The trading desk is the nerve center of an asset management firm. And during extraordinary times -- such as the markets' nosedive in late February and early March -- the importance of good traders cannot be overstated. In such times, good traders don't just represent the difference between profit and loss -- they play a major role in a firm's very survival.
Against this backdrop, Advanced Trading's Randall S. Devere spoke with some prominent head traders about what it takes to manage a trading desk. What potential -- and pitfalls -- do they see in their traders? Where are they focusing most of their energies? And what keeps them up at night?
What quickly emerged from the conversations is a portrait of a group that has to think well outside the parameters of buying and selling -- particularly those who trade for or run their own hedge funds. From technology to processing to managing risk up and down the enterprise, a head trader's responsibilities are becoming more complex, which is why their days so often extend into long nights.
The key lesson espoused by Richard Scalone, CEO and chief investment officer of Integra Investment Management, for weathering market storms such as the one last month is relatively simple: "It's the things we do in quiet times that prepare us for what we do in the busy times," he asserts.
"Times like that are challenging for anyone, but especially for currency traders of late," Scalone adds, referring to his global macro fund's focus on foreign exchange. "You have the advantage of the down periods to prepare for a time like this. When it's quiet, it's easy for a manager to let things go, and then you're in trouble when things pick up."
Before founding Integra in 1999, Scalone spent a decade at Chemical Bank and its successor organization, JPMorgan Chase, serving as a forward currency trader, chief dealer for the European Monetary System (EMS) desk and a desk manager for all EMS currencies. One thing he learned in building his own firm, he says, is to delegate authority.
"An Achilles heel of managers is that they often think they can manage everything," Scalone contends. "They get used to doing things themselves. But you need help. Managing money at a hedge fund is not a typical environment. Unless you build up a strong staff, you'll be ill-prepared -- especially on days like we just experienced."
There are, however, benefits to days like that from a manager's perspective, according to Scalone. "It's invaluable seeing how people react in times of stress," he says. "That's when their talent and dedication -- or lack thereof -- really shine through."