The routine of a junior derivatives trader typical workday may sound boring, but every day in the market brings new challenges, almost always exciting.
As a derivatives trader, your typical day will involve waking up and getting to the office, usually approximately a couple of hours before the market opens.
You’ll be logging into your PC, turning on the monitors and loading up all your applications. You’ll have a pricer, risk management system, chats, broker screens, etc. There’s a reason if you’ll have to use so many screens piled on top of each other!
Time to read the news, review all the events, respond to e-mails, and review your positions.
Get breakfast or, if you are the new junior on the desk, you will be the one bringing everyone coffee and breakfast. However, it won’t be so long until some new guy will be doing this.
One of the most senior sales guys is probably already in when you enter and will want to refresh a price you showed him yesterday for an important customer. You’ll quickly make it for him, not having to think too much about it since you thought about this one yesterday. You’ll just have to get it into your pricing toy and check that vanillas are truly trading where the system says they are before you show the price.
During the rest of your day, approximately from 9.15 to 4.15, as a junior derivatives trader, you’ll be likely helping and learning how to do the following activities, which are the repeated base of a derivatives trader’s job:
- Price customer orders using pricer
- Trade futures to delta hedge the book
- Press Shift – F9 to see any changes in your model
- Trade options on the screens
- Take shows from brokers, and sometimes act on them.
- Make markets for clients, which means quoting both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn.
- Book trades, which means operating the order book, the list of orders (manual or electronic) that a trading venue uses to record the interest of buyers and sellers in a particular financial instrument. A matching engine uses the book to determine which orders can be fulfilled i.e. what trades can be made.
- Talk to operations people.
- Listening to talks, together with the salesforce, about the “market colour” (which are valuable snippets of information that inform investors and traders what’s happening in the market and who else is wheeling and dealing, such as an early heads up on a big trade).
- Dealing with the “rumour mill” (a situation in which a number of people spread rumours about something).
- Trade events (Fed announcements, Economic Indicators)
- Refit the volatility surface, which is a 3D plot of stock option implied volatility seen to exist due to discrepancies with how the market prices stock options and what stock option pricing models say that the correct prices should be.
- Run simulations to measure overnight risk, gap risk, correlation risk, etc.
- Eat lunch at the desk, 95% of the time – Forget to eat lunch about 5% of the time.
Then, after the market closes, you’ll then usually:
- Recap trades, make sure things are booked properly (this is mostly what a junior derivatives trader does)
- See where you made and lost money with some P&L (profit & loss) attribution
- Send out market recap emails to sales force
- Make sure the surface fits the market properly and smoothly
- Mark the surface
It’s the time now to head home, do more research and review, constantly having an eye on the markets just in case something weird happens and I need to react to it.
