Some banks are turning to performance coaches to give their traders
an edge in the battle to make money in the $4.5 trillion-a-day FX market. This soft skills approach contrasts with the popular stereotype of FX traders hurling prices
In the take-no-prisoners world of foreign exchange dealing, asking traders to look inside themselves and confront their inner demons may seem a forlorn endeavour.
Yet some banks are turning to performance coaches to give their traders an edge in the battle to make money in the $4.5 trillion dollar a day FX market. This soft skills approach contrasts with the popular stereotype of FX traders hurling prices — and abuse — at each other across the dealing room floor.
But while some dismiss techniques to develop a "clear-headed space" in which to trade as touchy-feely gimmickry, many are keen to embrace any tactic to outwit other market participants, whether human or machine.
"I talk about performance enhancement rather than psychology. It makes it a bit more approachable for guys who have still got a bit too much testosterone and ego," said trader performance coach Steve Ward. With trading margins squeezed and bank cutting jobs, former physical education teacher and sports performance coach Ward had expected business to dry up.
In fact, the last year has been one of his busiest ever. Trained in techniques including stress management and performance psychology, Ward also employs strategies underpinned by cutting-edge neuroscience research. Some exercises are focused on meditation to help develop attention and awareness.
Many financial market traders might baulk at such ideas and Ward acknowledged that in the male-dominated environment of some dealing rooms stigma may be attached to talking to a coach. Steve Goldstein, who worked as a FX rates and fixed income trader for 25 years at institutions including Credit Suisse and Commerzbank before becoming a coach, agreed.
"People still use the term shrink. There are a lot of games in trading rooms that people play amongst themselves and look for signs of weakness," he said. Both Goldstein and Ward said many of their clients were successful traders with 10 to 15 years experience who had lost their way and needed to regain self-confidence.
What makes a great trader?
Most traders and coaches agreed the most important attribute for making money in financial markets is self-confidence. Along with discipline and a clear process, it can help traders run profitable bets and cut quickly out of losses.
Without it traders may start second-guessing decisions, doubting their instincts and over-reaching for trades, said Graham Davidson, director of FX trading at National Australia Bank. He had a period of coaching around six months ago after slipping into bad habits that led to a 12- to 18-month "rough patch".
"We talked about all kinds of stuff. It was mostly trading-centric but equally you have to be able to look inside yourself and figure out what motivates you,"
Davidson said. "If you understand your subconscious and what the drivers of your behaviour are you can become a better trader."
A trader's motivation could be to provide for his family, achieve status or protect his position within the hierarchy of a dealing desk. It may just be the satisfaction of being right.
Goldstein uses a questionnaire with new clients, including questions such as 'If you could stand back and watch yourself trading — what advice do you think you would give yourself?' He described the questionnaire, filled in during a 2-1/2 hour introductory session, as a debrief on all aspects of trading — the psychology behind it, a trader's personal demons, strengths and weaknesses, and their edge.
Heads of trading at four investment banks told Reuters they were either using coaches themselves or had heard of increasing demand. Steve Ward said he estimated the number of dedicated trading coaches had doubled since 2006.
"These guys are in demand," said Hugh Killen, global head of FX at Westpac in Sydney. Even banks unwilling to use an external coach increasingly recognise the benefit of supporting new recruits.
"It's very 1980s to drop them in the deep end and tell them to start quoting customers on day one. I have always taken an active role in training grads from the moment they set foot on the desk," said Mark Johnson, global head of FX cash trading at HSBC.
"Psychology is a huge factor in trading. If you address traders' individual needs then those traders will have a higher performance, but I doubt that any external coach could quickly recognise these frailties without an awful lot of background from us."
Tough times, new tactics
A new pressure on traders — and a reason some cite for the increased use of coaches — comes from the growth of hyper-fast electronic trading. In its latest survey, the Bank for International Settlements said spot algorithmic trading — in which a computer determines how orders are placed — rose to 45 per cent of trade on the EBS platform in 2010 from two per cent in 2004.
More electronic trading means fewer traders, while high-frequency algorithms can identify money-making opportunities and execute trades faster than a human can spot the prices.
"A lot of traders are struggling to compete against the boxes," said John Coates, a Cambridge University neuroscientist and former trader with Goldman Sachs and Deutsche Bank. But, in the battle between man and machines, there are signs high-frequency trading is facing a backlash as banks and regulators focus on the human touch.
"Our ability to generate gut feelings makes our body the most sophisticated black box on the market.
I have heard of pretty big players pulling the plug on their boxes and putting money back into humans," Coates said. But it may be some time before traders' psychological well-being is put on a par with their technical know-how. Many traders remain hostile to the idea of discussing their personal demons with a coach.
A trader who admits needing help and wants to talk about his mental state risks mockery. This could be more true in London than New York, given the UK's traditional antipathy towards the idea of therapy.
As one London-based FX trader said when asked if he had ever used a trading coach: "Nah, are you kidding? It just sounds all namby pamby and American." —