Failed Traders - Where Do They Go?

Been wondering this myself...

me too. does anyone know?

I know many, so I can speak to this.

If they're typical, they flame out and go to work at Appleby's. Maybe not that extreme, but they're finished in the business. I'm talking about guys who wiped themselves out as well as firm money. They're so traumatized psychologically that they never want to see a trading floor again.

If they're resilient, they'll try to make a comeback. I've never actually seen this work. For the reasons you mentioned above, no one in their right mind will give them a second chance. In the off chance that they do get a shot, they're so gun shy that they don't take the necessary risks to be successful. This is a combination of their fear and their boss micromanaging them so they don't rack up another huge loss.

In other words, once you've blown out as a trader, it's time to find a new line of work.

Just a quick note on the above:

This applies more to old school "gut" traders than it does to the new breed of robots populating trading floors today. I'm sure the systems being deployed currently have all kinds of failsafes built in to minimize the damage a human is able to do.

So I guess when today's trader blows out, he goes to work at Radio Shack instead of Appleby's.

Thanks Edmundo. What would you say is the failure rate among traders then? 50%?

gonna have to disagree with you on this one braverman.

SOP for firing traders that lost ungodly sums of money (pre-mortgage meltdown) was closed door sessions in which management got a few legal documents signed for confidentiality and protection surrounding the incident, followed by that traders immediate exit from the building. afterward management would typically state for internal and client communications that that trader had left the firm "to pursue other opportunities". and that would be the end of that. let me spell it out - obviously this was all done so that the firm could save face and sweep the inconvenience under the rug.

i personally know of two traders (one several years ago, another recently) that got "fired" for reasons related to losses or profits (ethics) and were back at other prominent firms inside of three months. one still trades, the other was first demoted - he was still a trader but w/o execution privileges - but he too now trades again. both have kept their jobs during the downturn too.

not sure how this is being handled with todays economy and wall street scrutiny, but my thoughts are your skill set as a trader is so specific, ie, rare, that more than likely you will be able to find another job on the street in a similar capacity (research, analyst, sales, even trading) tho you may have to trade down a few clicks of prestige. the other thing you have to realize, is that as a trader sometimes you make the wrong call. all these people that made spectacular profits did so because they took huge amounts of risk. surely people dont believe that they bat 1000% right? some traders bust b/c they took a risk on something and the market moved against them and they had an epic fail. if they are fundamentally good, theyll also get another shot.

i didnt directly comment on the OPers two posts, as im not sure how genuine his questions are. fail rates and imaginations of layoffs??

They become professors at your target schools

There are really two types of failed traders. The kind who have never made money and the kind who have made money but maybe blown out here and there.

The latter are the ones that keep getting work b/c they have a history of taking risk and if you can do that and maybe hit that home run someone will most likely give you a shot. I've seen tons of guys who've lost huge money but they always find work. The former kind of trader who never made money probably lost interest and moved on to something else (although I'd say Applebee's and Radio Shack are a bit of a stretch.)

You're right, winton. Allow me to clarify.

I was speaking about traders who were personally on the hook for losses, as well as had the firm's money on the line. I've seen more guys than I can count (some of them pretty talented traders, too) take an unsustainable loss and just blow out of the business. I've even known a couple that had to cash out their 401(k) to cover the losses. Back in the day, it wasn't unheard of for a firm to force a trader into arbitration to recover losses from the trader.

I took a few ugly hits in my time, including one that was so close to a knockout punch that I'd call it a standing 8-count. I worked for free for two months after that one. But I managed to get through it and then had a fantastic payday at the end.

You'll never make more money in life than when you're at the greatest amount of personal risk. This is true of almost every aspect of life, not just trading. And I'm not talking about gambling with a bunch of the firm's money, or a bunch of clients' money. I'm talking about personal exposure - having your own skin in the game.

The secret to success in trading under those conditions is to be lucky enough to weather the inevitable storms long enough to hang in there for the big score - and then be smart enough to get the fuck out. As in, don't let the door hit ya where the good Lord split ya. Put Wall Street in the rear view mirror.

what about guys like meriweather who serially raise and lose billions of dollars. Destroyed Salomon in the 90s, raised his own fund and blew up recently...just because guys have PhDs stupid lemming LPs/Fund of funds put $ in

Eiffel,

You just answered your own question--they keep coming back. To be fair, if you consistently lose money, people are going to stop investing with you. It's just that simple.

If you make a name for yourself as a smart guy who's willing to take big risks, though, people will give you their cash. Why? Well, why does anyone give their money to someone else to manage? They either don't have the time to do it themselves, or they feel the money manager is smarter than them.

In the case of Merriweather, he's not the guy that actually takes big punts. He's the face of the business. He raises the capital, and stakes all-stars at poker tables. He's probably finished as a fund manager, but he's going to be around raising capital if he feels like it. Every fund needs money to invest, and it's tough to get legitimate, long-term investors who aren't going to yank their money out as soon as things get a litte rough.

That's why capital raising is such a lucrative profession--the contacts are worth a fortune, and if you're the guy that has them, you're going to stick around the markets for a while.

I'm sure you're right, Bondarb. I just don't know any.

I've known, I would guess, about 3 dozen futures traders who totally flamed out and not a one of them ever came back. Equities are a little more forgiving, because I've known a couple to go on to start small hedge funds and do okay, but in places like Seattle, etc... and never in any "real" markets.

I'm not saying it doesn't happen. It just hasn't happened for anyone I know (Merriweather and I don't meet for drinks much).

They end up being moderators on WSO...

Just kidding, just kidding. I love you Uncle Eddie! And seriously lol @ guys calling-out Edmundo.

Some start their own hedge funds - like Boaz Weinstein who lost $1.8 billion for Deutsche Bank and raised over $160m for his Saba hedge fund.

http://www.davemanuel.com/2009/02/06/boaz-weinstein-loses-18-billion-do…

How many go into sales? I understand product knowledge is very important.. but don't traders tend to have poorer people skills relative to sales?

That Boaz Weinstein story is hilarious.

Are the days when you could make huge gambles and make a killing over with clawbacks, stock compensation, etc?

Haha well you definitely can't lose $1.8 Billion these days and expect to get to keep your bonus...

the reason why failed traders still get hired is because the probability of them failing again in the same product is much smaller, because they've learned the lesson the hard way. So in fact they are much more experienced now that they lost someone else's money to learn the lesson and works for you with the experience learned

The reason Meriweather or Boaz got to come back is because before they lost billions or so they absolutely killed it. Boaz was the king of Wall Street for 2-3 years, he was the absolute CDS monster no one knew that stuff better and made bigger winning bets, he was also the youngest MD at DB ever one very very very consdervative firm.

Meriweather at all three funds he has run, he made ridiculous money before losing them all, whos to say time #4 he won't cash out his position correctly for once?

Once upon a time, Larry Fink of Blackrock was a failed trader. You know how many years Andrew Hall was long Crude futures only to get ass whooped and move his trade to the next year before Crude finally broke out to 100+ and he became a celebrity?

Even Brian Hunter is back somewhere "consulting" for a firm that is backed by mostly saudi and asian money. His firm has posted some solid months, because very few people on this planet know Nat Gas options as well as that dude.

A lot of failed traders end up in risk management as ironic as that may seem.

interdealer brokering

Maybe it's different in the world edmundo used to work in, but it's very common for failed traders to re-join another firm in the bank or broker/dealer space. The fact that you lost money can prompt other shops to say "wow they let this guy take a lot of risk" and be interested in hiring. I know a fair number of people who this happened to.

Bondarb is dead right about merriwether and weinstein. They are very wealthy guys, with massively negative life time pnl's.

agree with bondarb/jimbo I also know of guys that melted down at other shops that are running desks or are sr traders at top banks.

gonna bump this... interested in hearing what others have to say

This makes me feel a lot more comfortable about trying to break into trading knowing that you aren't completely fucked if you mess up though

EB and BondArb turned this into one of the most interesting threads on WSO.

Bookmarked.