Monday 2 February 2009

Million Dollar Traders, Nickel & Dime EDI

They don't seem to do "Documentaries" any more. It is all "Reality TV" these days, and I have mostly had enough of them. I wish shows like "The Apprentice" would show more details of the problem solving, less of the problem personalities. But such is the rarity of Business related material I gave this new show a go.

Million Dollar Traders - the premise: take some ordinary people who show some promising aptitude, train them intensively for a short period, then let them loose with real money and see how then perform as a Hedge Fund.

Unfortunately I didn't learn much about the workings of The City, Finance and Hedge Funds. I learnt more than I wanted to about ordinary people under stress.

What caught my eye was the technology on display. Each trader had 2 or 3 computer monitors showing large amounts of numbers and graphs. Real time data was so important it was considered a major faux pas not to be at the desk the moment the markets opened. They were constantly crunching numbers with calculators as they balanced (or hedged) risk trying to find a profit margin. All this was happening as the Credit Crunch Tsunami hit, and banks crumbled into chaos. After 3 weeks I think the best trader made about 1% gain, compared with an industry average of 5% loss. My rough guess is that this represents £2,000.

Throughout this time we watched as the trainee traders weighed their investment decisions, the tension and drama was built up. We sat on the edge of our seats as they finally committed themselves to make a deal....

...and then they picked up the phone...

Uh?

No "Accept" button to click. No https protocol session. But a conversation with a real person. A request to buy or sell (go long or short in the jargon). A query on the price and a confirmation on the total cost. They then got out of their chair with a piece of paper (presumably some sort of record of the deal), walked across the room and got it stamped in some sort of machine that made a satisfying "kerching" sound.

At first I put this down to artistic license and the program makers wanting to make more interesting imagery. Like in the film Independence Day where, they bring down an alien war machine with a software virus. As unlikely as it is that the aliens have no anti-virus software, they leave out the incredibly quick development of the USB port to NBSA port adapter hardware (Never Before Seen Alien port).

Then in the last episode a strange thing happened. The boss was upset. He was a REAL trader. He knew how it was. The new guys were not coming up to scratch. He didn't like their attitude. It was all wrong. So they started discussing acceptable telephone manners when on the phone to a broker. At issue was the fact that some of the traders were spending too much time saying "hello", "please" and "thank you". He insisted that the Brokers will be laughing at them the minute the phone was put down. If the traders were not short and blunt they would get no respect. The brokers would be less likely to do their job as efficiently.

My jaw dropped. It was for real. The boss was prepared to openly admit a willingness to trample all in his way in the focused pursuit of money. I understood that. It was in the nature of the job. Yet he was prepared to rely on a fallible human, being able to interpret verbal instructions communicated by another fallible human. Indeed, in the first episode one guy accidentally got his "buy" and "sell" mixed up. In the 20 seconds it took to correct his mistake, he lost money.

The labour cost of those transactions was just silly. Yet the volume of trading, city wide, is huge. I know the term "EDI" is not a trendy buzzword, but where was the - Electronic - Data - Interchange?

I know the world of Finance has taken a heavy PR knock recently. I have heard the view expressed elsewhere that those in charge didn't really understand what was going on. But so long as the money kept rolling, questionable practices remained under the radar. If this TV program is representative then to me it would seem to confirm this view.

Here is an important life lesson I learnt as a small child watching The Wizard of Oz.

Despite what the Wizard says, don't ignore the man behind the curtain. His presence is telling you something!