Moving from Tech to Trading?

DJ Paradox asks: "I've been working in IT for around 11 years now and more recently in IT Security within the Finance/Investment Bank arena. I'm looking into the prospects of a change to an entirely different field, working on the trading floor. I've read a few books on trading but most of them seem to be geared toward the Do-It-Yourself-Day-Trader instead of a professional career. I don't have a finance degree but have a permanent position with a good sized global bank and a manager who is willing to help. So I ask Slashdot if anyone has recommendations for courses, books, websites that I should cover to get a head start in this transition. Have any of you made a similar jump? Should I try to move towards a more trader-aligned tech group first and build relationships? Should I try to go for Equities or Futures & Options trading? What markets would be the best to start/learn with?"

Comments

what I know

[acvh]

Floor trading is a pretty extreme job. Most floor traders work their way up from entry level runner positions. One way to avoid that is to buy or lease a seat, the AMEX is pretty cheap these days. Of course, you'll need clients for that.

I like your idea of moving the tech group for a trading group, that would get you in contact with some of the action, and you could get a better idea if it's what you want.

It's exciting, but stressful.

Re:what I know

[dubl-u]

Floor trading is a pretty extreme job. Most floor traders work their way up from entry level runner positions.

Yes, and that's exactly what the original poster should do. It's been a while, but the trading firm I used to work for was geared for turning bright but unskilled people into traders. Set aside your pride and jump back to being an entry level employee again for a while. Hopefully your maturity and smarts will let you climb the ladder quickly.

I'd echo other people who advise you to stay away from day trading or just buying a seat. Learn the business from people who know what they're doing. You will avoid a lot of novice mistakes, which in trading can be very, very expensive.

Out of the wood work come the arm chair traders

[Average_Joe_Sixpack]

You don't state your level of trading experience (ie have you ever day traded), so I am going to assume you are a complete newbie. Unfortunately, you are going to be way out of your element and will get slaughtered if your only experience comes from books ... and that's if they even let you on a trading floor/pit.
 
My advice would be to put those grand aspirations on hold and get yourself a trading account from a discount broker (Etrade/TDAmeritrade/Scottrade). Fund the minimum which is usually around 2 grand and start trading. You'll probably wind up losing but the knowledge gained will be worth more than any course or book.

Quant/Algorithmic

[inverselimit]

I would advise you to try to start out as a 'quant' or a developer of 'algorithmic' trading solutions. Quants use programs and math to kick ass on the trading floor. Some quant houses don't care at all about wall st experience because they view things in a statistical/algorithmic way. They always always need good IT people. Think DE Shaw, Barclays, etc. Read Willmott forums and such places for info and job leads. Almost all of these jobs will be in New York/Connecticut and London. Another keyword is 'financial engineering;' there are masters programs that can certify you in this and your background is probably appropriate. Check out 'Financial engineering news.'

Algorithmic trading is another route. Big brokerages all have algorithmic trading platforms, which automatically split up an order into tiny pieces to sell throughout the day, on different exchanges. You could get into working on these systems, which are in a continual arms race, and see where that leads.

The bottom line is to use your IT background. Like most fields, trading is getting more computational/mathematical, not less, so you need to leverage your abilities. Start with solid books like Bodie, Kane and Marcus: Investments and Hull: Options, futures, and derivatives to get some foundational knowledge. Ignore the retail-oriented 'technical' trading/day trading stuff. Read the WSJ and Institutional Investor and things like that.

Good luck.

No no no no no!!!

[spagetti_code]

Dont be a day trader. The only people who make money from day-traders are the brokers. They want you to trade. If you dont trade, they dont earn. Hence all these cnnfn, etrade reports blah blah are trying to incent you to trade.

It has been proven (see The Great Mutual Fund Trap) that day trading is a way to lose. People always jump in too late and jump out too early and have their profits eaten up by fees (which they pay whether they win or lose). The guys in that book reported on an analysis done of Etrade and Ameritrade records. The numbers were very clear.

The only way to win is:

• buy into a broad index fund. That will track the dow, and the DOW will rise over the long term.
• dont buy and sell. Buy and hold (or better - buy and ignore).
• hold for many years. You will see jumps and dips spanning months and years. But in the long term (many years) you will do better than anything else.

Here's a little info from the book:
They tracked over 1000 mutual funds for 10 years. Of the 1000, 1 (count them... ONE, uno, single) fund gained every year over the DOW. Mutual funds are run by fund managers who know a lot more than you, and have huge resources. Turns out that it is completely random as to wether a fund can beat the DOW.

Every now and them, one fund manager wins big for their fund. And they become hot property. But its random. They will eventually fade.

A side note: there is also a survivorship bias - any mutual fund that does poorly for very long is usually folded into another - that is, it disappears. So the ones that survive are the best, and they aren't better than the DOW on average.

Index funds are the way - they have very small fees, insulate you from any sector tanking, they track the dow, and require 0 effort on your behalf.

The book was a huge eye opener for me, and for the last few years has proven itself.

Re:Awesome question, I have one too.

[Sparohok]

I trade for a living, though technically speaking I don't day trade.

I agree that you need more money. You can't trade stocks with $1000, even as a hobby. The costs will eat you alive.

I disagree with all the people recommending web-based brokers like Scottrade. If you are serious about trading there's really just one way to go, a direct access broker like Interactive Brokers. They are light years ahead of the web brokers in technology and trading costs are much lower, $1 commissions on up to 200 shares. You can also trade just about any financial instrument in the Western world from one account. You will learn much more about trading using a real direct access platform.

Trading...

[William_Lee]

I'm currently trying to basically do the same thing you are, and trade full time for a living either for a firm or on my own. I can offer some advice for what it's worth. I was a licensed proprietary equities trader at a small Wall Street firm for around 3 years. I had Series 7/55 licenses at the time due to regulations, but they aren't necessarily required. The way these firms work is that they provide capital for you to leverage in addition to your own, and you trade in an intraday time frame (i.e. daytrading). Daytrading is IMO the most difficult time frame to trade in for many reasons including the amount of noise in that time frame, but it can be done profitably. I've seen too many successful traders to know that it can be. Very few make it long term, and it is difficult, but that is one option for you. I guarantee you will learn a ton about trading that way in a hurry.

You can also go for your CFA or something similiar depending on how much academic training you want, and if you feel like it would help in getting a job.

Buying and holding an S&P fund as some have mentioned here may be good advice for those unwilling or uncapable of more actively managing their portfolios, but you'll be leaving a ton of money on the table that way. It is possible with a lot of hard work to do much better than that.

A book can't teach you how to trade, but I would read Reminescences of a Stock Operator, Confessions of a Speculator, Practical Speculation, and Common Stocks & Uncommon Profits to get started. William O'Neil's CANSLIM method isn't a bad one to read up on either (IBD). You may want to read up on statistical analysis also. David Dreman's books are a good place to go on value investing. You can also read up on technical analysis, but tread carefully in those waters. There is a lot of nonsense out there.

If I were to give you one piece of trading advice, it would be to CUT YOUR LOSSES, and make preservation of your capital your number one priority. You can't trade if you are out of capital.

Don't paper trade. It is absolutely worthless for learning how to trade. Trading involves a ton of emotion (we're all human), and paper trading is easy because there are no consequences.

Be prepared to lose. A great trader would be one who wins 60% of the time. The key to success is gaining more on the infrequent winners than on the more frequent losers. If you're a perfectionist, and don't like to lose, look for another field.

Look for a niche and exploit it; don't try to go up against the big boys where you have NO edge.

Use the internet. There is a lot of free info out there that is valuable. Just be sure to separate the wheat from the chaff.

Good luck, and remember trading is a ZERO SUM game. Every dollar you make is coming out of someone else's pocket. Don't ever forget that. Your opponents won't!

Don't get discouraged, and be willing to fail, and try again.

Re:Awesome question, I have one too.

[mwvdlee]

Better yet, outsource the burning!
Just sent the $1000 to me and I'll burn it for you.
It'll only cost $100 and also doubles as an introduction to the concept of middlemen.
(tax not included)