Since many of the readers of the Financial Pipeline are university students
hoping for careers in the sales and trading groups of global financial
institutions, we thought that it would be a good idea to write a brief overview
of what these institutions look for when they are hiring and what
characteristics make a good derivatives professional. A derivatives
professional is someone who trades derivative financial products or sells
derivative financial products.
There are three aspects to the individual that make them
suitable for a career in derivatives:
- Educational background
- Personal background
- Potential for growth
For each of these three categories, there is a continuum of opinion that
varies by institution.
There is no one correct answer. There are three kinds of firm that are
involved in the use of derivatives:
- Investment banks
- Commercial banks
- End-users (mutual funds, corporations, hedge funds, floor traders)
EDUCATIONAL BACKGROUND
There are two schools of thought when it comes to education. There are many
people who believe that the only candidates who should be considered for
positions as derivatives traders are those individuals who have graduated from
MBA programs. Having an MBA, especially one from a good school, is a signal to
the rest of the world that you have been screened by a well-respected
institution as having the capacity and the interest for the work.
Often, the people who hire derivatives professionals are unskilled when it
comes to making human decisions. More often than not, the people who rise to
management positions in derivatives products groups come from a technical
background in which they have no previous responsibility for other people. They
are placed in these leadership roles because of their understanding of the
product. The MBA acts like a "tell" or market signal.
The only thing
that one should look for in a derivatives professional is a keen sense of
intelligence that includes a solid foundation of numeracy and computer skills.
They do not have to be able to reproduce the mathematics behind the
Black-Scholes equation. They do not need to program applications in Visual C++.
They should be able to intuitively understand the implications of the
Black-Scholes model and the logic underlying the set up of the computer
applications upon which derivatives practitioners are so reliant. They cannot
be people who are easily bamboozled. They can explain difficult technical
concepts in easy-to-understand language.
In the early days of derivative products, people with serious mathematics
backgrounds were put into derivative positions by virtue of their quantitative
skills. But that's only part of the package. They also have to be able to trade
or to sell, depending upon their specialization. Institutions quickly realized
that it's more important to hire someone who could figure out the behavioural
characteristics of the product and marry that comprehension with a fundamental
ability to trade or to sell. Sometimes, a derivatives professional's strongest
asset can be a keen "street sense".
Many people would be surprised that some of the most sophisticated
derivatives professionals in the world are not that well-educated, on the face
of it. These are men and women who have obtained through years of application
an intuitive understanding of the behavioural characteristics of their product.
They can look at a structure and instantly know how to break it down into its
components, assessing the riskiest components first. They know what it is like
to be short gamma through an event risk, like a political vote. They have a
keen appreciation of what it is like to manage a complex portfolio of financial
instruments.
Any academic background is good preparation if its end result is an
individual who can think independently, quickly and rationally on his or her
feet. One of the top foreign exchange banks in the world has a musician as a
senior options professional. Top investment banks have philosophers,
economists, lawyers and entrepreneurs. Andy Krieger, one of the best known
currency speculators in the world, obtained all-but-dissertation status for a
doctorate in ancient Indian studies. Learning Sanskrit imposed a rigor to his
thinking, evidently.
As in all things, balance is the best solution. A solid derivatives desk
will have people from a variety of backgrounds whose strengths can complement
one another and who can compensate for each others' weaknesses.
PERSONAL BACKGROUND
Investment banks and commercial banks also look at one's personal
background. Walking into these dealing rooms, you will meet some very
impressive people. The former chief executive of a Canadian investment dealer
expressed his preference once for former athletes, likening the dealing room to
a sports team. That may be carrying things a bit far. Athletic achievement is
certainly something that carries a great deal of weight on any professional job
application. You will find many nationally-ranked athletes among the ranks of
derivatives professionals.
People want interesting colleagues, ones with whom they feel some
commonality. Personality and charm are essential attributes of the derivatives
professional.
Cynically, there are those who will suggest that personal connections are
the thing to get you in the door. Sadly, this is true in many of the middling
shops that trade and sell derivative products. There is a great deal of money
to be made in this business. Sometimes the franchise (or the previous
experience of the firm) is what makes the money. Other times, it is the
individuals who bring in the profits. At many unsophisticated institutions,
deciding upon the breakdown between those two causes is an arbitrary affair.
Firms that believe that the franchise makes the money place less emphasis on
the importance of human capital in their hiring (and more importantly their
bonus allocation) decisions. Those are the places that are susceptible to
nepotism and favouritism. Being a friend of the chief executive officer might
carry more currency, literally, than an individual's profit and loss. It pays
to do due diligence on prospective employers.
POTENTIAL FOR GROWTH
This is the most difficult characteristic of the potential candidate to
assess. The manager must decide if this individual is committed to putting in
the leg work required to be at the leading edge of the market. And the manager
must establish that this person is bright enough to be able to compete as
markets evolve.
There is no hard and fast rule for establishing one's credibility in this
respect. If you can show that you have grown where others have not or that you
have progressed faster than others, this is a start. But, as they say,
historical performance is no guide to future performance.
CONCLUSION
At the end of the day, the great derivatives players are looking for two
things: excellence and motivation. They do not care in what endeavour this has
been achieved. They want people who are the best (or pretty damned good) at
what they do. If you are the best in one activity, you have learned the skills
to be the best derivatives professional. It is an intensely competitive arena.
If you are the kind of person who is committed to excellence in this fashion
and you are interviewing at an institution that does not appear to strive for
this excellence, your best bet is to turn them down for two reasons. Turning
them down means that you will not have the stigma of being attached to an
also-ran. And you will avoid being judged by arbitrary criteria beyond your
control.
Anyone can be a good derivatives professional if they work hard and they
learn from the best people. After all, it's not rocket science. It's sales and
trading.
Article by Chand Sooran, Principal Victory
Risk Management Consulting, Inc. |