Take one lowly freelance journalist who has written about many things but precious little about finance.(Quite frankly, she’s a bit of a financial moron – a glance at her bank balance will attest to this.) Put her on the trading floor for a day and, voilà! She makes 1.7 million – not rands mind you, but British pounds. Not bad for a day’s work.
Okay, so it’s time to come clean. No stockbroking firm in its right mind would let loose an inexperienced trader. But if you’ve ever wondered what it would be like to dabble in the lively world of market-making, that is precisely what a day of simulation training allows you to do.
I recently attended a one-day stock market simulation course in Johannesburg at Henley Business School South Africa, together with other participants from a variety of professions, from engineers to accountants to entrepreneurs. Presented by Dr Mike Smith, a former city trader and one of the world’s most experienced stock market educators, it was an enlightening experience.
“If you joined an investment bank, they wouldn’t let you trade for six months,” Smith told us. “Today you will be trading in about 20-30 minutes.” He then proceeded to give us an overview of the terms, dynamics, traps and opportunities in markets, and of how traders work and generate profits and losses. True to his word, half an hour later, Smith gave us a portfolio of eight stocks, each with a trading limit of US$75-million. We worked on ICTrader, an advanced trading simulation developed by The ICMA Centre, Henley Business School at the University of Reading (UK). This is used by leading European and Asian banks, regulators, stock markets and asset managers to train their talent.
The first step was to select our own trader name. While some participants played it safe using their first names or initials, the pluckier amongst us came up with some interesting, even bizarre, appellations. I’m not sure why – I don’t have a particular affinity for hobbits – but I traded under the name of Bilbo, one of the characters in “Lord of the Rings”. When one of the participants drew attention to the less than sterling performance in the first round of one ‘Malema’, much hilarity ensued. I could hardly snicker, though – in that round I posted a loss of more than US$200 000.
In order to give us a real sense of the pressure that market-makers face and the speed at which things get done, the programme is set up to run real-time news flashes (the sound of a live news wire alerted us to their arrival), some of which were pertinent to our trading decisions and some not. At the same time we had to field calls from clients, up to three at a time, asking us to quote two-way prices. A short while later, Smith ramped things up by programming the simulator to have traders call us with bids or offers.
We also had an opportunity to trade with each other, not via the simulator, but physically getting up from our chairs and asking others to quote their two-way prices and then either buying, selling, or telling them (nicely) to get lost. Apparently in the session the previous day, there had been much yelling and shouting and swearing. We were given permission to do the same, but evidently ours was a more genteel bunch.
Although we experienced no real losses, there were some nail-biting moments. My heart skipped a beat in the final round – where we were told the winner would be awarded a bottle of French champagne – when I saw my stocks tumbling deep into the minuses. Fortunately I managed to recover before the closing bell but, alas, came nowhere close to winning the champagne. Think I’ll stick to my day job.