What Makes A Great Trader ?

hereisthecity.com  –  25 Feb 2012

What makes a great trader? Well, without wishing to expose a worryingly poor grasp of biology I’d say the perfect trader would be the bastard (grand)son of Dirty Harry, Field Marshall Montgomery, Gordon Gekko and Harry Houdini. I’m talking about a sharp-witted maverick who has the courage of his convictions and is willing to buck the trend; someone who’s happy to take risks and doesn’t accept defeat lying down. I’d want someone who was greedy (because if he wants big bonuses he’s going to have to make big profits), ruthless and confident he could conjure up an escape plan should the smelly stuff begin flying towards the fan. I don’t think many investment banking bosses would disagree with my analysis and that’s the problem … because those personality traits are exactly the same ones that tend to make traders turn rogue!

Last week we heard about a junior at the fund management firm Threadneedle who was kicked out having been caught attempting a £95m rogue trade and, of course, there have been numerous rogue traders over the last two decades ranging from Baring’s bugbear Nick Leeson to Socgen sorcerer Jerome Kerviel. Now, what’s interesting about these characters is that they seemed to have not gone ‘off piste’ merely to line their own pockets; rather they did so in order to cover up previous poor trades with a view to balancing the books before anyone noticed their misdeeds.

There seems to be a familiar pattern with these rogues – a clever trader who’s got access to the back office doubles up on some dodgy derivative bets that went belly up and finds that his new gambles go down the swanny too. Being someone who is willing to take risks and (over)confident that he can eventually emerge victorious from any scrape he doubles up again and again and again. Now, once you reach a certain level of loss it really doesn’t matter if you double up once more because you’re going to get fired and do time anyway! There’s no downside so you might as well just keep going especially since those dumbass bosses persist in failing to notice what you’re up to. Before you know it you’re down a few billion quid and fully aware that the only talent you’ll soon be needing is the ability to firmly grip the soap whilst taking a shower!

If I’m right and the very attributes that rogue traders exhibit are the same ones that investment banks attract and encourage then it seems highly likely that they’ll be plenty more Leesons and Kerviels to come. This is a shame because these characters besmirch banking’s already tarnished image and reinforce the perception that the City is just a huge casino populated by egotistical gamblers and executives who haven’t a clue what’s going on (and, of course, that’s only half the story!) However, what is pleasing about the Threadneedle case is that, for once, its IT systems alerted management to the chicanery which suggests it may be less easy ‘going rogue’ than it used to be.

Napoleon apparently always used to ask only one question when considering whether to promote an officer and the answer to that question is also all that really matters when it comes to selecting a trader. If a trader has this quality then all the others I’ve listed pail into insignificance. Indeed, if Leeson, Kerviel, Adeboli had exhibited this one attribute then we’d have never have heard of them.

The only question the little corporal used to ask was: ‘Is he lucky?’

Thoughts ?

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