INTERVIEW: All in a day’s work for a stock market trader – Journal
Muhammad Zubair Ellahi barely resembles the role he has played for 30 years.
Instead of sitting across from an expensive and smug chatterer, I found myself talking to a man in a plain blue plaid shirt and worn pants with tufts of undyed hair on his head. . He lacked the superstar airs that the public associates with the ruthless world of top-flight financial professionals.
Mr. Ellahi is a stock trader. His job is to study the company’s finances, research information on market developments, call clients and tell them to buy or sell stocks to make their investments profitable.
He has been stuck for 30 years in a very competitive profession. Barely a few thousand professionals help hundreds of thousands of investors to buy and sell stocks worth around Rs25 billion per day on the country’s stock exchange alone.
I recently sat down with him to find out what exactly stock traders do and how they do it.
âIt’s focused work. Much depends on his skills. Things look rosy from afar. But very few have what it takes to be a successful trader, âsaid Ellahi, who heads the trading team at Next Capital and also sits on its board of directors.
âOne should be prepared to spend countless hours trying to understand the investment landscape and learn the skills. It’s not a nine-to-five job. It’s like running your own business.
Trading is a highly burn-out profession. Bad traders don’t survive. Too many professions allow their members to separate results from efforts. From bureaucrats and economists to academics and journalists, incompetent people can fake their skills for years and impose themselves. But it is impossible to separate labor from the fruits of labor in the case of a trader. Their performance is measured against benchmarks for each transaction on monthly, quarterly and annual bases. What they deliver has a direct and observable impact not only on their clients’ wallets, but also on their employer’s income.
Like your own business
A young trader typically joins a brokerage with a salary, but switches to a salary plus a commission in about five years, Mr Ellahi said. Raison? Individual investors are tribal in nature. Their loyalty goes to the trader they talk to every day, not the licensed limited liability company.
âYou bring your own clients to the brokerage and manage their portfolios. Whatever brokerage income you generate, you share it with the company, âsaid Mr. Ellahi, who worked for 17 years at Bhayani Securities before joining Next Capital in 2011.
âUntil recently, it didn’t matter which brokerage you were associated with or the size of that broker. All the brokerage houses had a similar configuration. Almost all were seated in the same building in identical rooms next to each other, âhe said.
Brokerages earn by charging their clients a fee of 0.15% on the traded value with a floor of three paisa per share. In addition to their monthly salaries, senior traders receive a pre-negotiated percentage of the brokerage income they generate beyond their sales targets.
âAll that matters to a trader is the number of clients and the size of their portfolio. The rest is irrelevant, âhe said.
Traders are expected to handle institutional clients as well as retail investors and high net worth individual investors (HNWIs). Institutional clients like banks, insurance companies and mutual funds, however, are not focused on traders. A mid-sized brokerage firm employs three to six traders to serve institutional clients, according to Ellahi. They invest in the stock market using several – sometimes up to two dozen – brokerage firms at a time.
But HNWI investors tend to stick with the trader of their trust. The number of merchants dealing with individual customers and HNWI increases and decreases according to the volume of business generated. A brokerage continues to add traders for this segment as long as it generates additional income.
âYou cultivate customers over a long period of time. You can’t earn their trust in six months or even a year. It takes a lot more time and effort, âhe said.
Analysts vs traders
Although the stock exchange opens at 9:30 a.m., Mr Ellahi says his work starts at 6:30 a.m. on weekdays. The first order of business is reading the newspaper. He’s already glanced at four English newspapers as he walks into the office meeting room for his daily 8.45am meeting with the research team (whose workday starts even earlier).
âThe sales and research teams have a lively meeting. We are discussing all kinds of news. Sales people have their questions and research people give their opinion. Our homework is completed by the time we sit down on the trading desk before trading begins. At that point, we have a pretty good idea of ââwhere the market is going to go, âhe said.
So, is the customer approaching the trader or the other way around? âIt depends in case of individual investors. Some expect you to approach them, others prefer the opposite, âhe said.
However, it’s a different ball game for institutional clients. âThe institutions never call you. You call them. You give them all kinds of updates as soon as they are available. They may already know half of this information from other sources. But you call them anyway and share your review. They have so many brokers at their disposal. It’s very competitive. You have to run after them to get their business, âhe said.
It’s common for traders to disagree with their own research analysts. Pursuing customers to achieve their sales goals, marketers thrive on the adrenaline rush. In contrast, research analysts tend to be less adventurous nerds with a propensity to err on the side of caution. Analysts are conservative. Traders are aggressive.
âThere is often a difference of opinion. The research is always by the book. It takes logic. It doesn’t take into account the dynamics of the market, âhe said.
Analysts need fundamentals to justify their research. But traders place great importance on market sentiment. “A long-term investor always pays more attention to what the research says,” he said, admitting that short-term investors are prone to get caught up in the opinion of the trading bureau.
The stock market is overheating these days, with unusually high volumes and rapidly rising prices. What should a retail investor do to avoid getting burned? âIt’s a high risk, high return business. They should double check the opinion of their trader. If they think stock prices are above their fundamental valuations, they should take a profit and exit the market. “
Posted in Dawn, le 28 February 2021