Finance Jobs Outlook Feb 09 2012

So You Want to be a Foreign Exchange Trader

By will smith

The first thing Jeffrey Ransom does each morning at 6 a.m., before he takes a shower, brushes his teeth or makes a cup of coffee, is turn on CNBC to check the markets. As he walks to work, he taps open a Citigroup iPhone app that tracks overnight flows of foreign currency. After a what's often a 10 or 11-hour workday, he flips open his laptop at home and watches what the markets are doing in Asia, then goes to sleep, wakes up and starts the whole cycle once again.

Ransom is a vice president in Citi's foreign exchange trading group and staying on top of economic and market news around the globe is de rigueur to keep his job. "I watch markets just about every waking moment of the day," he says. "It is important to develop a feel for the tone of the market, and the only way to do that is by constantly watching and learning."

With $4 trillion traded each day, double that of seven years ago, the foreign exchange, or FX, market is the biggest, most liquid in the world. It reacts almost instantaneously to news about interest rates, economic growth and political upheaval, making it faster-paced and thus more exciting than any other securities market. Jobs in the industry are expected to increase by 11% between 2008 and 2018, according to the Bureau of Labor Statistics, with employment opportunities at financial institutions from Tokyo to London to New York.

As Ransom is finding, however, working in FX isn't for the timid. The market opens at 5 a.m. on Monday in Sydney and doesn't shut down until 5 p.m. on Friday in New York, making it a 24-hour, five-and-a-half-day-week job -- if you can stay up that long. If you think you want an FX job, it pays to consider a few basics.

The Trade

Firstly, in the FX market, currencies are traded against one another in what's called a currency pair. Represented by a three-letter code, each pair constitutes one individual trading product. Since the dollar (USD) is the global reserve currency, it is most commonly traded and most often combined with the Euro (EUR) to form one of the major currency pairs. Other major pairs include the dollar/Japanese yen (USD/JPY), British pound/dollar (GBP/USD), dollar/Swiss franc (USD/CHF), Australian dollar/dollar (AUD/USD), and dollar/Canadian dollar (USD/CAD).

"You'd be surprised how hard it is for people to grasp some of the fundamentals of FX," said John McCarthy, managing director and head of foreign exchange trading at ING Capital Markets, LLC. "A lot of people struggle with the concept of buying a currency with another currency. They struggle with the time-value of money. These are basic concepts."

The Job

Currency mutual funds, hedge funds dealing in currency trading, institutional investors, multinational corporations, and central banks need account managers and professional traders to make the buy and sell decisions. Some of the highlights of a sample job description include recommending competitive FX rates, reviewing orders to ensure accuracy, and familiarization with standard concepts, practices, and procedures within the field.

High market liquidity makes the job come with high stakes as the reputations of traders and their employers ride on the returns they can generate. A trader "has got to be able to react under times of extreme pressure," said Douglas Borthwick, managing director and head of trading at Faros Trading, LLC. "And during those times, you have to make sure that you win."

A typical trader, said McCarthy, is "someone with a very agile and open mind and a facility with numbers who enjoys the pressure of taking risk and working in a time sensitive and risk sensitive environment."

Getting in the Door

If you're looking for an entry-level job, you don't need much experience. In fact, 69% of entry level traders have less than a year's experience, according to Salary.com. Many of the Citi openings in FX come via its sales and trading analyst program, which recruits young college graduates, says Ransom. Before Ransom joined Citi, he spent three summers as an intern and "became very interested in taking risk and making trade decisions."

The first rule of success for breaking into the business: Be a news junkie, said Borthwick. "The person that succeeds here is a person that understands how one piece of news or one headline will affect different markets and then knows how to get to those markets the fastest."

Finance majors are attracted to the field, but recruiters don't target a specific undergraduate degree. Borthwick said he notices a shift towards higher education: "Nowadays when you look at a trading desk, you find everyone has a college degree and everyone has some sort of graduate degree as well. And that's something that really wasn't the case back in the early days of this market." Studying political science or economics is also a good foundation.

Major banks such as ABN AMRO, ING, and NatWest USA tend to hire those "from an engineering background, or a math or econometrics background,' said Jamie Coleman, a former trader who launched ForexLive, a website geared for foreign exchange traders, investors and enthusiasts. Goldman Sachs and Morgan Stanley like to hire M.B.A.s, Coleman said. Jeroen Van Maarschalkerweerd, senior press officer at ABN AMRO Bank says they educate their FX traders themselves, "through our internal traineeships. There is no specific background (i.e. econometrics or engineering/math) required."

Not everyone looks for a math genius, though. McCarthy said he prefers to hire "almost exclusively" liberal arts majors rather than someone who studied business management or marketing. "I've always looked for English majors, philosophy majors, history majors, and economics majors because I consider economics a liberal art, not a business. I've always gone with those people because number one, they're critical thinkers," McCarthy said.

The Exams

While no specific degree may be required, those on FX desks usually must pass various securities licensing tests. Ransom took and passed the Series 3, 7, and 63 exams as part of the Citi Sales and Trading Analyst program. Passing the Series 3 exam is required for a securities license to sell commodities or futures contracts to the investing public and at companies registered with the National Futures Association, says Larry Dykeman, director of communications at the NFA.

While the Series 7 and 63 exams -- required to sell other securities products -- aren't required for currency trading, Ransom says, "studying for these exams helped me become familiar with the basic rules, regulations and ethical standards of the markets industry."

Many banks and brokerages conducting forex trading for large institutions or themselves, however, aren't required to be registered with the NFA. The Series 34 exam is required for off-exchange forex transactions with retail customers and is part of a regulatory forex registration process for most forex managers, dealers and intermediaries.

Within an institution, odds are that you will be put through training by Intuition, a main training provider for analyst programs. Intuition offers online self-study courses that are blended with highly customized instructor-led sessions. "Our learning focus ranges from building up basic product knowledge of spot and forward FX to understanding the principals of FX trading and trading book risk management," says John O'Toole, director of integrated learning at Intuition. "Our aim," continues O'Toole, "is to ensure that new FX traders are able to make a positive contribution to the FX desk from day one."

Do I Need to Know another Language?

Simple answer: No. Since the U.S. dollar figures in over 80% of trades, the international language of foreign exchange is English. However, the market is so news driven and policy makers don't always speak in English. That gives anyone who is fluent in say, German or Chinese, an advantage. "If you really want to react quickly to something, you should have an understanding of different languages," says Borthwick.

The Lifestyle

Here's where things get interesting. With a 24-hour market and governments spewing out news across the globe, traders can expect to work 12-hour days. "If you like sleep, this probably isn't the career choice for you," said Borthwick. Ransom's day starts at 7 a.m. and doesn't end before 6 p.m., he says.

There won't be regular after work hangout spots as a job requirement, either. Most socializing comes via the instant messenger, Bloomberg chat, which everyone interviewed for this article mentioned as a tool for communication.

How much can I make?

Trading will get you compensation in the six figures at most places.

According to Glassdoor.com, the average total pay for a trader of commodities and currencies is $130,364 at Fimat, part of the Société Générale Group. Simply Hired calculates the average at $274,000 while Salary.com shows a more modest median salary of a "Foreign Exchange Trader 1", the entry-level FX trader position, at $65,250 with a total compensation median at $84,747. Under the BLS classification, FX traders earn a national median wage of $60,980 per year according to a 2010 survey, with the top 10% earning a median yearly salary of $104,000.

Michael Karp, managing partner of Options Group, a New York-based consulting firm, said salary levels depend on the size of the bank's business. As a general estimate, an associate level FX trader at a bulge bracket bank can make "$150-$250,000 all-in with a base salary of about $100-$120,000," he said.

Is It For Me?

You have to "be tenacious," advises Ransom. "In a market as efficient and fast as ours, you have to constantly be looking for the next opportunity and not be deflated by your defeats. Trading, when you have lost money, is difficult to do and having the desire to turn a losing day into a winner is the only way to overcome that."

McCarthy likens the risk and reward of the FX trading floor to the high stakes of a poker tournament. "You have an idea of what's on the table and you see what other people's cards are. You may not necessarily know the mathematical calculations, but you see that the odds of drawing an inside straight are a lot different than drawing a second pair.

"I had one guy who left the business to try to play poker. And that's not unusual."

Write to Will Smith at Will.Smith@dowjones.com



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