For those of us plying our trade as coders in the City of London, or Wall Street, there’s a choice to be made about our mode of employment. Each of the three options has its own particular pros and cons. And if you’re to avoid a mismatch between your employer’s expectations, spoken and unspoken, and your own, it’s best to be clear sighted about those pros and cons. I’ve worked as permie and consultant. I’ve never been a contractor. But I do have a very strong preference for permanent employment. Here’s my take on the up and down sides…

  • Contractor
    • Pros
      • Good money
      • When times are good, you get to pick from a wide range of gigs, and to almost switch at will
    • Cons
      • When times are bad you can be out of work for a long time, and you may have to take a cut to get back in
      • You may not get much choice or influence over your work day to day
      • You’re unlikely to be in the room when the final decision is made
  • Consultant
    • Pros
      • Slightly more security than a contractor. This security can be illusory. During the last downturn lots of consulting firms canned staff pretty quick when the work dried up
      • You get to switch projects, like a contractor. But you may not have much choice over which projects your assigned to.
    • Cons
      • Money not as good as contracting
      • Negotiating the eternal conflict of interest between consultancies and their clients. The consultancy wants maximum duration and headcount from any project to maximise billing. The client wants the project done, and the consultants gone.
  • Permie
    • Pros
      • Security. If you’re any good at your job you should be more secure than consultants or contractors
      • Bonus: that’s why we’re working in the front office!
      • Influence: the chance to bring your own ideas, proposals and innocvations to the table. If you can get the business to sign up, you work on your own pet projects. To me, this is invaluable. Also, being in the room when the final decision is made.
    • Cons
      • Lack of change can be frustrating for the easily bored.
      • Sometimes you have to resign to escape a project you’re fed up with.

Sometimes advocates of consultancy represent it as combining the best of contracting and permie work. I fear that in many cases it combines permie compensation with contractor security.

I haven’t mentioned the distinction between working for a technology consumer org, like a bank, and a tech producer, like a vendor. That’s a topic for another day…

Oldest bond ?

May 31, 2006

Are UK Consols the oldest bond ?  I'm guessing they are, since the British Govt is the oldest government in the world. That is, it's been uninterrupted by revolution since 1688. I think the US has the next longest running govt.

Proprietary platforms

May 31, 2006

Seems like every bank has to have a proprietary single dealer platform these days. JP Morgan has JPMorganExpress, Lehman has LehmanLive, and DrKW has Revolution. I have a hard time understanding who uses these, and why. If I'm a buy side trader, say a pension fund manager, and I need to buy 100m 10yr EuroGovies, why would I use a proprietary platform ?  Surely I'd go to TradeWeb or Bloomberg, and do a multi dealer RFQ to get the best price ?

I know its the the job of the sales teams to schmooze the buy side traders. But the buy side guys get performance bonuses too, don't they ?

I know JPM's platform started development during the dotcom boom. As such it used Java applets to get interactive trading functionality into the browser. The DrKW offering looks Javaish too. I wonder if anyone's considering building a browser trading client with AJAX, or with the Adobe/Macromedia Flash/RIA platform used by Pandora ?

Puzzles of finance

May 31, 2006

Mark Kritzman's Puzzles of Finance is a model of clarity and insight. The glossary and primer on financial concepts and quantitative methods is worth the price of admission on its own. There's a wonderfully clear explanation of compounding, and the relationship between frequency and e, the natural log base.

Coolest bank

May 31, 2006

So who’s the coolest bank to work for these days ?

Back in the 90s it had to be Swiss Bank, now merged with UBS. They were the first to dress down, the first to put flat screen on the trading floor, and they used Next workstations. They used Objective-C. They had also bought the O’Connor derivative shop in Chicago, and so owned the prediction technology developed by the Prediction Company. Read the Predictors for more on this.

More recently, DrKW are setting out their stall. Looks like they’ve gone very web 2.0, with social software and lots of blogging.

Matt posted recently on visualization. I worked in the oil industry in the 90s, and did some visualization work, and I've often wondered why visualization isn't used more often in finance. After all, it is used heavily in many other domains that deal with high volumes of numerical data. For instance, medicine, science and engineering, and oil and gas.

Here are some factors that I reckon prevent visualization adoption on the trading floor…

  • Real time data: the domains that adopt visualization are often analysing static data sets that are produced by scanners (medicine) or simulators (oil). Timeliness is critical in the markets. Traders need to keep up with a flow of real time data. Visualizing real time data presents quite specific coding challenges, since rendering a 3D scene is computationally expensive.
  • No obvious spatial metaphors: I suspect it's no accident that visualization has taken off in sectors that deal with real physical objects, like the human body, or an oil reservoir. The visual representation of such objects is straightforward. The question of "what 3D form do I give this" doesn't arise.
  • Precious screen real estate: walk around our trading floor and you'll see traders with 6 flat screens driven by two PCs. All that screen real state is consumed with Bloomberg terminals, pricing blotters, RFQ blotters, trade blotters and Excel spreadsheets. If a trader is going to give up some space to a new tool, it better deliver real value, and not just seem like a 'nice to have'.

However, the search for competitive edge is unceasing in the markets, and there's always someone willing to try out a new technique. Cantor have a viz offering for US fixed income markets. 4D Trading were a start up that had a viz product. They found it difficult to sell, and were eventually acquired by GLTrade.

There are some niches in trading that do lend themselves naturally to viz techniques. I've seen Excel charting used for 3D plots of volatility surfaces. Derman has a great explanation of the implied volatility surface. A 3D plot of a vol surface that's been pulled out of a database of yesterday's closes can be a very handy sanity check for a trader coding his own pricing model in a spreadsheet.

Clueless journos

May 30, 2006

The cluelessness of most journalists is a bit of a pet theme for me. It shouldn't really need pointing out. Anyone with two brain cells to rub together will figure it out like this: read a newspaper article on your specialist subject, notice that the author has failed to do even the most basic research and ask the most obvious questions, then realise that the same must apply to pretty much everything else in the paper.

Today's Evening Standard had yet another example. The City Editor, Anthony Hilton commented on 'Big banks deadly game'. He mentions Enron, points out that they had a dealing room, and then asserts that we're now surrounded by Enrons, in the shape of the global investment banks, which of course, all have dealing rooms. He goes on to say "the big banks make between half and three quarters of their profit from dealing, and that no one from the outside can tell how they do it, or what their business really is".

Later in the column there's an attempt to appear cluefull by means of a reference to Taleb. So let's spell it out for Hilton, since he seems not to understand what a dealer is, depsite his long and distinguished journalisic career. A dealer offers liquidity to the market by quoting prices to buy and sell a range of financial instruments in trades up to a certain size. I work for a dealer that supplies liquidity to the European government bond markets, among others. By standing ready to buy or sell EuroGovies in large amounts, my employer makes it possible for pension funds and insurers to take or unwind positions in EuroGovies at any time. They also make it possible for European governments to conduct treasury operations smoothly – for instance borrowing to finance government spending by issuing new debt. Dealers play a critical role in the smooth running of market economies.

 I suspect Hilton is confused about the distinction between dealers and proprietary traders. No doubt he's confused about a lot else too.