if he leaves a sell stop the relevant trader gets short just aheadof the level and then the level doesn’t get triggered and he has to cover theshort in a hurry. But given the way the price action on these things has gonelately, that’s a risk I’m prepared to take.

That just about wraps up the meeting, other than a twominute discussion on whether I am happy to sanction a (potentially expensive)desk dinner next month. They had in fact only just had one, (last time I wasdown there, three weeks ago) but we have a new joiner starting in two weekstime, and we usually make sure there’s some sort of opportunity to meet the restof the team outside of work. I agree to the dinner, but ask the guys not to gotoo nuts on the wine. That’s where the bills always get out of hand. Meetingover, we adjourn for another month and I step out to grab a coffee before thenext meeting.

08:45 I grab a coffee from the Starbucks concessionin the ground floor of our building. God only knows how much money I go throughin that place. I bump into the head of facilities management there, who, itturns out, I am drawn to play against in the next round of the bank’s opensquash knockout competition in a week’s time. Much banter ensues when he clocksme buying a full fat cappuccino and promptly changes his order to a skinny, atwhich point I do too, at which point he changes his to a peppermint tea, at whichI change mine back to the original fatboy order. At which point the barista,getting a bit bored of our antics, hands him the peppermint tea (which hedoesn’t really want anyway) and me my coffee. As Sun Tzu says, every battle iswon before it is ever fought. I head back to the floor chuckling.

09:07 Second meeting and this time an external one.Our representative from EBS comes in to see us to go over the latestenhancements to the system and how they can benefit us. As we don’t havestandalone EBS terminals any more these days, but instead route all our spotliquidity through a price aggregator that consolidates all the prices, some ofthe new functionality changes aren’t 100% relevant to us. But some still are,and in any case keeping abreast of market developments is part of the job. Luke(who is the nearest we have to an uber geek on the desk) and our head ofe-commerce and electronic trading, Sarah are sitting in with me (or, morerealistically, I am sitting in with them). Some of the enhancements are prettyobvious (new currency pairs that they are allowing to be traded on the system,which, to be a success will need the buy in of banks prepared to make marketsand commit pricing in the early days) whilst others are slightly more subtle(changes to the quote lifetime rules aimed at further inhibiting the activitiesof snipers from high frequency trading houses often accused of ‘flashing’, i.e.posting quotes and removing them milliseconds later to artificially move themarket and profit from it). Not a problem for us but something Sarah needs tobe aware of as she monitors our ‘hit ratios’ for each ecn to which we areconnected (including EBS) to make sure that when we attempt to trade on one ofthese venues we have a decent chance of being successful. If, when thesechanges are implemented by EBS, we find that they are dropping off our radar interms of the ratio of successful trades to attempted trades we will tweak ouraggregator’s smart order routing algorithms accordingly. I get sent a detailedstatistical analysis of these ratios and the overall performance of the systemonce a month by Sarah’s team, and I sit down with Luke (and anyone else on thedesk if needs be) and go over any oddities. All of the enhancements seemstraightforward enough. I duck out, leaving Lucky, Sarah and the EBS rep todiscuss a few more of the finer points of the electronic trading world.

10:45 – everything’s quietened down a bit now.Everyone’s back on the desk and so I am back to my usual job (aside from allthis management malarky of course), which is to quote what are known as‘commonwealth’ currencies, i.e. the Australian, Kiwi and Canadian dollars. Allof them with their own little subtleties, and all of them at times pretty toughto trade. “Rich – thirteen kiwi yours please”. It’s one of theoptions traders, Ben. Obviously hedging some of his delta exposure. But as it’snot something we had on the order book already, I’m guessing that he’s just inthe process of dealing now. “34 worst” I shout. I give myself a touchof breathing room, saying that I’ll try to improve but the worst I’ll fill himat is 34. On the basis that he’s usually very smart with his levels, (scarilyso sometimes), I decide to go short with him, and start to sell and hit thevoice broker for five million at 35, offer out another five there on Reutersmatching and get paid for only four of those. Then it starts to dry up a touch.Here we go I think. Voice broker is 32/34 now, and Reuters is 31/34 in smallamounts only (less than five). I tweak the settings on my price aggregator atouch and offer a couple of kiwi out cautiously on the aggregator, to two ofthe other ecns, at 33. Manage to lose those, so I’ve done 11 all day. I don’tfancy this at all. Aussie is also getting given now. Voice broker is 31/33 so Ihit him in another five. Then it really starts to run away. I go straight tomarket on the ecns for the remainder (another four) at 28, and within a minuteit’s getting given at 20, 15, 10. Just nothing there. After five minutes theprice starts to stabilise around 05. I buy back five and hold off on the othertwo. Alas it never quite cracks the figure and settles back up at around 20/25ish. I buy them back there. I’d ended up improving Ben’s rate to 34.5, but allin all, given the circumstances I’m pretty happy with the morning’s work sofar. I’ve had no real firm convictions today, having been stopped out of acouple of positions over the past 24 hours, I have spent half the morning sofar in meetings, made three prices of any real size, and by my reckoning I’m uparound 11.5k in kiwi p&l, plus the 6,800 Euros from earlier. A solidmorning all in all, considering the relatively small amount of risk I’ve had onboard.

11:40 I’m flat again now, and the market has driedup. It’s lunchtime, with lots of numbers, including employment data, due up outof the states in the afternoon. So most people have less than zero interest ingetting involved at the moment. Having squared the book I leave lucky watchingmy book as well as his and step outside for some fresh air and to grab asandwich. They have a decent enough cafeteria at work, but I need the fresh airas I find it all a bit stuffy sitting at the desk all day. Plus I hate the factthat in winter months you can go all day without tasting daylight. So I makesure I get out when I can from time to time. Ten years ago it wouldn’t reallyhave occurred to me, but these days I am much better at handling the burnout. Itake a brisk walk around Bishopsgate and London Wall. Oddly enough, as I’mgrabbing a sandwich I bump into Parrot (his office isn’t far from ours). Hetries to tempt me to the pub for a swift pint but I want to get back. I need tobe out of the door on time today and I have to write a couple of 360 degreeappraisals by the close of business (for the uninitiated, those are appraisalsyou write about equivalent level peers within a company, rather than me writingthem for the members of my own team). To be honest they’re a bit of a minefieldand I can’t stand them, but hey ho. It’s mandatory so I might as well at leastmake a decent fist of them.

Part 2 of“A Day in the Life of a FX Spot Desk Trader”is coming soon

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