Salespeople

Generally I find salespeople just to be annoying. And that's from a buy-side trader's point of view, not a sell-side trader. Of course sell-side traders hate salespeople because the nature of the relationship is to be slightly adversarial (the salespeople are advocates for their coverage and just want to do volume, while the trader wants to take the right risk at the right price and not necessarily just print big trades). As a buy-side trader though, I still hate most salespeople.

First off most salespeople are simply slimeballs. Their job, correctly done, is to act like your friend and get as much information out of you as possible. I don't need any more fake friends. I get plenty of those when I go clubbing and the hot 19 year old model-wannabes want a feel of the high life. Fake friends are a dime a dozen. I certainly don't need to be giving information about my intentions and my positions to help salespeople make their trading desks aware. Fine, that's their job, but I find it highly unnecessary. Granted I don't blame the salespeople for doing exactly what they are hired to do. Personally though, I enjoy talking directly to the traders when I'm trading. What good is a middle-man (or woman) just relaying exactly what I say to the trader?

Fine, perhaps I'm being overly cynical, but being a quant guy I like my screens. Most of the time I'd be content with a screen instead of a salesperson and trader.

So what is really a salesperson's role? Well, in reality they are there for their firm, not for their customers. They will tell you that they're there to be your advocate to the trading desk. That'd be cool, except that would align them against their firm (and thus their incentive structure since their firm pays them). The best salespeople I know learn all about their client, their trading style and their position/view. Then the salespeople can make the trading desk aware of the client's intentions so that the traders can adapt accordingly. Even better salespeople will know the client's trading style and requirements enough to suggest trades the client should do. Most likely, corporate clients need to be told what instruments are available to them to manage their risk. Exotics desks would not exist without salespeople hawking their wares.

So they do provide a service, simply not as much for the sophisticated trader, especially not the sophisticated hedgefund or prop trader. They do, however, generate tons of money for a firm by encouraging trading (bid-offer), especially in illiquid instruments (read: they'll rip your face off by selling you an exotic instrument where they made 25bps of bid-offer--actually usually they end up warehousing some of that risk because it's unhedgeable but they will charge 25bps through fair value to charge for having to warehouse the risk). I'd recommend being a salesperson as a job choice to many people, but don't expect to be everyone's best friend (although most of them act like it).

Is the market always right?

I've seen a lot of people struggle with fading the market recently. Fixed income markets have moved huge increments, pricing in everything from sub 1.75% fed funds to over 2.75% fed funds in the next six months. Many traders have been stopped out due to the move as they fade the market move in synch with their own view. Even economists have been forced into revising their views as most said a hike this year was impossible until after the market priced in 75bps of hike. Suddenly all economists were revising their forecasts to include at least one hike by the end of the year. I thought that was a sad showing. Economists, who are supposed to be more or less market independent, all revised their views to be more "in consensus" with the market. Fair enough if they think the market is always right, but then why do we need economists at all? Traders tended to fade the move until they got stopped out (everyone gets stopped out after 100bps of movement). So what gives?

Well, personally I think there's enough instability in the market that the Fed can't really hike this year. It would at most be one hike in December, but even that I believe is a longshot. But how is one supposed to express such a view in such volatile times? Every delta trader I know got stopped out of their position as they faded the move (actually one guy I know timed it right, but all the others were in too early). I think too many traders find themselves too focused on their particular market. Trading fixed income delta is great, but today's volatile markets are a difficult place to do so. Even if you "scale it right" you're likely to get stopped out.

Times like this are a great time to look for option based expressions. For example, fading the 75bps of hike by december via call spreads seemed to be an excellent expression as one can easily limit one's downside (premium) while having quite a good payout ratio. Other popular expressions were call flys (buy a low strike call, sell two of a medium strike calls and buy a high strike call) and 1 by 2s (buy one low and sell two high). Look for clever expressions of your view that limit your downside in markets as volatile as today's. It will prolong your life as a trader greatly as you won't be being stopped out (and perhaps "tapped on the shoulder") and you'll be finding risk-reward ratios that aim for that high payout at the end of the year.

You'll find that the market isn't always right. Emotions drive the market significantly, as do rumors and false information. Sometimes ancilliary effects (say. . .Europe) drive markets when they really should not. As a trader these represent great opportunities for those who can stomach the risk. Fading the market is extremely difficult--as they say "only monkeys pick bottoms." Finding the best expression of a view will payoff greatly when you identify times when the market is reacting incorrectly. They often say "timing is everything." I disagree. That's the old-school delta trader's view. Timing isn't everything. Getting the expression right allows you to do away with much of the timing issue.