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Anatomy of a Buy-Side Trader

As cutbacks spread across the buy-side desk and turmoil continues to reshape the markets, the traits that define a successful buy-side trader are more important than ever.

Can the psyche of a buy-side trader determine his or her success?
Can the psyche of a buy-side trader determine his or her success?
Today's buy-side trading desk is more cutthroat than ever. The buy side has been unable to escape the troubles facing the sell-side bulge-bracket firms, and cutbacks on the desk have become commonplace.

As Wall Street hunkers down for a challenging year and buy-side desks face restructuring and layoffs, firms must make some tough decisions about which traders to retain, and the new buy-side trader must be ready, willing and able to adapt to the new market realities. This means the trader must be flexible, focused and, above all else, ready to do whatever it takes to succeed and hold on to his or her seat.

The value traders add to the process can be measured through various analytics, including transaction cost analysis (TCA) and best execution. But to delve deep into the anatomy of a buy-side trader and evaluate what really makes a good trader is often less quantitative.

Advanced Trading turned to trading veterans to get inside the minds of successful buy-side traders and uncover what makes them tick -- what motivates them, and what it takes to stay on top of the buy-side trading desk.

The Brains

Just as the trading desk is the nerve center of a trading floor, the brain of a buy-side trader is where it all begins. Particularly in the current market, a buy-side trader must have a naturally inquisitive and agile brain, one that thirsts for knowledge and is capable of adapting to whatever comes its way.

Top 10 Traits of a Buy-Side Trader
"One of the critical elements of a successful buy-side trader today is a high level of intellectual curiosity," says Laurie Berke, principal at TABB Group and a former sell-side trader. "With all of the changes in market structure and the challenges of understanding algorithms and dark pools and electronic IOIs [indications of interest] -- if traders don't have a real burning desire to know that stuff, I think they will be overwhelmed."

Joan Stack, trading manager at Ohio Public Employees Retirement System (OPERS), adds that buy-side traders must be open-minded. "They have to be looking at the next system, the next firm, whatever is changing and going on out in the markets," she relates. "They can never be too comfortable with what they have."

So how do buy-side traders stay on top of everything? Stack says talking to peers and inquiring about their experiences and what technology and tools they use is key. "In an industry where everything is changing so fast, there might be a tendency to cling to something you're comfortable with but might not be right for an organization," she notes. "What sets apart excellent traders is their willingness to engage in lifelong learning and finding out what's next, what's better, what's cheaper."

A sharp degree of focus is also key, Stack continues. "There is so much noise out there now with instant messaging and electronic alerts, buy-side traders have to be able to filter out the irrelevant and focus on what matters to get trades done in the best way possible," she explains.

According to Nanette Buziak, head equity trader at ING Investment Management, the buy-side trader must be proactive at all times and possess a lot of self-initiative.

While each of these traits is important, Tim Olsen, head of trading at ICM Asset Management, points out that emotion also helps define a buy-side trader's success. He describes the effects of buy-side trading on the brain as an emotional high -- something any good trader is familiar with and ultimately craves. "It's kind of like being an adrenaline junkie," Olsen explains, adding that good traders love the ever-changing markets and thrive on being busy. "The market can be up and quiet but it's kind of a bummer if things are slow."

The Personality

Olsen, who has been a trader for 22 years, both on the sell side and the buy side, says that while most traders have the brains for the job, it is personality -- coupled with experience -- that sets apart the ideal trader from an average one. "We can't take Trading 101 in college. It takes curiosity and an ability to adapt quickly -- being able to bob and weave when necessary," he notes.

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