A Day in the Life of a FX Spot Desk Trader (Part 2)
12:05 Appraisal time. I'm back in my office, munching my sandwich and typing with one finger. The first one is Mike, which is actually pretty easy. He's experienced, thoroughly competent, and as far as his interactions with spot trading are concerned he's a model citizen. Done. Next! This one's tougher. It's a girl called Carla, who heads up the middle office functions here. I can't say we've always seen eye to eye if I'm honest. We've had a few run ins over the delivery of P&L and risk reports (both in terms of timeliness and also with accuracy). She's not producing them herself, but my personal thought is that she's had long enough now to whip that team into shape, having come over from our rivals, I heard, at no small expense to do just that, but I don't give it both barrels. There's almost zero upside to doing that, on any level. For a start, I'm sure she's both well intentioned, and, knowing the approach to headcount that all banks take these days, almost certainly under staffed. Plus I know they migrated onto all new systems six months ago, which was a big part of the problem, and something she inherited too late to do much about it. The other reason why sticking my oar in isn't worth the hassle is that it counts for something like 5% of her overall appraisal mark. So I would achieve nothing by doing this really (except to royally tick her off). Plus I am deeply uncomfortable about being negative towards co-workers around this time. Everyone has families to provide for, mortgages to pay etc, so as long as people are doing what they can I will always try to play nice. I settle for some comments that, whilst highlighting the years issues, also very vocally underscore just where some of her challenges have come from. Hope I've hit the right mark. She is entitled to read the comments, so I'm sure I'll find out soon enough. Right. Phew - done for another year. Haven't even started looking at my own yet, so I don't actually know who's doing my 360. Oh well, that can wait. I have a touch longer to do my own, it's just the 360's they need today.
12:45 Back on the desk. George is delegating the monthly non-farm payrolls prediction competition. Fivers in, winner take all, forfeits for whoever is furthest away. So Meat has two jobs. Firstly to collect the money and secondly to take note of the predictions from the room. there are usually about 35-50 people playing so he walks round doing it on his iphone and getting stick for it and by ten past one he's finished. 38 people today so someone will do nicely out of it. We haven't decided on a forfeit for the loser yet. Suggestions come thick and fast on the internal chat system. Some REALLY aren't suitable for reading at work. A fair few involve Meat, usually but not always in a sexual context. You have to be a bit careful with this kind of thing, especially when stuff's in writing. Fortunately Meat is pretty thick skinned but you do get the odd intern who simply can't hack it. This is usually when they take it all a bit personally, which it truly isn't. Luke and George also cop a bit of flack, (the worst of all actually involves Lucky, and is frankly so appalling that I am amazed that the person who typed it isn't sacked on the spot). There are little gasps as people read it and suffice to say the winning forfeit is a little, ahem, tamer than that. The loser will have to don an outfit similar to Mrs. Doyle from 'Father Ted', and, using a trolley from the canteen, distribute tea to anyone on the floor that wants it, on the next NFP day. Meat suggests that we add a charitable angle and this is quickly agreed. Cups of tea will be a fiver for that trolley run only, and we'll give the winnings to the charity of the loser's choice.
Market consensus is for the US to have shed around 55k jobs in the past month, although all the rumours we're hearing this morning in the market, (and there are always rumours on payrolls day), are for a somewhat more benign number (one US based house even going for a positive print, which although definitely an outlier, has nevertheless got a few tongues wagging in the market). We'll all find out soon enough.
13:15 Everything's gone eerily quiet. Prices are starting to widen out on all the electronic dealing venues and the bookies aren't quoting much at all down the squawk boxes. Our e-trading team have widened the prices we are showing to our customers accordingly. They are pretty much a self contained unit most of the time. The early versions of bank e-commerce platforms were unsophisticated pricing engines, very much tied to the rates that were visible in EBS and Reuters matching (regardless of how much actual hard liquidity was available at those prices). Once a customer had dealt on the platform, more often than not, the trade would plop into a dealers position on a bank's spot desk, and the dealer would manage the risk from there in precisely the same way as if he'd shouted a price to a salesperson and been hit.
Fast forward five or so years and the landscape has utterly changed. The engines used to derive a price at which a bank is happy to transact business are, for the most part, both extremely sophisticated, and blindingly fast. Frankly, 90% of the time, too much human interaction just slows the whole thing down. So the e-commerce team operate as a separate entity (we on the spot desk are even able to trade on the platform ourselves, to clear smaller amounts if we wish), and only when things go awry do they need to enlist the help of the spot desk to offset any risk they incur. The rest of the time they are either skewing their price according to what positions they are running (if they are long, for example, they'll be a naturally low offer to persuade other clients to buy from them thus reducing their long position). If this isn't having the desired effect the machine will go out into the market on it's own and 'auto-hedge', reducing positions in a carefully specified manner, and again, at lightning speed. But once in a while it will still come unstuck, so each trading centre has a couple of traders who's job is to monitor any positions that fall through the cracks. Tim is the main guy in London, and NFP day is the day he hates the most every month. They usually make very good money on these types of days, but equally, it's pretty easy for Tim to drop a cartload of money if he isn't quick and decisive when trouble strikes. It's a bit of a poison chalice but he's pretty sharp at it and is considered a safe pair of hands here. I wander over to him. "All strapped in?" I ask. "Yep" he replies. "Seat is back in it's upright position and my table is stowed away. Should hit turbulence in about 14 minutes." Hopefully it'll clear without anyone needing to reach for the sick bags and oxygen masks I think.
13:27 We're in trouble! We just got asked a price in eur/usd in one hundred and fifty million and got paid for them, so my euro trader is short more Euros than he's easily going to be able to cover. He had made what he thought was a wide, defensive price that frankly was supposed to discourage the client from trading. But it didn't and it gets worse. Tim stands up. "RICH - I need Euros. Been paid three times here now. Not getting anything back". Crap. Anything even remotely dollar negative and we're dead. I sprint over and appraise him of the fact that we're in the same position ourselves. He's short a total of a hundred and thirty five million himself. A tad suspicious as he's been hit three times, all equal amounts, all 45 million. The threshold for what we are happy for the machine to quote without manual dealer intervention is usually a hundred million in normal market conditions. But prior to major data releases this changes. With 15 minutes to go this changes to seventy-five million. Then with five minutes to go it's fifty million. Then, in the final 90 seconds it's something like twenty million these days (and of course spreads are also widening out at the same time). It's not hard and fast - again, complex algorithms, even incorporating recognition of what the data release came out as, govern both when and how we withdraw liquidity, and also how quickly we're able to add it back in again once the initial chaos calms down. But in any case manual intervention was fifty million and we've been hit three times in just under that amount. But no time for post mortems now. I shout over to Ben "BEN - Any short dated euro in the bookies? Ship some in - we're caught here, badly". "On it" he shouts. Thirty seconds to go. He stands up. "Done 80 of the overnight ats" (at the money options) and there's another 50 of 30 delta calls out there. Those are 3 days though, not the Mondays. "Do Em!!" I scream back. He leans over to the microphone and speaks to his broker. "YOU Got Em Rich - but that's gonna be it for a bit - nothing else decent out there till after the numbers". "Thanks - let meat know the spot refs and any delta stuff asap - I need this booked asap".
In buying some short dated options I am hoping I have staved off at least some of the effects of a shocking payrolls number. Unfortunately, I will have had to pay away some premium to buy these options, so one way or another we're taking a hit today, but at least we have offloaded some of the risk we were wearing. A six figure down day isn't a huge deal - these things do happen. But a seven or even eight figure down day is definitely not what we were put here to achieve. I have a great team of traders on the desk and for the most part I just try and leave them to it, but insofar as I have a role to play in trading terms, it is on exactly this sort of occasion that I need to justify the title on the business cards by making a quick decision in the interests of the bank as a whole. I look down at the live price and trade feed from Tim's pricing engine that I have open on my desktop. He's showing a tighter price than usual, and it's definitely skewed higher. The only problem is, no-one's taking the bait. He can't tip his hand too much (and neither can the guy on our desk) as the whole of the market will be watching for some sign of movement immediately prior to the numbers, and will jump all over it.