Now imagine that you come from a… slightly different background:

• You go to an unknown school that no banks recruit at.
• You just moved from China to the US 3 years ago with a limited command of English.
• You’re not a US citizen and you don’t have that all-important work visa.
• Your family has no connections in the US, and so you can’t rely on that uncle who’s Head of Investment Banking to help you out.

Impossible to break in?

Not at all.

Our interviewee today broke into the industry in under a year, even with all those handicaps working against him.

Here’s how he did it, and how you can do the same – including how to deal with visa issues, how to stand out as an international student, and how to overcome cultural differences when networking.

Let’s get started.

In the Beginning…

Q: Can you tell us how you arrived in the US and picked a school there?

A: Sure. I moved from China to the US a few years ago, and could barely communicate at the time – I spoke minimal English and had trouble holding real conversations.

I couldn’t get a very good SAT score as a result, so I started looking at cheaper, public schools that had solid business and finance programs.

I found a “non-target” school that offered me a scholarship, and took the offer since I couldn’t get in anywhere else and couldn’t afford expensive schools.

Q: You mentioned before we spoke that you had performed well academically in China – why didn’t you just go back there and attend a top university?

A: I did have the chance to attend one of the top universities in China – my family is involved with several businesses there, which is how I originally got interested in finance.

But in Asia, higher education in Western countries is still better-respected; many of the top students want to study in the US or UK even if they intend to move back to their own countries one day.

Q: OK, so you wanted the respect and so you decided to move to the US for college.

What was your next step?

A: From day 1, I knew I had to get real internship experience and upgrade my English level if I wanted to work in the country.

So I started talking more with my roommates and striking up random conversations with people, and that helped with learning the language and getting adjusted to the culture.

The bigger problem was getting a work visa. I went through a couple interviews for firms after I enrolled in school, but I kept losing out because companies were not able to sponsor me.

Q: I think that happens to a lot of international students – so what was your solution?

A: I started offering to complete unpaid internships at smaller firms since no work visa was required for that.

Just like you’ve recommended here, I networked aggressively, cold-called lots of banks, and even went back to China to complete an internship there when nothing worked out after my first year in the US.

That internship in China was unpaid, and then I completed another unpaid internship at a boutique in the US after that.

After I got  that experience, I started networking like crazy and used LinkedIn to contact over 1,000 bankers, also taking weekend trips to New York (5 times) and to Chicago (3 times).

I ended up winning a bulge bracket internship offer, which I accepted immediately.

Always Be… Networking

Q: So your strategy for dealing with the visa issue: do unpaid internships, go back to your home country and do an internship there, and then leverage that experience when you return to the US.

That’s a great story – but I want to go into more detail on a few parts.

How did you get this unpaid internship at the bank in China, and how is the culture there different in terms of networking?

A: It was a bit easier in China because I had more connections and I could go through family and friends, so I didn’t have to rely on cold calling quite as much.

Getting internships in China can be easier because you talk to HR people and they decide what to do with you – it’s not like the US where HR has little decision-making power and it all comes down to the senior bankers.

And it’s more common to get unpaid or low-paying internships there because of the corporate culture. So it doesn’t take as much work to convince local firms, or even international firms with offices there, to take you on as an unpaid intern.

Q: I see – any other differences with networking besides the people you reach out to?

A: Other than that, you can use many of the same strategies: cold calling, informational interviews, and so on. But the way you apply them is different.

It’s extremely difficult to get in touch with senior bankers here – you need to go through the right channels, make sure you ask the right people, and so on.

So it’s not even worth your time to find their information. Just worry about HR and maybe entry-level analysts if you can get in touch.

The way you reach out is also very different. You need to be very polite, you can’t use peoples’ first names, and “having a casual chat” is not as common as it is in Western countries.

So you need to take a more formal approach, and sometimes you spend more time asking about business and work rather than personal questions.

Q: What other mistakes have you seen people make when they’ve networked in China?

A: Sometimes people returning from other countries like to say that they’re going to college abroad or that they come from a wealthy background – but people in China may interpret that as “bragging” and it could easily backfire on you.

So you don’t want to mention any of those points by themselves.

Focus on the difficulties you overcame and what you had to do to get where you are. Complaining about life in another country would just sound silly.

Q: So did you find people there to be more or less responsive compared to those in the US?

A: They were more responsive and helpful to me in China.

It might just be a cultural thing, but the difference is that in the US people often act nice to you even when they don’t or can’t help you.

But in China, people are often direct, bordering on rude and bossy, even if they actually want to help you out – or at least they’re straightforward about what they can do for you.

If you’re a foreigner there without connections and you don’t know the language or culture, of course, you’ll probably have the opposite experience (some exceptions apply…).

Q: Right, those are some interesting differences to note and that should be helpful for anyone who needs to network in Asia.

Can you talk about your approach to networking when you were back in the US? What types of strategies worked well, and what did not work well?

A: At first, I tried sending very long emails detailing my background, strengths, and weaknesses, and so on.

Q: Bankers stop reading emails after sentence #5.

A: Yeah, that’s what I realized after a while. No one has time to read through your entire email, so my response rate was horrible.

I switched to using very, very short emails that just stated my name, what university I was at, the internship(s) I had completed, and then asked for a few minutes of their time to tell me about their experiences.

Like you’ve said before, it really is a numbers game. You can craft the best email in the world and be incredibly interesting, but if people are in a bad mood, they won’t reply. And if they’re in a good mood, they will reply.

Q: Can you give us a sense of those numbers?

How many bankers did you contact, and what was your success rate?

A: I emailed over 1,000 people through a combination of Internet searches and LinkedIn. I also became friendly with a few professors who had industry connections, and I had lists of the largest banks in the US and regional boutiques.

Every day, I sent out around 20 emails, all to different banks. I realized that sending out multiple emails to people at the same bank each day could hurt me if they got to talking, so I spread out my networking among more firms.

Of those 1,000 people, I got responses from around 200, and of those 200, 100 were actually interested in speaking with me while the other 100 were just being polite.

And then of those, around 50 helped me get ahead, referred me to other people in the industry, and even pushed for me in interviews.

I exchanged emails, set up times to chat, and spoke to those 50 most helpful contacts for around 15-20 minutes each; eventually I also set up multiple weekend trips for New York and Chicago.

Overcoming Obstacles

Q: Those actually sound like good numbers – and the percentages match what some of our previous interviewees have reported.

Besides the work visa, what other obstacles did you encounter when recruiting?

A: Language was still the #1 problem for me at first.

Some people were nice, but others were more direct and told me I needed to improve my English skills.

Sometimes the culture could cause issues – lots of bankers would talk about American sports, which I knew nothing about at first.

So I started learning about it, reading up on news, and learning about key players and using their language to talk about what they were interested in.

Coming from a non-target school hurt me, but I was able to explain why I did it: I went there for financial reasons, even though I had the opportunity to go to a top-tier school in China.

Be careful not to deprecate yourself too much; always talk about how you’ve improved over time and what you can bring to the table (languages, knowledge of a region, expertise in an industry) that others won’t have.

Q: Right. We skipped over it at first, but I’m also curious about the work visa issues and exactly how you overcame them.

What was your experience with getting banks to sponsor you?

A: For summer internships this past year, I just focused on bulge bracket banks and they were much better about sponsorship than smaller firms.

It will still be a problem if you’re international because you need to be better than the US citizens who are applying.

If you’re up against someone from Harvard who’s a citizen and has perfect grades, you need something to set yourself apart – otherwise they’re paying extra and completing more paperwork for the same person.

One of the best ways to differentiate yourself: network with people from your own country at banks.

Since you have a common background, they’ll help you out just like alumni will.

And if you can’t find anyone from your own country, find other foreigners who faced similar challenges and have been in your situation before. They’ll be much more sympathetic than people who were born and raised in the US.

Inspirational Interviews

Q: You mentioned just now how you need to be better than candidates with brand-name schools and top grades – but how do you actually do that?

At the junior levels, how can you really set yourself apart, especially if you haven’t had much work experience yet?

A: Besides the point above about networking with other foreigners, I would suggest extreme preparation for technical questions.

These days, even liberal arts people know basic technical questions so you need to go beyond the basics and learn more advanced material on M&A, LBO models, and even how specific industries differ on the technical side.

But you can’t be cocky about it; lead them into technical topics and surprise them with your knowledge (assuming you know your stuff very well).

As an example, in one first round interview I got the standard question about which valuation methodology generates the highest value – a DCF or comps.

Rather than giving a straightforward answer, I re-phrased the question instead and said, “Did you say comps, DCF, or LBO?”

That led them into knowing that I knew something about LBOs, and that led to a discussion of more advanced topics where I proved my knowledge.

You can’t be too blatant about showing off your skills, but you want to lead the interviewer as much as possible and show that you’ve gone above and beyond with your preparation.

Finally, you can also stand out by talking about what you’ve done to get here and the difficulties you’ve faced compared to other candidates.

It’s just like the Rocky story: show that you’re hungrier than candidates from privileged backgrounds, and you have a huge advantage.

Q: You get bonus points for referring back to that article – it was one of the most fun ones to write on the entire site.

What about interviews themselves? Did any questions come up repeatedly given your background?

A: I did not go through a huge number of interviews because I won an offer early on. I had interviews lined up elsewhere, but I turned them down because I didn’t want to risk losing this offer for a slightly better one.

Mostly, they were just curious why I decided to come to the US and whether I made decisions according to a plan, or if I decide to do things just because I’m passionate about them.

The last thing they want is for half-motivated people to join and then leave after 6 months – so they assessed how committed I was by asking more about my own personal story and how well I had thought out my move to the US.

I never thought of the interview as a way to just get a job – it was a way to learn more about each other and exchange stories.

So I always acted like a real person and not some random job seeker, even when I was under a lot of pressure to win offers.

Q: That’s great advice. It’s similar to how some people think “Walk me through your resume” means to walk the interviewer through your resume, when in reality it means “Tell me your story.”

Speaking of your story, what’s yours? What are your future plans? Are you thinking of staying in banking, or even in the US?

A: I’m not sure yet since I just recently landed this internship. I’m most interested in Leveraged Finance right now, and if I can get into the group I want to stay there for a few years.

I do want to return to China at some point, or at least go back to somewhere in Asia, such as Hong Kong, to move closer to home.

So I might end up doing one of those or moving into PE after working in banking for a while.

And it might be fun to start my own firm one day in China or somewhere else in Asia, but that’s obviously a long ways off.

Q: I’m sure you’ll end up owning half the country one day (at least, if the government doesn’t claim ownership first).

Thanks for your time – really enjoyed hearing your story!

A: Sure, happy to share it with everyone.

And I’d like to fulfill those requests, but there’s one small problem: there will be no bonuses this year.

Normally investment banks wire transfer analysts’ bonuses directly to their bank accounts upon announcing the numbers…

This year, however, it was revealed that protesters had Occupied the bank accounts of all analysts worldwide, hacking into banks’ websites and stealing all the funds before anyone could withdraw the money and blow it on a trip to Vegas (or a trip to Cain).

It’s unknown what the protesters will use funds for, but early rumors point to using the money to send envelopes containing white powder to banks worldwide.

Good luck getting those bonuses back!

My Sympathies for the Protesters

Ok, now back to non-fiction mode… even though I’ve mocked the protesters before, I actually agree with a lot of the points that they’ve raised:

• The world (or at least the US and other developed countries) is not headed in a positive direction, and serious changes need to be made.
• Tax rates for those in the highest brackets must be raised – sure, cutting spending is necessary as well but you need to do both to reduce deficits.
• Carried interest and capital gains should be taxed at ordinary earned income rates. As Warren Buffett stated so eloquently, “People invest to make money, and potential taxes have never scared them off.”

I do find their entitlement attitude (“We deserve jobs!”) concerning, but hey, many people in the finance industry act that way too – just read this article for the time I almost poked my eyes out and jumped in lava after getting one too many emails expressing a similar attitude .

Anyway, this bonus prediction article is not about the Occupy movement, but you can’t deny the impact they’ve made this year and how they’ve made terms like “The 1%” part of everyday lingo – further fueling the downward pressure on bonuses in finance (and Mitt Romney’s Presidential chances).

What Else Happened in the World This Year?

It’s quite similar to the news from last year: emerging markets surged ahead as developed countries fell further and further behind and further in debt.

Europe continued to be a mess and Greece had to be bailed out… again? I’ve lost count of how many times some type of rescue has been made, attempted, or proposed by now.

The main difference this time around is that there’s a lot more discussion around what these problems mean, and what to do about the growing inequality in many regions.

John Paulson had the best solution of anyone: start sucking and lose a ton of money for all your investors.

Do more of that and more often, and we might just see all this talk of class divides and The 1% go away completely.

Bonus points if you decide to quit the industry and make a public spectacle of it.

Our (Flawed?) Prediction Methodology

Once again, we’re going to use the same methodology we’ve used to predict bonus numbers in previous years.

Yes, it’s flawed and perhaps not as accurate anymore, but this is the best we can do without hiring a spy to infiltrate banks’ compensation committees.

We’re assuming here that bonuses for bankers are directly tied to banks’ investment banking revenue – revenue from trading, brokerage, asset management, commercial banking, and other business lines doesn’t factor in at all.

To get these numbers, we can only use publicly traded banks – that’s why there are no numbers for Moelis, Perella Weinberg, Centerview, and so on (this is mostly directed at the one reader who thinks I’m always excluding Centerview just to spite him/her).

To sum up the assumptions:

1. IB bonuses will be awarded in direct proportion to investment bank net revenue.
2. Banks still determine bonuses based on a percentage of investment banking revenue – historically close to 50%. Yes, it’s great to have few expenses aside from headcount.
3. Analyst numbers are based on the Trailing Twelve Months (TTM) numbers from June 30, 2011 through June 30, 2012 – not calendar year 2011 numbers.

If your attention to detail is good, you know that TTM numbers from June 30, 2011 – June 30, 2012 are not yet available, so I’m basing the Trailing Twelve Months figures here off of March 31, 2011 – March 31, 2012 numbers.

Bulge Bracket Numbers

Let’s take a peek at the damage:

So… things were down, I guess you could say. The main cause was the massive slowdown in deal activity in the second half of 2011.

And remember: even though we’re in 2012, that big slowdown at the end of 2011 will still hurt you since bonuses are based on the trailing twelve months.

Even if you threw out that theory and assumed it wasn’t true, the most recent quarter YoY numbers don’t paint a pretty picture either: almost everyone was down by a lot due to the overall slowdown in M&A and capital markets activity.

Boutique Numbers

When I first started collecting the boutique numbers, I thought they looked a lot better – until I had finished the whole list:

The main difference in this set is that there’s a lot more variability. Firms like Evercore appear to have done quite well, while some of the others here have done… not so well.

However, I wouldn’t read much into the specific differences: revenue is always ”lumpier” at smaller banks because it’s more dependent on a few big deals getting done by the end of the year or quarter.

The overall story we get from these numbers is similar: a big slowdown at the end of 2011 and a slightly better start to 2012, though still down from the previous year.

And the Magic Number Is…

In case you’ve forgotten, last year’s numbers for analysts were:

• 1st Year Top Tier: $60-70K USD
• 2nd Year Top Tier: $75-85K USD
• 3rd Year Top Tier: $90-105K USD

Based on the data above, we’re in for a 15% drop in bonuses this year. So here’s what I predict (using round numbers):

• 1st Year Top Tier: $50-60K USD
• 2nd Year Top Tier: $65-75K USD
• 3rd Year Top Tier: $75-95K USD

Based on what we’ve seen so far with bonuses for more senior people in 2011, these predictions might be too tame and bonuses could fall by more than this.

Wait, Are You Sure?

I’ve seen a few comments asking whether or not bonuses will hit $0 or $5K or something really low this year, but I don’t see that happening across the board at most banks – the data just doesn’t support it.

We’re (still) very far from what investment banking revenue looked like at the true “bottom” back in 2002.

Banks these days might be allocating a lower percentage to bonuses, but it’s hard to quantify without knowing the specific percentage that each one is aiming for.

Goldman Sachs actually awards analyst bonuses at year-end now and the numbers there are lower than what I’ve predicted above, but still higher than $0-5K.

More Variability?

There may be a lot more variability between individuals within groups and between different banks this year.

That’s already supported by the senior banker pay numbers that have been released, and we could see more of that at the junior levels.

You shouldn’t necessarily accept or decline job offers based on the bank’s expected bonus payout, but as you move up that variability will become more and more important because it affects senior people far more.

Other Changes in Compensation

You’ve already seen how more and more of senior bankers’ pay comes in the form of deferred compensation and stock – we may see more of that at the junior levels very soon.

Maybe analysts will still be paid 100% in cash, but non-cash bonuses will start to become more common even at the associate level – it seems to be happening already.

…which should just prompt more people to move to hedge funds and other buy-side roles that aren’t as heavily regulated.

But What About Other Countries?!!

It depends on which other country you’re in. Numbers will be similar in places like the UK or Europe, but in the local currency instead.

In emerging markets there’s a wide range of outcomes because there’s a dearth of talent in countries like Brazil, which makes bonuses there significantly higher (as in, 2x higher than NY / London numbers).

In countries like China, on the other hand, pay at local firms will be much lower, despite the frothy market, because they can afford to pay less.

I already know someone is going to leave a comment about Australia or Hong Kong, so let’s address those upfront as well: base salaries in those regions tend to be higher and all-in compensation can be higher as well.

So yes, effectively there’s a good chance you’ll make more in those regions, and that you’ll pay much lower taxes in the case of Hong Kong.

Should You Still Go Into Finance?

The obvious response here: “What else would you do?”

The “hot” field nowadays seems to be starting your own startup – and just think, you don’t even need an idea!

Having worked in both finance and at startups, I am skeptical of whether or not startups will really “displace” finance because:

1. There’s no guaranteed or semi-guaranteed payday (forget about predicted bonuses).
2. Most work at startups is actually taxing, annoying and not glamorous at all.

I think it’s great that there’s more interest in starting companies, but starting a company and then sticking with it over years or decades are very different.

And, as Dustin Moskovitz says above, many people would be better off joining existing projects with proven ideas.

So in the absence of your own great idea, I’d say you will still try to get into finance anyway – even if bonuses are a disaster this year.

Historical Bonus Predictions & Actual Numbers

• 2008 Investment Banking Bonus Predictions | Actual Numbers
• 2009 Investment Banking Bonus Predictions | Actual Numbers
• 2010 Investment Banking Bonus Predictions | Actual Numbers
• 2011 Investment Banking Bonus Predictions | Actual Numbers

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

-George Soros

Continuing with our series on how you can sell out and quit engineering, today we’re speaking with a reader who spent two years straight out of school working as an engineer in the Singapore aviation industry.

After losing interest in his job and realizing that a life in engineering wouldn’t get him models and bottles, he decided to pursue his passion for the financial markets and landed a job in proprietary trading – in only a few months of calculated networking.

Which may (or may not) prove that prop trading firms really don’t care as much about your background as banks and PE firms.

Here’s what we’ll cover:

• How to make the leap from engineering to prop trading.
• Why applying online might actually work… sometimes… what?!
• What it’s like to trade futures at a boutique prop trading firm and manage a sizable portion of the firm’s funds.
• What to expect for compensation at boutique firms, where the industry is headed in the future, and if “exit opportunities” really do consist of a giant black hole.

The Long Road to Trading for a Living

Q: Let’s start from the beginning. Can you tell us about your background?

A: I studied engineering in college and joined the aviation industry as an engineering executive straight out of school. My work involved actively managing the cabin product line and developing new products for the company.

To be painfully honest, I grew tired of the job pretty quickly. While there were some interesting moments working with international vendors and helping to launch a new aircraft, the work itself was often mind-numbingly dull.

The best part was that it made me realize that I didn’t want to work as an engineer for the rest of my life. During this time, I also started trading actively on my own and thought that I might be able to turn it into my full-time career.

Q: Right… I think a lot of people “get interested” in trading over time, but actually moving into the industry is quite different.

How did you pull it off without previous experience?

A: I started recruiting back in the depths of the last recession, so recruiters were extremely selective about the candidates they placed.

One of the finance recruitment consultants that I built a relationship with told me stories of receiving the same 100 resumes every time a new position was posted, no matter what the position was for.

I know you’d recommend against submitting applications online, but I actually spent the bulk of my time doing just that and applying online.

On my applications, I emphasized the trading strategies that I used in my personal account and how I would be able to translate those into a professional trading career.

Surprisingly, I managed to snag quite a few interview opportunities this way.

Q: You must have come up with some strategies that kicked Jim Cramer’s butt if that actually worked.

I’m quite skeptical of that tale – there must be more to your story than that.

A: Bear in mind that most of these opportunities were with brokerages and proprietary trading firms, not with investment banks.

To get a trading gig with the banks, you’ve got to have some sweet connections, brand-name qualifications, or both. Being an undergraduate also helps.

Prop trading firms use a different business model, and they sometimes hire in larger numbers as long as there’s a decent fit.

They’re willing to take more of a risk because some firms don’t even pay you a base salary – so there isn’t much cost to them if you don’t work out. They’ll just let you go if you don’t perform well after a certain period of time.

These firms absorb your trading commissions, give you some leverage, and then take a hefty chunk of your P&L (assuming you actually make a profit) – so it’s all upside with limited downside for them.

As long as they have a decent risk management system in place, the firm often does better by hiring a large number of traders and then seeing who “floats to the top.”

Q: Maybe they should make a reality TV show about trading.

Can you explain how exactly that process of “filtering for success” works?

A: Sure… let’s say you start off with a batch of ten fresh traders, and you have a solid risk management program in place to monitor and limit their losses.

Most of these guys will burn through their allocated funds and leave with minimal discomfort to the company.

The firm is hoping to find a couple of “stars” along the way who trade large volumes and bring in a nice cash flow for the company. The more you rinse and repeat, the better your chances are – it’s pretty much a numbers game, almost like networking your way into finance in the first place.

It still wasn’t “easy” to get a prop trading position back in the day – while I did get a few interviews, I sent out around 50 applications for each interview I got. So I was still sending out hundreds of applications over months of time to pull this off.

Getting the Job

Q: So what was the interview process like for these proprietary trading firms?

A: Generally, there were 2-3 rounds, including an interview with someone from HR (at larger firms).

In my case, I had no professional trading experience whatsoever so most of the interview questions focused on:

1. “Fit.”
2. My own trading strategies and how I managed risk.

When you cut to the chase, the prop firm is most concerned with how safe their money will be when they assign you trading limits.

If you don’t have any prior experience and you don’t even trade a personal account, you’re not giving them anything to work with.

People like to dream of making millions in trading, but the firms themselves are far more concerned about you screwing up and losing millions for them, which is why it’s so important to explain how well you manage risk.

Remember Warren Buffett’s two most important rules for investing: “1. Never lose money. 2. Never forget rule #1.”

Q: Yeah, people definitely seem to skip over the “risk management” part when discussing their own strategies.

Any words of wisdom for readers who are interested in prop trading?

A: Yup. Don’t get into the business because you’re expecting to become a millionaire in a few years. A lot of hard work is involved and you’ve got to have a genuine passion for trading, and even then you probably won’t be a mega-success.

Some people do extremely well right off the bat, but those success stories are rare – especially post-financial crisis and with far more efficient markets.

Start off slow and trade your own account first before applying for jobs. Even then, there’s a world of difference between trading on the side and trading for a living.

I’ve come across tons of people who were doing well on their personal accounts before crashing and burning when they turned professional.

One of the perks of working in trading as opposed to investment banking is that you work decent hours, but nobody mentions how you have to keep up with the markets and news flow once you leave the office.

So yeah, on paper the hours seem better… but in many cases trading is a 24/7 job.

And finally, this is a cliché but the name of the game in prop trading is capital preservation. Having an ego and refusing to cut losses when you need to is the first step toward flaming out of this industry.

The Death of the Prop Trader?

Q: You seem happier trading than you were in engineering, but I don’t think you’re too optimistic about the industry as a whole.

Will there even be any prop traders left ten years from now?

A: That’s not an easy question to answer. Each time there’s a financial crisis, the naysayers start predicting the end of the industry.

The government always comes up with new rules to abide by and new regulations to follow.

And every single time, Wall Street finds a way to exploit the loopholes.

My personal opinion is that prop trading will always exist in one form or another. We’re always made out to be the villains during market crashes, but you have to realize that prop traders have historically provided most of the liquidity in the markets.

Q: That’s a good point… I’ve always found it strange how nobody ever seems to say anything bad in a bull market but once the s**t hits the fan, there always has to be a scapegoat.

What are your thoughts on large investment banks shutting down their proprietary trading desks?

A: You could say that these guys have been closing down their proprietary trading desks, but I’d argue that they are actually just shifting the game to trading desks that deal directly with customers.

I would be more concerned with the changing skill set required to be a prop trader.

Gone are the days when you could develop a lucrative career off being a day trader and scalping stocks.

Nowadays, algorithmic trading dominates the landscape and it’s only going to become more prevalent in the future.

Pretty soon, everyone is going to be a high frequency trader and you may need to know how to code to survive.

A Day in the Life

Q: I guess that means the nerds will end up ruling the trading floors of the future – if it hasn’t already happened, that is.

So what’s an average day as a futures trader like?

A: Personally, I don’t trade the open so I usually come in about half an hour after trading starts (you could never get away with that at a bank, of course).

I catch up on all the relevant financial news through my iPad on my way to work, and I start planning out my trades as soon as I reach work.

Q: Before you go on, can you explain why you don’t trade the open? Is there a particular reason – aside from being able to come in to work later?

A: The main reason is that I’m terrible at trading the open. I’ve been trading for over three years now, and I’ve discovered the timeframes and strategies that work best for me.

The open tends to be where there’s the most volatility. Some traders thrive on this but I like to synthesize what’s happening at the start and use that to plan out my entries over the day.

I spend most of my day glued to the screen, and I look for high probability trades to get into.

On an average day, I make about 20 – 30 trades and reconcile my positions at the close.

Q: Can you tell us more about what you’re trading? Maybe you also can walk us through the process of how you go about making a trade.

A: Sure. I trade Australian interest rate futures, and I focus mainly on outrights and spreads.

Every trader has a different way of doing things and my style is a little idiosyncratic, combining news flow, data feeds and technical analysis.

I start off by analyzing different time frames to get a feel for the day’s trend. I’m not like most traders in the sense that I don’t use a lot of fancy indicators to trade.

I look out for Fibonacci retracements and pay attention to simple support and resistance levels.

After I’ve done my analysis and have an idea whether I want to be long or short for the day, I usually jump into my trades solely based on the price action.

I can’t really reveal much more than that without giving away my entire strategy!

Q: That’s OK. I guess you don’t want thousands of people to copy your strategy…

You mentioned that you used to trade equities before moving to this firm. Isn’t this a fairly drastic change considering that the equities and futures markets are so different?

Did you have any difficulty making the switch?

A: Yes, I did actually. The transition turned out to be harder than I thought it would be.

I was scalping Singaporean equities before and the pace was much slower. The futures market is more dynamic and it took me a while to get used to the rhythm.

I also had to adapt some of my trading strategies since my current firm expects more trading activity from me during the day.

It’s been a growing process for me as well, and I’ve implemented more sophisticated strategies in my work.

That said, the main principles remain the same no matter what financial instrument you’re trading:

1. Take trades with high risk/reward ratios
2. Cut losses quickly
3. Take profits slowly

Compensation and Culture

Q: So what’s the pay like at a boutique trading firm?

A: Compensation varies quite a bit in the industry, from the possibility of drawing absolutely nothing in a prop shop to a comfortable base salary plus bonus at a larger firm.

Base pay at boutiques usually lies in the range of about SGD $20,000 to $60,000. It seems like a wide range but that’s because there are so many different types of prop trading firms – from small, no name operations to respected firms like Transmarket Group.

Most boutique firms start you off with a relatively low base salary, which is just intended to help you cover basic living expenses.

The bulk of your salary is supposed to come from the profits you make from trading, which are shared with the firm.

The profit split usually starts out at about 30% and can go as high as 60%, depending on how well you do for the firm (this varies greatly by region, firm type, etc. which is why it doesn’t necessarily match the numbers quoted in the other prop trading article).

There are many other factors to consider as well, such as fees, commissions, and the capital limits you’ll have.

This variable component ends up being how well you perform.

The great thing about trading is that it’s one of the most meritocratic jobs out there: every cent you make is based on your own doing.

Q: Right… but that’s still a pretty low base salary. What’s the average pay like at your firm, including the profit share?

A: Most of the traders at my firm usually take home anything from the low to mid six figures.

We operate a little differently because the firm rarely hires anyone without trading experience. It’s a small team and they expect you to produce from day 1.

It’s not unheard of for the most successful traders in my company to earn in excess of $1 million during a good year.

The setup is such that it’s possible for new traders to start doing very well for themselves after a year or two in the game, but those stories are rarities.

More people tend to leave disgruntled and bitter because they had no idea what they were getting themselves into!

Q: Sounds like a tough way to earn a living.

What can you tell us about the exit opportunities for proprietary traders?

A: What exit opportunities?

I hate to say it, but exit opportunities are few and far between.

It’s one of the problems that come from having such a niche skill set – you can’t really transfer the skills elsewhere.

You either move into another trading firm for a bigger cut, or start from scratch all over again in another career if you want to get out of trading.

Most of the guys leaving the industry usually re-brand themselves with an MBA.

Some of the lucky ones might get a job as a technical research analyst, but those jobs are also becoming harder to find.

Q: What about risk management? Do traders looking for a change ever go there?

A:  It’s not as common as you might think. First off, most traders look at a role in risk management as taking a step down.

I believe that’s backward thinking, but for the time being that stigma still exists.

Second, the skill sets don’t transfer as well to risk management as you might think.

While traders have to manage risk daily, most of them are sorely lacking in the technical ability required for a role in risk management.

With so many qualified candidates around, an ex-trader who isn’t willing to transition in at the entry level doesn’t stand a chance of getting a job.

Q: Wow. It really sounds like it’s a ‘do or die’ kind of situation. One last question before we wrap things up.

What’s the culture like working in an Australian trading firm? Do you guys hold daily barbeques after trading closes or something?

A: Right. These jokes never get old. You’ll be surprised to learn that the atmosphere isn’t laid-back at all.

In fact, the culture is a lot stiffer than in my previous firm. There’s a much stronger emphasis on the bottom-line and you’re expected to produce every day.

When I first started out at the company, my boss kept telling me to be more aggressive in my trades – he made comments about how I was too nice and that I needed to cultivate more of a killer instinct in the markets.

Some of my colleagues are obsessed with trading, and I’ve known of some who stay at the office and trade around the clock.

I actually prefer this type of environment, and I feel it’s sharpening my trading skills as well.

Q: Well, as the saying goes – “Bulls make money, bears make money, pigs get slaughtered.”

Anyway, thanks for the chat – it was really informative!

A: No problem. It was a fun chat!

Shen Han Lee lives in Singapore, where he drank copious amounts of coffee and worked as a stock broker for 4 years before taking off on a whirlwind tour around the world, which you can read about on www.knackpacker.com.