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| Old school dealing, brought to you by Lee Oliver |
Whispers reach me that some think I may be too old school and that I’m bringing the market into disrepute by highlighting some of its sharper practices. The first criticism is almost certainly true; as for the second, don’t shoot the messenger.
Anyway, what’s wrong with being old school, as long as you don’t constantly go on about how much better the markets used to be. My view is that although markets always evolve, they never really change.
While I’ve got my retrospective goggles on, the old UK Forex Association’s motto used to be: “Once a dealer, always a dealer.” In my case, it was more a case of: “Once a jub, always a jub.” But it’s always nice to hear that old friends are still doing well, proving the truth of the motto. I was pleased to hear that Mike Williams has just been appointed as chief executive of trading portal Hotspot FX. In his day, Mike was one of the best spot FX brokers in the market. He also knew how to entertain royally and I enjoyed many a beer at the bar, Morgan Williams in New York, that he opened as a sideline.
Mike is 53 years old and I bet if he was starting out today he wouldn’t even get his foot in the door. The FX market used to be a meritocracy, and almost anyone could do well in it, provided you were lucky enough to get started. Generally, it didn’t matter at what age you’d left school or what qualifications you had. The market is not like that any more. Nowadays, it seems that the minimum requirement is a pointy head and a PhD. But as a few banks and hedge funds are now finding out, being good at reading books doesn’t necessarily mean that you’re good at trading.
I could have told you this years ago. I once had an industrial psychologist sit next to me for the best part of six months in an attempt to devise some kind of psychometric test to identify what made a good dealer. He never succeeded, which might be testament to the fact that he was a rubbish psychologist or, more likely, that I was an awful dealer.
Another possible explanation is that what makes a good dealer is not quantifiable. My view is that a true dealer could trade anything. I’ve been told that programmes can do this as well, with a bit of minor tweaking. Like I said, the market is always evolving, but it never really changes.
2006 – a tough year
There’s been widespread reporting of how big the 2006 bonus pool is going to be. I’m wondering whether this will prove true for those involved in FX. Looking from the outside, this year looks as if it has been tough.
Major currencies have been range-bound, the dollar has not fallen out of bed as was widely predicted would happen, and carry trades have continued to rule the roost, even though there were a couple of nasty fall outs, such as in Iceland and Turkey (see below). Option traders have been telling me that as well as implied volatilities being at historically low levels, many European corporates have shied away from anything too exotic or structured as a continuing result of the IAS 39 accounting standard. In short, there’s not been too much for the market to get its teeth into. From what I hear, what money has been made all got banked in the first six months of the year. Since then, the job has been to try to hold on to it, which not everyone has succeeded in doing.
On the plus side, even though there has been very little movement, volumes still seem to be increasing. This probably means that those players that can capture a minuscule spread a grillion times a day will be the winners this year. Everyone else will be struggling. However, I understand that one top-10 Euromoney poll bank is already looking for a new global head of options, suggesting that it hasn’t done as well this year as it would have hoped.
Trouble in paradise?
Last week I wrote about some interesting goings-on at a small hedge fund called JDFX. Rumours are now doing the rounds that the far bigger and higher-profile BlueCrest has also taken a bit of bath recently. The buzz is that a trader in its Newport Beach office has just handed back his entire year’s profits. Worse for the fund is that someone has dropped considerably more in its London office.
I sent an email to Mike Platt, BlueCrest’s founder and chief executive, asking him whether the gossip was true and I have to say I was a little amazed (and impressed) that he replied.
“We do not usually comment on market gossip, but this is incorrect. London FX trading is profitable and on target this year. There were no losses in FX in Newport Beach,” says Platt.
However, he does admit that one trader, who is believed to have been based in California, has left the company after losing some money. He also concedes that life was not all sweet in Newport Beach. “The office was very marginal for us. In fact, it was a loss maker on a costs and overheads basis, so we decided to reduce management workload and relocate certain staff back to London,” he adds.
“I’m just really surprised that anyone noticed this minor bit of housekeeping at BlueCrest. As Oscar Wilde said, I suppose: ‘There is only one thing worse than being talked about, and that's not being talked about,’ ” he concludes.
Successful funds the size of BlueCrest will always attract attention, and given their normal secrecy it is inevitable that the merest hint of a problem will lead to an explosion of rumours, especially given the paranoia following the rapid demise of Amaranth earlier this year.
