I'm currently an equity derivatives/vol trader: AMA!

Hey guys,

I still remember my humble beginnings when I was an undergrad and had no idea what the fuck I was doing. Luckily, I was able to get a lot of great insight from WSO (reading in between the lines of troll posts), and well, rest is history and here I am.

A quick summary about me: I graduated from a target school -> went to a futures Chicago-based shop for my 1st year. Firm shut down. Boo. Transitioned into an equity focused prop firm in NYC. Had a fall out with my boss -> Somehow landed a vol trading gig at a small hedge fund in NYC.

I'm still relatively "junior" in my trading role despite being 3 years out of school and in this industry now. That being said, I like to think I've picked up a lot of insights and experience along the way, and I'd be happy to share my journey so far. Feel free to ask me anything, or even directly PM me! I still lurk around this site sporadically even though I don't post as much these days.

Final note: despite my username, I'm ironically working in a more discretionary-role, though I'm still picturing a future where I integrate more systematic techniques.

Fire away!

Edit on 7/18/2018: Really surprised by the turnout and the questions being asked, thank you for participating. Would anyone be interested if I perhaps write a separate blog post chronicling my trading experience from undergrad to current? Let me know and if there's enough interest, I'll try to write one out, half for educational content, the other half for entertainment value haha.

Comments (52)

Jul 15, 2018

Do you come up with strategies / run your own book or are you mostly executing trades on behalf of PMs?

Jul 15, 2018

At my first job, I was running my own book and checking out new strategies (this was about a year in at the stint). I was the most profitable at my firm, albeit the firm eventually shut down so that's not too much of an achievement. Keep in mind this was primarily futures trading.

At my second job, I stayed there less than a year (as well as working with a completely new product: spot equities) so was doing more execution. Similarly with my current job, I've never traded equity derivatives/vol before, so I'm doing a lot of watching and learning. On the flip side though, my bosses are kind enough to explain their thought processes of why they executed those said trades given the current market conditions, their "diagnosis" on where the price action stands, and other circumstances. It's hard to really capture everything in words, but eventually, it all adds up and makes intuitive sense. I think the idea is for me to shadow them and eventually come up with my own unique style. They also have me constantly reading various books on vol trading/options theory so that's been pretty nice!

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Jul 19, 2018

Any chance you can link those books here? / Have any PDFS feel free to PM me

Jul 15, 2018

Is it mostly VIX futures, index vol or single name equity?

Jul 15, 2018

A good mix of VIX Futures, SPX/SPY derivatives, S&P Futures, a little bit of FX Options, and a Eurodollar Futures/Options. Kinda random, eh? We have a couple traders doing single name equities but we tend to focus on index vol more as a firm.

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Jul 15, 2018
ActuarialQuant:

A good mix of VIX Futures, SPX/SPY derivatives, S&P Futures, a little bit of FX Options, and a Eurodollar Futures/Options. Kinda random, eh? We have a couple traders doing single name equities but we tend to focus on index vol more as a firm.

Not that random :) all listed or you do trade stuff OTC (such as light exotics or OTC vanillas)?

Jul 15, 2018

So I'm a student heading into undergrad considering a career in trading, so I have a couple questions. What advice would you give someone in college trying to eventually land a job in this industry? -- ie what makes people stand out and what are employers looking for nowadays. Alongside that, I know the field is becoming more tech and quant focused, but you said you work in a discretionary role. Are there still a fair amount of discretionary trading positions out there? Do you think they're still going to exist 4 years from now when I graduate, or will we see a transition to an entirely algo/quant focused industry? Lastly, as someone that doesn't know a lot about trading, where would you recommend I start? I know a lot of people say the only way to learn how to trade is to actually trade (and I'm working on starting to paper trade etc.) but I want to make sure I have a good basis of knowledge so I don't develop any bad habits, or waste my time trading something and learning something that I'll never use in my job. Do you have any books or resources you would recommend to a beginner? Thanks for doing this :)

Funniest
Jul 15, 2018

Really wonderful question! I was asking something along these myself when I first stepped into as an undergraduate. It's been a long road, tbh I'd rather be back in college in the simpler days, even though it was my wish back then to be where I am at today:

I think it's important to establish what you want to do and why. A common pitfall I saw was "cause that's where all the money's at" or "everyone else seems to be doing it", etc. Me personally, it fit well with my affinity towards risk and a high-paced lifestyle.

I have huge respect for those working in the quant/ML/AI/whatever you want to call it oriented trading funds. Still, I do think the media these often over exaggerates their performances - there still are discretionary funds out there killing it, though definitely less than back in the day.

Honestly, it's not about how much you know, but rather moreso about how you think. I'm not going to lie - i had the same mindset coming in to school: what books will be the fastest ways for me to master trading. what techniques will impress my recruiters the most, etc. In the end, no one really gave a shit about what I knew, but rather how I could apply what I learned from class to different settings. To answer your questions, some classical reads include: When Genius Failed, Reminiscences of a Stock Operator, Liar's Poker, Big Short, Etc.

That being said. I would get a basic solid grasp on elementary probability/statistics as well as some programming fundamentals. You can't go wrong with Python, and it'll be easy for you to transition into other languages. Maybe take a few basic macroeconomic courses as well as ones on options/derivatives. Even though I'm working at a discretionary based firm right now, I'm still brushing up on quantitative techniques. You never know what can happen - maybe when I run my own book, I integrate both styles and crush it! Maybe my firm shuts down and I need to prove to my new employer I'm versatile. Honestly, there's so many niches in trading it's hard to encompass them all in one post.

I kinda rambled on and don't want to add any more unnecessary noise. Feel free to ask me more specific questions and I'd be glad to answer them.

Edit: Some grammatical/spelling issues. Had one too many drinks for the World Cup Final

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Jul 17, 2018

Hey ActuarialQuant

What sort of annual returns are you able to achieve or hope to achieve each year? Seems like it was a pretty nice time to be trading vol, how have market conditions over the past 3 years impacted you? What have you learned and how might you approach differently if starting over? Any favorite resource (blogs/sites/publications out of the norm) that keep you in the loop? How do you deal with the stress, if there is any?

You mention option books, any particular helpful? I used to think I wanted to be a trader when I was younger so I read most of the important books; I'd be interested to hear which author or book is your favorite.

Most Helpful
Jul 15, 2018

I can't really comment on what returns to achieve since I'm not part of actual idea generation and because I haven't stayed at one firm long enough (besides my first) to see how we fare. As far as I know though, my firm hasn't had a losing quarter since inception.

I would say one of the biggest lessons I've learned was that the market really is unpredictable, and there's just so much of a gap between the real thing and what you study in theory, have prepared via backtesting, etc. This may sound like a no brainer, but I, for whatever reason, had this mentality when I started out that there was a scientific way to explain what was going on and why. There's just some things that happen beyond rational reason that you have to be prepared for how to best react to it and minimize mistakes. If I were to go back and do it again, I'd probably have taken more risks - my style was definitely more cautious and conservative. A lot of my peers tried more high risk high reward plays that obviously led to more swings. This doesn't mean I wanted to be unnecessarily reckless, rather that I could have learned more insights and pushed myself to obtain a better understanding of my limits and what may work or may not work in various scenarios.

I tend to browse forums like nuclearphynance, wilmottforums lightly for fun. quantstart has some really cool educational content and insight. It's difficult to find a comprehensive site dedicated to trading just because of the secrecy embedded in the industry and also since everyone's doing different things.

In terms of options books - Options, Futures and other derivatives by Hull is pretty standard. I heard good things about Options Volatility and Pricing by Natenberg.

Edit: I was reviewing some of my answers to make sure I answered clearly and accurately. Looks like I never addressed your question on stress. I have a strong stance towards it and could write a book about it. Here comes a long-winded speech about it:

I feel like stress is one of the less spoken aspects people talk about when it comes trading, or even finance for that matter. Everyone handles stress differently as well as find their tolerance changing over the period of time, for better or for worse. Me personally, I've been dealing with mental disorders (anxiety and depression) for many years so am particularly sensitive on the matter. If you must know, it's been 3 years since I started working at my first firm and I have serious PTSD to this day from some of my experiences from it (my boss screaming at me/humiliating me in front of the entire office, not seeing sunlight for months due to working long, overnight hours, etc). The job itself is always going to be attached to stress, no matter how you look at it. That being said, I think after these 3 years, I've gotten a solid handle on it and could provide some insights that helped me cope with it.

"Your health is number one" - I think this is the most underrated statement I've heard. You need to be on the lookout for your well being, both physically and mentally. I love great food and enjoy splurging every now and then but I'm very cognizant of what goes in my body and try to cook myself more to eat healthily (e.g. standard meal would be chicken, rice, broccoli). I also find exercise to be a great outlet. You don't have to go full ham gym mode, but even just taking a walk or a light jog habitually can do wonders. I've heard great things about yoga and meditation for mental hygiene. I always try to prioritize sleep more.

Having a hobby/passion outside of work is nice. It doesn't have to be work related. I used to be a serious poker player and thought it was a cool and fun side gig to do next to being a professional trader. Over time, the variance aspect of both endeavors started to add up and really took its toll on me so I took a break. Despite being in my mid 20's, I'm a hardcore video game junkie, most my friends would probably describe me as a nerd. This is a great way for me to blow off steam. It doesn't matter what your hobby is, as long as you enjoy it.

Lastly, I think it's important to have a strong support system. I could not have gotten to where I am today without the help of my loved ones, particularly my friends. I always go out of my way to meet up with friends, old or new, and something about being in their proximity elevates my mentality and overall happiness. You don't have to be a social butterfly, but even having just one or two close confidants can really help lessen the burden and stress off you.

Sorry for the rather super long post, but this question hit me really hard and was something I could strongly relate to. Hope it helps!

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Jul 17, 2018

How many years since you've completed your undergrad? What region are you located in and what's your current salary?

Jul 15, 2018

It's been 3 years since I graduated undergrad. I'm currently working in NYC.
I suspect you're more interested in my total comp than solely salary. In my line of work, comp is weighted more heavily towards individual performance and contribution to the team. For context though, I made around $170k annualized at my latest firm, where my bonus > base. Currently my base is somewhere around the $70-90k range, and with the way things are going, I'm projecting hopefully a $200-250k total comp EOY for my new firm. Again, I only recently joined this firm so I'm not as familiar with their payout structure. I'll have to wait till the end of year to see my final bonus!

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Jul 18, 2018

Thanks for doing this. What percentage of your P&L do you keep? Do you ever trade based on news?

Jul 15, 2018

1st firm: 50-50 split, 2nd firm: 40-60 split, then 50-50 if you become a partner. 3rd firm: As I've stated a few times, I'm pretty new and junior so I'm not running my own book yet, I'm in more of an "apprenticeship" role, so I won't really know what the split is until I'm fully fledged to trade.

We certainly do, news events are often big catalysts for the products we trade, particularly volatility. Equity derivatives tend to react fast and huge to news events as well.

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Jul 18, 2018

How easy do you think it is to lateral into trading careers?

I'm from a non-target school out here in the PNW, 3.9 GPA. I'm a portfolio manager for multiple trading groups on campus, with real endowment money at risk with derivatives. I'm graduating in the spring and have a fair amount of connections to firms in multiple cities, but a lot of them just don't know what they're hiring around the time I graduate.

With the job market as hot as it is, I kinda want to hedge my bets and take an analyst job at a fin-tech firm in a modest city. With this, I can pursue a CFA, network more, and hopefully transition into a trading desk or something more closer to that after a couple years.

Do you think this is plausible?

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Jul 15, 2018

I certainly think that's a safe and reasonable route to take. I don't really have much experience or know of people who start off in different careers then transition into trading so take my words with a grain of salt. My guess though is as long as you have good reason, can prove your aptitude and that you're capable for the job, I don't see why you wouldn't be able to break in, even if it's a career change.

I feel like it would be easier for you with that planned background to maybe break into sell-side trading than direct prop trading, it just seems to be a better fit given your background and what you plan to do interim. If your goal is strictly prop trading, then I don't think it's certainly impossible, but I also wouldn't really be able to comment or help much on how to get your foot in the door at that point.

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Jul 18, 2018

Why does your firm focus more on trading indexes than on individual equities? What's the benefit of that?

Jul 15, 2018

It's anyone's guess - mine would be is that the head honchos feel they have more edge with those indexes as opposed to individual equities. Or perhaps they just don't want to spread themselves thin by tracking 500+ different tickers. Who knows. One thing for certain though is that everyone has a different style, and each different style may work better on some traded products more than others.

Jul 18, 2018

Cool, thanks for the reply and very informative post.

Jul 18, 2018

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Jul 15, 2018

I was pretty much an engineering major. Don't want to say the exact one just for anonymity purposes but I'll say that the coursework was very quantitative and also had a strong computer science component to it - granted, I think my CS skills was by far my weakest point.

Networking, hmm.. my guess would be not as much as IB but I wouldn't exactly discount it either. If you're trying to break into a BB and you don't have the most ideal backgrounds (attending a target school where they recruit heavily, high GPA, quantitative background, etc), then I can see how networking would be more prominent there. I was TERRIBLE at networking, and wish I put more effort into it but luckily, I managed to make things work for me. One thing I picked up though is that at best, networking will help you get your foot in the door and land that first interview (which in itself, is a huge step), but the rest of the interview process and ultimately getting a job offer is really on you.

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Jul 18, 2018

Really curious about sales and trading. So how do you trade, technical analysis or fundamental? Mix of both?

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Jul 15, 2018

Sales and Trading, or commonly referred to as S&T, typically is associated with BB (bulge bracket) banks. I don't think you see much of that in the prop trading industry, though you could make a case for some hedge funds I suppose. I fall in more towards the prop trading category, so it's slightly a different business of what I do vs what banks do.

Technical, or fundamental. The short answer is, it depends, usually probably both. In my case, I would say most of trade idea generation is fundamentally driven, but if I'm looking for entry points and exit points on a particular trade (I'd like to emphasize just how critical having a sound exit strategy is), then I might rely on technicals to time my trade executions a bit better. Sorry if this sounded obvious, but that's the best and accurate answer I can provide.

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Jul 18, 2018

No that's perfect answer. I am trying to picture how you place trades. Is because of support resistance or something else. For me I trade on the side using technical analysis and want to know what the pros do.

Jul 19, 2018

So is there a space for trader who is not really interested in programming languages or is it a must in today's world?

Jul 15, 2018

It's hard to say - I dislike the use of saying things in absolutes (e.g. claiming 100% of traders in this world know how to code) but my best guess would be that there probably ARE traders who have little to no programming ability but still manage to trade profitably, though these are probably very rare and few about. These guys are exceptions in that they probably overcompensate in a different category for their lack of coding skills, be it an incredible "raw" trading intuition, some "secret sauce" that has massive alpha, or basically another really big strength.

Overall though, I think in today's time, nearly everyone has some form of programming knowledge, even if it's not something modern like Python, R, etc (I would consider Excel VBA to be programming). Even the old timers are investing their times to learn basic programming fundamentals to try and keep up. I think that speaks a lot of volumes on the importance of programming and I would encourage people to try and at least get the basics down. I understand coding can look intimidating or be a pain to learn but it'll go long ways with that small committed practice.

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Jul 19, 2018

I'll add to Latvian's question yes there are a lot of traders still with basic or no programming language that have been there a while. Market is slowly shrinking for that skillset though so you would have to standout by being that quant guy or the HYPS 3.9+ type of guy to bypass the coding part.

Jul 19, 2018

Thank you for doing this AMA! How did you land your position at the first prop shop? Was it through networking or applying to many firms etc. I'm also very curious to hear about your trading experience from the beginning, so that blog post would be awesome !

Jul 15, 2018

For my first prop shop, it was a combination of me mass applying to as many prop shops as I could (the job search is definitely a numbers game), and a stroke of luck in that my app caught my boss's eye due to the uncanny similarities he and I had (growing up in a rather obscure state, our affinity towards poker, both attempting to trade FX during college, etc). I already talked about networking in another response but in short, I was saying it can be a useful skillset that at worst, can't really hurt you, and at best, helps you land an interview.

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Jul 19, 2018

Have you ever had an issue controlling your order flow? I.E. you want to send orders to one place and scumbag prime broker is shopping your flow? Does this happen any more? Just wondering...

Jul 15, 2018

Definitely, not that it's really frequent, but can confirm it still happens sporadically and can get irksome..

Jul 19, 2018

I assume you look at the implied vol surface in terms of it's richness or cheapness and take directional views to hammer (mean revert) the term structure back down it's level. How do you know when it's priced in?

Jul 15, 2018

Probably the first question in this thread that I can't answer fully :(
I'm still learning the ropes and don't fully understand this part yet, so I don't want to pass on misleading information. Sorry man!

Jul 20, 2018

if you write that blog post please pm me and i can add to the frontpage, thanks!

WSO's COO (Chief Operating Orangutan) | My Linkedin

Jul 15, 2018

I'd be honored to be featured, I'll be sure to let you know, thank you! Are there any guidelines/etiquette I should stick to when I write out this blog? Sometimes, I can get very pensive and go off on long tangents and I don't want to get off topic too much but at the same time, don't want to keep it mundane.

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Jul 20, 2018

i'm sure you'll do fine, and i can always do a little editing if necessary

try to break up large paragraphs,
use headers and subheaders
if it's starting to run long you can always do a part 2

these blog posts by @CuriousCharacter are a good example:
https://www.wallstreetoasis.com/forums/long-tsla-u...
https://www.wallstreetoasis.com/forums/salesforce-...

WSO's COO (Chief Operating Orangutan) | My Linkedin

Jul 20, 2018

If you exited trading, what would be another interesting job for someone with a trader mindset?

How much time do you spend programming? What issues tech related have you struggled with?

Jul 15, 2018

I think you can spin off this in a number of different ways. Entrepreneurship comes to mind first. I think it's not uncommon to seek fields in such as risk, equity research, AM, etc. The CFA is a pretty standard option to expand your horizons if you want to stay in finance. If you have a tech background, you can probably transition into a fintech role, maybe data science, or some form of consulting. Me personally, I think I'd eventually want to go into bioinformatics where I can leverage my math/CS skills and do cancer research, as random as that may sound. I know for a fact I don't want to stay in this industry forever.

I'd say in my current role, it's about 10% programming, and most of it's used to just automate processes or scrape data. The downside about being in this discretionary position is that I'm not really learning anything new from a programming perspective nor should I expect a supervisor to mentor me in this route - I'm basically repeating the same functions on different assignments. It's really up to me to stay sharp and learn new things on my own (and I certainly have had phases where my main objective was to prioritize improving my coding skills) but given my current job environment, it makes more sense to not focus on it as much.

To answer your last question - the point I made in the previous paragraph was to highlight that debugging tech is not my responsibility but the developers' on my team. That being said, at my first firm, I was kind of a one-man army and was managing the tech side as well. I remember I was scraping data from the CME, and there were gateway issues that prevented us from collecting the data as we wanted to see it.

For example, lets say at 8:00:00 AM, 5 different participants place a total of 100 lot at a bid price of 2000. At 8:00:01 AM, 3 other players place another total 50 lot at the same price. By 8:00:02 AM, instead of seeing 2 transactions of a 5x100, and 3x50, the data would show 1 transaction of 8x150. Depending on how granular you want to get with analysis of tick data, this can be a huge difference. Unfortunately, I was never able to figure out how to separate the data (had something to do with parsing configurations, exchange protocol, etc). This is an oversimplified account of what really happened but is a classic example of a tech related issue I struggled with.

Hope that provides some insight!

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Jul 20, 2018

Graduating next week and moving to Chicago. Any advice on potential entry points to the industry? My background is heavily quantitative, with a focus on econometrics. Would like to do quant research eventually, so I'm preparing applications for PhD programs along the way.

But for now, what are some good entry-level positions in trading? Not too interested in discretionary trading (i.e. support and resistance, drawing arbitrary lines, and what not) and would prefer more systematic/algo-based approaches. Doesn't seem like there are too many firms that would hire out of undergrad though.

ActurialQuant:

For example, lets say at 8:00:00 AM, 5 different participants place a total of 100 lot at a bid price of 2000. At 8:00:01 AM, 3 other players place another total 50 lot at the same price. By 8:00:02 AM, instead of seeing 2 transactions of a 5x100, and 3x50, the data would show 1 transaction of 8x150. Depending on how granular you want to get with analysis of tick data, this can be a huge difference. Unfortunately, I was never able to figure out how to separate the data (had something to do with parsing configurations, exchange protocol, etc). This is an oversimplified account of what really happened but is a classic example of a tech related issue I struggled with.

Perhaps look if CME has trades books (history of all trades executed) instead on the API? From there you can construct your own tick data/OHLC of any granularity.

Jul 15, 2018

There certainly are some quant oriented shops that will hire out of undergrad. I think key is to know where you got to look and prove you can live up to the mantle. One thing I learned is that what's posted on job postings is never fully binding. e.g. I have gotten multiple interviews where they say "at least a masters" (and sometimes even PhD) and I clearly only had a bachelors on my resume. You miss 100% of the shots you don't take.

Not to sound demeaning, but this took me about 3 minutes to find (I've been in this game for awhile now, so I have the unfair advantage of knowing where to look) :

Specific job posting examples in Chicago:
http://belvederetrading.applicantstack.com/x/detai...
https://sunrisefutures.recruiterbox.com/jobs/fk0mo6v
http://www.headlandstech.com/careers/
Some useful sites:
http://www.hrg.net
https://www.efinancialcareers.com/search/?q=Tradin...
https://www.glassdoor.com/Job/jobs.htm?suggestCoun...
Best of luck with the search. Let me know if you need more help finding options.

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Jul 28, 2018

Thanks for doing this!
I just started at a prop shop earlier this month. What technical skills would you recommend that are valuable as a trader?

Jul 15, 2018

Congrats on the gig man! I bet it's a lot harder to break into the industry now then when I was still in college.

The short answer is - it depends. Are you working at a quant heavy shop, HFT, discretionary, hybrid? To dive deeper on this matter, it's pretty standard to be competent in languages like C++ and R in HFT. C++ for the speed aspect and executing high frequency trades and R for its numerous and convenient statistical packages when you're searching for alpha and doing model validation.

Another example, I know you said you're working in a prop shop but I noticed the trend with banks is they tend to put an emphasis on Excel (VBA) a lot and to a lesser extent, Java. The moral of the story I'm trying to paint here is that different entities will have different strategies and styles that will synergize better with particular languages. At my first firm for example, I was using C# and Matlab extensively. Second firm was a good mix of JavaScript and Python. Now, my current firm isn't very programming heavy but for my own personal research, I look to Python and R the most, probably my most 2 favorite languages.

I do think if I had to advise one, Python would be the way to go. It's very user friendly, extremely versatile, and can probably do 80-90% of functions of other programming languages. I feel like even the trend in modern times is a rise in demand for people with a background in Python. For more information, check out these links as reference: https://www.quantstart.com/articles/Best-Programmi... and https://www.quantstart.com/articles/Which-Programm...
That tackles the programming aspect. In terms of math, again this depends how mathematically intensive the nature of your business is e.g. you'll probably need to know stochastic calculus if you're working extensively with options pricing in a quant-heavy environment. I think math in general is just a great way to keep your brain sharp. I always dreamed of hitting a PhD level tier, but it's impractical for where I stand, maybe I'll try it one day for fun. I'm not using partial differential equations or abstract algebra in my day to day duties. Sometimes, simplicity is the way to go.

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Jul 28, 2018

So much great insight, thanks a lot!

Jul 29, 2018

Do you have a specific trader that you look up to? David Tepper, Paul Tudor Jones, or George Soros?

The media often portrays Wall Street to be full of substance abuse as seen in Wolf of Wall Street. Can you confirm or deny this?

Jul 15, 2018
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Jul 30, 2018
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Jul 15, 2018