Why are traders divided into different sectors? Trading is just math...
Why do firms have people specializing in being different types of "traders"? People who are "energy" traders, people who are "commodity" traders and etc. Trading is just math (buy low and sell high) to make a profit. It's all just math. So why does someone "choose" to specialize to be a "metal" or "corn" trader?
Trading isn’t really just “math”, maybe philosophically there is an argument for this but in terms of the day to day job this is wrong. You need to understand how your market/product works, the small intricacies that make it tick, boring stuff like how the LME operates if you trade metals, or how the CME/LCH operate if you trade rates. And more importantly you need to understand the other participants think and how your relationships with them function. This isn’t all just “math”, at least not how you’re thinking about it.
Like: They know that I know that they know what I know. I know that they know that I know. But they also know that I know that they know. And they will act accordingly to what they know based on what I know that they know. Which they also know. And also I know.
All just simple game theory.
No…. More like we got beers last Thursday and I like the guy so I’m gonna go direct to him the next time I have size to do.
I interned at a bank for 2 summers and dealt with a very “mathy” product since my undergraduate degree is quantitative. From my very limited experience, I can assure you that although trading (at least in the sell-side) does involve some math, in the end it’s a people business. No matter how complicated you make a financial product, it all goes back to the idea that this industry is all about client service
Its like saying why are there different types of lawyers when it “just the law” or different types of doctors when “it’s just medicine” or different types of engineers when “it’s just machines.”
The “it’s just” part vastly oversimplifies what the job is. And the world is a complicated place and a human can only do so much. Even within one type of trading (ie energy) one simply cannot understand every single product (gas, power, lpg, oil, gasoline, diesel, fuel oil, ethanol, etc). In fact it’s almost impossible to understand every location and quality for just crude oil alone.
This level of specialisation also acts a personal moat for our careers as traders. It keeps competition away because it takes years to build the domain expertise and network. Out of all those in finance and law, we are some of the most relaxed about AI taking our jobs. None of these LLMs have a clue what we do - yet…
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