06:00 Alarm goes and I’m out of bed. Hopefully I have managed to 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 so often these days though. The people I work with know how much I value my beauty sleep. Quick shower and shave and I’m usually out the door some time before 0630
06.30 On the way to the tube station I will have a quick scan through 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 my phone has downloaded all the early morning research pieces that I’ve been sent so I have something more stimulating than the free papers to read on the train. It’s a pretty short hop down to Bank (usually around twenty minutes), but by the time I’m there I usually have a better idea of what has happened of note overnight. Over the years I’ve found I have improved immensely at ‘skimming’ the morning reading, and can fit a surprising amount into the time available.
07:00 Usually around this time I arrive at the office. The junior on the desk is more often than not already there a few minutes ahead 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 the other more senior traders on the desk. Nothing earth shattering – a quick check of highs and lows in Asia, a look to see if any barrier options should have been triggered, and he also writes a few quick notes to put on our internal chatroom system here for the whole of the trading floor. It’s a good exercise for him to be able to get up to speed quickly and to be able to precis and disseminate before the information 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 doing this, I’ll be logging into all the trading systems we have on the desk, and talking to a few market contacts either electronically via individual or group chats on Bloomberg, Reuters etc, or down a sqwawkbox line.
The conversations vary wildly depending on who I am speaking to. Some conversations will be with contacts in Asia, getting a bit more colour on what was going on overnight, some will be with London contacts at assorted banks, hedge funds, prop trading houses etc, while other conversations will be with counterparts in the U.S. who may have woken up in the night to see what’s going on. Some of them are habitual overnight traders, some merely take a look at their screens if they happen to wake and some will have been woken as a result of ‘call levels’ left with friends and colleagues stating specific trading levels 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’s happening at home, baseball scores (he’s a long suffering NY Mets fan) and anything else. His wife is out of town this week visiting family and I’ve known him long enough to know that he usually gets restless when that happens and more often than not ends up trading a bit more overnight than would usually be the case.
07:09 As we’re speaking euro/yen is plummeting through some short term stoplosses, gathering pace on a thin and illiquid day in London. My friend has a core ‘long risk’ position that he’s very comfortable with, but he will job in and out around that to keep the scoreboard ticking over so to speak. He actually sold some eur/jpy and nzd/jpy via my Singapore guys in Asian time, and as we’re sitting chatting he asks me to work a bid to buy half of that eur/jpy amount back, just below where the market’s sitting. My Yen trader has just stepped off to grab a coffee, and so coincidentally I am actually covering 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 where to execute (as he trusts me not to abuse him). All taken care of, he hangs up and goes back to sleep, knowing I’ll call him if there’s anything he needs to know.
07:18 Price request comes in from a sales guy on the floor, asking for a predatory corporate customer of his. – “gbp/jpy in 50 please”. I make him a price – “48/60”. “YOURS – you get 50 at 48” replies the sales guy, a little too quickly for my liking. This smells a bit. The customer in question has a bit of a reputation for ‘drive-bys’, a practice frowned upon in interbank FX circles, whereby a client will call several banks within a few seconds and execute multiple large clips of the same currency pair in the same direction. So that the end result is that the client ends up paying away a spread appropriate for, say, only 50 million sterling when they might have had ten times that amount to execute in total. And then you have several banks tripping over each other in order to try and get out of those positions. Sure enough, it’s a mess. gbp/jpy looks heavy immediately, and I can hear the dollar / yen voice broker over my speakers getting hit 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 my buddy in New York. Another salesperson, this time from the desk that services the world’s central banks, is asking us a price “Georgie” (our sterling trader). “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 is trading around 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 these please”. I notice the newest of the summer interns looking over from the end of the desk, a bit puzzled. I beckon to him. “Meat” (his nickname – fresh meat), 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. I just got 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 to sell) two million only, and then the price starts moving lower. 80 given, then 80 offered, 79 trading, 78 trading. I shout across to George “pick me up another 27 somewhere down here please George. George starts working his keypad furiously, pausing a couple of times to lean into the microphone on his dealerboard and talk to his sterling voice broker. Not much later his price comes back “79.5 or thereabouts”. “Into me at 80” I shout back. I’ll buy the Euros from George at 80 and anything better than that he can keep in his P+L account for his efforts. As an exercise I get Meat to start jotting down a few numbers on my paper pad, as the deals from the other salespeople and traders will take a little while to be booked to me.
What have I done so far? Bought 50m gbp/jpy at 143.48 Bought 25m eur/gbp at 0.90815 Sold 2m eur/gbp at 0.9082 Bought 27m eur/gbp at 0.9080 07:25 Netting the 3 eur/gbp deals out shows me having bought 50m Euros at 0.908067. “so what do we do now?” I ask Meat, he looks at me a touch blankly. I point at the order manager system on my monitor, showing me all the orders that we are working for clients. One of them, my friends order to buy eur/jpy is blinking pink and red, indicating that it is very close to being triggered. The notes column reads ‘Rich, Smalls Discretion, partial ok’, which means I am watching it personally, I have a little bit of latitude on the level to fill the guy at, and if we get some but not all of his order done that’s ok as long as we call him. I see realization dawning on Meat’s face. “Err – we need to buy more eur/gbp”. “Correctamundo” I reply, doing a poor impression of Samuel L Jackson in Pulp Fiction. “Check out the big brain on Meat!!. So how much more? Quickly now”. Meat taps a few numbers through on the calculator. After a couple of goes at it he gets the right answer. Just over 5 million more. 5 million is a standard amount quoted by the voice brokers all the time. Price at the moment is a touch higher again. “82/84, two four, two four in a fiver, two four” he repeats. I thumb the talk button on the speaker for the guy at Icap and say “Take five Parrot” (Parrot is the broker). “Five at 84 George” He replies. “It’s Rich actually. 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 what I’ve done.
I bought 55m Euros at 0.908097, meaning I sold 49.993 million gbp (55 x 0.90897). But I had previously bought exactly 50m sterling against yen at 143.48. So the sterling amounts from all those trades almost exactly netted out, leaving me long 55 million Euros against yen, at a price of 130.29375. I look up at the screens again. eur/gbp is going nuts. 85 paid, 90 paid, 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 the bond traders is pasting something into our internal chat session for all, the traders here. Rumours hitting the market of the chancellor being called to a meeting with Moody’s, one of the ratings agencies. The market knee-jerk assumption is that the UK’s perfect AAA sovereign rating may be about to be cut and sterling is selling off on the back of it. With dollar/yen sidelined on this news and hardly moving, but euro higher as a result of all the eur/gbp buying, euro/yen is of course climbing steadily. I quickly phone my guy in New York 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 to the races. Want me to scoop the other ten in for you?” (his original order with 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 31 dude and thanks for hooking me up”. His drawl so laid back he couldn’t possibly hail from anywhere else than California. “Pleasure mate. I’ll call you if it all boots off. Go back to sleep”. “Later he says”. He hangs up.
I look at gbp/jpy. It’s getting destroyed. Half the banks on the street were sitting long and wrong when the news started to filter down, as a result of that little drive-by. So they were all falling over themselves to get out. But there must have been some sort of a bid in usd/jpy lurking around somewhere, as that side of the equation has hardly budged, and cable (sterling against the US Dollar) has taken the full brunt of both the panic selling in sterling yen and also the knee-jerk sterling selling on the back of the Moody’s story. So we definitely dodged a bullet there.
07:35 “So what’s the moral of that little story then Meat?” I ask him. His reply, about the need to be aware of all the risks you are running on the desk, and of where and when you can offset one against the other is of course both correct, and at the same time exactly what a 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 does George, and so does Mike. And we all shout it out to him in Unison “I’D RATHER 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 in and then I instruct the junior to square any of the tiny balances in my book and make sure the euro/yen trade is booked ok. Profit on that few minutes of work – 6,800 Euros. And my guy in New York still walked away very happy. Job done. I stand up and head off the desk, and over to my office. I have a couple of meetings that will take a bit of time.
08:05 The first of my two meetings this morning (I have another later in the afternoon). In this case it’s a conference call with the two senior spot traders in our Singapore office. It’s a regular monthly catch-up that we have, just to make sure we’re all singing from the same hymn sheet so that clients are going to get consistent prices and service from us regardless of what time they want to transact. Foreign exchange is a twenty four hour market, five days a week and we’re busy around the clock. Asian time is a touch quieter, and liquidity concomitantly poorer, but we’ve always been one of those banks that has prided ourselves both on the quality of liquidity and relationships that we can maintain out there, and also on the fact that we work very hard to pass that competitive advantage on to our clients. The three of us have a good general chat. I fill them in on the gbp/jpy trade (as they had got half the story from the internal chat system). Apparently at least two other banks, less fortunate in the stuff they had in their order books as a backstop, had already had their chief dealers calling the client up stating in no uncertain terms that this kind of thing is not acceptable any more.
Everyone in the market, both in London and in Asia had seen the trade going through, and it was indeed a total mess. They ask me if I am going to say anything. I decide against it on this occasion, but also decide against using it as some sort of a marketing ploy to say how happy we were to see the flow from the client. I take a less is more approach in this case. Complain too much and the client will just stop doing business altogether. Smile too much and you’re tacitly condoning their actions. We move on.
Next up for discussion is a slightly thorny topic of Stop-loss orders. Specifically those left by clients towards the end of the Asia trading day, which then get passed to the London desk around 8am GMT. We had been having a few issues of late where the Asia guys had decent sized stoploss orders on the books and passed them to London, at which point, while the dealers in London were sifting through the orders to see what was there of any size, the market started moving, and flew through the level almost before anyone had had a chance to react, let alone cover the resulting position. The first time it had happened everyone (including myself) had simply put this down to bad luck, but after it happened a second time, and after I heard a rumor of the same thing happening to a mate at another shop, I had started to reach the conclusion that there was possibly more to it than that. I left the guys in Sing under no illusions as to what I wanted done about this. The desk were not to ‘run’ the stop, but were equally asked not to wait until the last minute to try and start executing the stop. Procrastination, in this case, seems almost uniformly fatal so I make sure the traders know they have my full permission to position themselves ‘defensively’ when this client left stops. Maybe he’s leaving some of the order with us and some away, or maybe he’s just really really good with his technical levels. Doesn’t really matter, the main thing is that until it becomes apparent that it’s just bad luck, I am assuming that the stops will be tricky to execute, and taking steps accordingly. To be honest it’s in the client’s interests too as he’ll get far less slippage that way. The risk is that if he leaves a sell stop the relevant trader gets short just ahead of the level and then the level doesn’t get triggered and he has to cover the short in a hurry. But given the way the price action on these things has gone lately, that’s a risk I’m prepared to take.
That just about wraps up the meeting, other than a two minute 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 was down there, three weeks ago) but we have a new joiner starting in two weeks time, and we usually make sure there’s some sort of opportunity to meet the rest of the team outside of work. I agree to the dinner, but ask the guys not to go too nuts on the wine. That’s where the bills always get out of hand. Meeting over, we adjourn for another month and I step out to grab a coffee before the next meeting.
08:45 I grab a coffee from the Starbucks concession in the ground floor of our building. God only knows how much money I go through in that place. I bump into the head of facilities management there, who, it turns out, I am drawn to play against in the next round of the bank’s open squash knockout competition in a week’s time. Much banter ensues when he clocks me buying a full fat cappuccino and promptly changes his order to a skinny, at which point I do too, at which point he changes his to a peppermint tea, at which I 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 he doesn’t really want anyway) and me my coffee. As Sun Tzu says, every battle is won 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 latest enhancements to the system and how they can benefit us. As we don’t have standalone EBS terminals any more these days, but instead route all our spot liquidity through a price aggregator that consolidates all the prices, some of the 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 of e-commerce and electronic trading, Sarah are sitting in with me (or, more realistically, I am sitting in with them). Some of the enhancements are pretty obvious (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 markets and commit pricing in the early days) whilst others are slightly more subtle (changes to the quote lifetime rules aimed at further inhibiting the activities of snipers from high frequency trading houses often accused of ‘flashing’, i.e. posting quotes and removing them milliseconds later to artificially move the market and profit from it). Not a problem for us but something Sarah needs to be aware of as she monitors our ‘hit ratios’ for each ecn to which we are connected (including EBS) to make sure that when we attempt to trade on one of these venues we have a decent chance of being successful. If, when these changes are implemented by EBS, we find that they are dropping off our radar in terms of the ratio of successful trades to attempted trades we will tweak our aggregator’s smart order routing algorithms accordingly. I get sent a detailed statistical analysis of these ratios and the overall performance of the system once a month by Sarah’s team, and I sit down with Luke (and anyone else on the desk if needs be) and go over any oddities. All of the enhancements seem straightforward enough. I duck out, leaving Lucky, Sarah and the EBS rep to discuss 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 all this management malarky of course), which is to quote what are known as ‘commonwealth’ currencies, i.e. the Australian, Kiwi and Canadian dollars. All of them with their own little subtleties, and all of them at times pretty tough to trade. “Rich – thirteen kiwi yours please”. It’s one of the options traders, Ben. Obviously hedging some of his delta exposure. But as it’s not something we had on the order book already, I’m guessing that he’s just in the process of dealing now. “34 worst” I shout. I give myself a touch of breathing room, saying that I’ll try to improve but the worst I’ll fill him at is 34. On the basis that he’s usually very smart with his levels, (scarily so sometimes), I decide to go short with him, and start to sell and hit the voice broker for five million at 35, offer out another five there on Reuters matching 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 small amounts only (less than five). I tweak the settings on my price aggregator a touch and offer a couple of kiwi out cautiously on the aggregator, to two of the other ecns, at 33. Manage to lose those, so I’ve done 11 all day. I don’t fancy this at all. Aussie is also getting given now. Voice broker is 31/33 so I hit him in another five. Then it really starts to run away. I go straight to market on the ecns for the remainder (another four) at 28, and within a minute it’s getting given at 20, 15, 10. Just nothing there. After five minutes the price starts to stabilise around 05. I buy back five and hold off on the other two. Alas it never quite cracks the figure and settles back up at around 20/25 ish. I buy them back there. I’d ended up improving Ben’s rate to 34.5, but all in all, given the circumstances I’m pretty happy with the morning’s work so far. I’ve had no real firm convictions today, having been stopped out of a couple of positions over the past 24 hours, I have spent half the morning so far in meetings, made three prices of any real size, and by my reckoning I’m up around 11.5k in kiwi p&l, plus the 6,800 Euros from earlier. A solid morning all in all, considering the relatively small amount of risk I’ve had on board.
11:40 I’m flat again now, and the market has dried up. It’s lunchtime, with lots of numbers, including employment data, due up out of the states in the afternoon. So most people have less than zero interest in getting involved at the moment. Having squared the book I leave lucky watching my book as well as his and step outside for some fresh air and to grab a sandwich. They have a decent enough cafeteria at work, but I need the fresh air as I find it all a bit stuffy sitting at the desk all day. Plus I hate the fact that in winter months you can go all day without tasting daylight. So I make sure I get out when I can from time to time. Ten years ago it wouldn’t really have occurred to me, but these days I am much better at handling the burnout. I take a brisk walk around Bishopsgate and London Wall. Oddly enough, as I’m grabbing a sandwich I bump into Parrot (his office isn’t far from ours). He tries to tempt me to the pub for a swift pint but I want to get back. I need to be out of the door on time today and I have to write a couple of 360 degree appraisals by the close of business (for the uninitiated, those are appraisals you write about equivalent level peers within a company, rather than me writing them for the members of my own team). To be honest they’re a bit of a minefield and I can’t stand them, but hey ho. It’s mandatory so I might as well at least make a decent fist of them.
Part 2 of “A Day in the Life of a FX Spot Desk Trader” is coming soon