In our latest article we discussed some tips for beginners in stock investment, but what is it like to do that for a living? We talked to Alain Faddegon, a real-time trader at Optiver, about his job, some things to watch out for in trading and his time at B&R Beurs.
What firm do you currently work for and in which position?
I started working at Optiver in September, where I'm currently a trading trainee. Traders at Optiver come from all sorts of backgrounds, so we started by learning the basics of option theory. By now, we have started learning to actually trade options in a simulation. Eventually, I'll become an execution trader.
What exactly does that job entail? Can you briefly explain what an execution trader does on a daily basis?
An execution trader is in contact with brokers who are looking for someone to buy or sell some financial asset to their clients. Usually, this is about large orders that their clients cannot easily execute on an exchange. The role of an execution trader is then to manage the relationship with these brokers, provide them with prices according to the risk you can take, and get valuable information from them about the market to share with other traders on the floor.
When did you first get interested in trading? Was that before joining B&R Beurs?
Before joining B&R Beurs I had an interest in the stock market but didn't know too much about it. That's also the reason I joined B&R Beurs, to learn more about investing and the various careers available in the finance industry.
How does the trading you do now at Optiver differ from the trading you did with your investment group in B&R Beurs?
At B&R Beurs, most groups focus on investing for the medium or long-term based on the research they did on a company, bond, or other assets. This is very different from the market making we do at Optiver. A market making firm like Optiver constantly provides prices to the exchange, so investors can quickly and easily sell or buy assets. Similar to a regular investor we buy low and sell high. But where an investor might hold a stock for a few months to years at a time, we aim to quickly trade in and out of positions making very small profits on each trade.
To know the stock market well means to always be up-to-date with the news regarding the companies whose stocks you are investing in. How do you keep up with this news and how does it help you analyse the underlying effects on stock prices?
The nice thing about B&R Beurs is that you are not investing alone, but in a group. If you are investing in let's say 20 stocks by yourself, it's very hard to keep up with all the news that can affect their price. In a group, you are probably focusing on only 1 or 2 stocks that you watch intensively.
However, finding the relevant news is only part of what you have to do as an investor. The most difficult part is assessing the news and how it will affect your portfolio of stocks. News almost instantaneously affects stock prices, so as a private investor that is not where you are going to make a profit. What's important for you as an investor is to see whether the news impacts your initial reasons for buying a stock and changes your outlook. Ask yourself if you would still invest in the stock now if you didn't already own it. If the answer is no, then you should probably sell.
Say a student reading this wants to get into trading, but has no experience whatsoever. How much time, generally, should they devote to studying the stock market before beginning their first investment?
I would tell them to start as quickly as possible! Two pieces of advice I would give are to always make sure you only invest money you can afford to lose, and know as much as you can about the company you are investing in. The nice thing about starting in a group is that you can really learn a lot from each other. If you join one of the already existing investment groups at B&R Beurs, you also get the benefit of having more experienced members who know what they are doing.
Besides the obvious risk of losing your invested money, what are some other things we should look out for? Such as additional fees, scams, fraud, etc.. and do those things occur regularly?
The financial industry, especially after 2008, is one of the most heavily regulated industries there is. The chance you'll be scammed or defrauded if you invest through a reputable broker is therefore very low. It is important to know what fees you are paying. Brokers have these fees listed on their website, but they differ per exchange so always make sure to check them before you buy something!
Does the pandemic have any significant effects on the stock market? If so, could you give us an example as to what this could imply? Should this discourage young investors to start in the field?
The pandemic has moved the stock market a lot over the past few months. When western countries started realizing the severity of the crisis and taking measures from late February to March, the stock market started plummeting. However, since then the stock market has recovered a lot with especially technology stocks posting incredible returns. A weird effect of the pandemic is that news doesn't always have the effect you would instinctively expect. For example, high unemployment in the USA would typically lead to lower stock prices. But now, high unemployment might make it more likely that the US government provides large fiscal stimulus which actually raises stock prices. Investing is always challenging, maybe even more so now, but that shouldn't discourage anyone from trying! The high volatility we've been seeing in the stock market actually offers many opportunities to do great investments.
Now a bit more about your time at B&R Beurs. Since they have a lot of different investment groups, does that imply trading on many different levels? I can understand that for someone who is just now getting into the field it can be very daunting to join.
There's a lot of different investment groups, and all of them are different in many ways. In terms of investing, some groups might have a more quantitative approach while others invest more on fundamentals. Another big differentiator is the time period groups hold their investments. Some groups really focus on the long-term where they hold a stock for years, and others try to buy and sell stocks within months or even weeks. Besides investing, most groups organize social events for their members. With close to 50 different groups, there's bound to be one that offers what you're looking for.
I understand that there is also a yearly investment competition, do the groups generally make a profit from this?
This differs a lot per year. Some years nearly every group makes a profit and other years most groups make a loss. I'd say most groups move in the same direction as the stock market in general.
Now for the last question, what is one piece of advice that you would like to give to someone who is just now starting to trade?
No investor is perfect, just make sure you are constantly learning and improving!
A special thank you to Alain for doing this interview and if anyone is interested in joining B&R Beurs, you can look them up at bnrbeurs.nl. Joining one of their invesment groups is possible until the 30th of October.