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Many years ago, I was a bright eyed kid that just graduated from college. Armed with a degree in finance, a cocky attitude, and a passion for investing and trading, I was about to start my first job as a trader. I was hired as a “Junior Trader” at an elite, high-frequency trading firm that specialized in equity options. To me, it was a dream come true.
By some miracle, I managed to beat over a thousand other candidates for the role in a grueling interview process that lasted months. Personality tests, group problem solving, insane mental math, and an excessive amount of brainteasers (estimate the number of windows in the Willis Tower anyone?) were thrown at me, and I considered my chances of getting hired lower than that of winning the lottery.
Yet here I was, impeccably dressed riding the Southwest service line into the Loop for my first day. However, my first day on the job was nothing close to what I was prepared for. Not only was I made fun of for dressing up to look my best (I’ll admit that I totally deserved it), but instead of pricing options, measuring volatility, and placing trades like I had originally thought, I sat in front of 12 large monitors and made sure that the firm’s computer trading algorithms achieved what they were supposed to do.
My job title clearly stated that I was a junior trader, but I was not. I was there to babysit a highly sophisticated program that would buy and sell options spreads at the speed of light. The machines were the ones trading, and only a small number of humans were needed to ensure their performance was uninterrupted.
The real traders were the brilliant software engineers and quants of the firm. They had their own little room sealed off from the rest of us where they designed, tested, and implemented every single algo that the firm used to reap hordes of cash from the market. I quickly learned that these individuals were some of the brightest minds in the world. They are very highly paid, aggressively competitive, and relentless innovators. If financial markets were a chess board, they were the Bobby Fischer’s.
If I told you the amount of money I witnessed being made in front of my eyes, you wouldn’t believe me. On volatile days (earnings days, FOMC conferences, triple/quad witching days), the algos made their killings, and it seemed like we had our own little printing press hidden somewhere in the back of the office. They were ruthless, vacuuming up every penny that other traders left on the table by mistake.
I realized that the world that I thought I was prepared for was a world that would quickly fall by the wayside. If this is what those pit traders that I had fallen in love with in my college years were up against, they desperately needed to adapt, and if the those professionals were being forced out of their careers, the individual traders didn’t stand a chance.
If someone had told me that a degree in computer science was my ticket into a trading career back then, I honestly wouldn’t have believed them. I needed to see it for my own eyes to realize how inadequately prepared I was for the real world. Yet, instead of fighting it, I learned to embrace this experience.
I learned that speed of execution and automation is no longer an option, but a required tool for profitable trading. If one firm was making this much money using algorithms to trade obscure options spreads, there was no doubt in my mind that other firms would follow suit and use algorithms to trade every single instrument out there. In order for traders to survive, they would need to follow suit as well.