CLICK HERE TO MEET RAUL AT THE LONDON CONFERENCE
In this special episode of Truth About FX, Walter is joined by one of the presenter at the conference, Raul Gonzalez. They talk about his trading journey and how he ended up being a flow trader.
Raul shares an important tip on placing stops, taking risks, and capitalizing. And, is it true that being a bank trader is better than being a private trader? How do banks trade forex?
Download (Duration: 49:00 / 56.0 MB)
In This Episode:
01:29 – flow trader
03:50 – the other way
06:03 – scrutiny
08:49 – not worthy
11:28 – little magnet
15:23 – start panicking
17:14 – boredom trade
19:07 – be cold and still
22:16 – the smile or the emotion?
26:30 – accountability partner
30:07 – accountability partner
33:37 – daily tolerance
35:50 – scandals
39:10 – redundancy
41:38 – pipeline
44:27 – amazing track records
47:20 – bombarde
Tweetables:
Live where you can enjoy the things that are fun [Click To Tweet].
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Announcer: Sometimes, forex trading can be a wild and wooly place to be but forex trading doesn’t have to be the bad lands for your partner instead hunker down and bend your ear. You will be burning the breeze in no time. Here at the Truth About FX Podcast.
Walter: Welcome! It’s Walter here. Today, we have a very special guest. This is one of our presenters at the live forex conference in London in 2017. This is Raul. Raul, first of all, welcome and thanks so much for spending time here. It’s Raul Gonzales.
I know you’ve been trading for a long time, Raul, and you are currently trading for a bank. Is that right?
Raul: That is correct. Hi, Walter. Thank you for the invite. I am very happy to share my experience and my journey, if you like. Indeed, I am working for a bank. I’ve started… I’ve always been trading in London except for a two-year stint in Madrid.
I think I joined the markets in 1994. I’ve always concentrated and specialized in FX and money markets, short term rates, after 2 years. I’ve always been what you would call — I can explain this later — a flow trader. Whereas, the position I have now is more of a flow trader.
I’ve seen more customer flows and what I make is just in the back of the risk I take which makes it a bit more challenging, you could say. But, you don’t have to worry about a big customer flow, waking up in the middle of the night, because you have to come in first thing the next day to cover a big customer order.
It has it’s advantages and disadvantages. You have more freedom because if you do not take risk, you won’t make money.
Walter: Right. So, that differs from what you did in the past then?
Raul: Yes. Before — and I’ll talk of it briefly. This is something that I can talk more in live at the conference but the way banks operate has changed dramatically. I’d say the world of banking pre-Limens or pre-2008 and then there’s banking from 2014, I would say, which is over-regulation.
It’s very difficult to… Banks are not supposed to take risks. If you’re a commercial bank, you might want to take risk, you have to be very creative. So, the way traders are compensated has also changed.
Before, you have your descent based salary but you’re incentivized to take risk and you’ll get a percentage. It’s never a black and white formula but the banks made money, your desk made money, and you made your budget, and you will get a piece of the pie.
Whereas, now unless you trade for a hedge fund or take another type of fund, non banking, you are not supposed to take risk whatever flows you get from the customers. You are supposed to go back-to-back. You have to show compliance, the conversations, the proof that you’ve traded, that you are having a fun run, customer’s orders and so forth.
I talked to FX traders that used to be flow traders and they are not happy because this is not set for them anymore.
Walter: To explain it for those who are unfamiliar, like you are saying, it sort of the pendulum swung the other way and basically there’s too much regulation or things have swung the other way, basically.
Raul, just so the other traders listening would understand, what you are explaining is there’s a couple of things here. One is that the regulation have swung so much the other way for the banks, where you work, that they are watching your every move.
Two, the whole thing style of trading that you are doing now is different to what it was in the past. In the past, correct me if I am wrong, you were able to capitalize on the knowledge that you have at when these big orders are coming in through from your customers, right?
Raul: No, it’s not the case for me. I’m now a flow trader. I’ve seen now flows but even now as a flow trader, the scrutiny is just so ridiculous to the point where every conversation, very email monitored, every conversations you have are numbered which is the means that traders communicate, all the banks and salespeople. That’s checked for compliance every night and tapes so, your hands are tied when it comes to add abuse to fixings, we have fixed interest rates.
It’s fascinating how traders just got too greedy which have led me to the point I was making before. Banking or trading jobs before 2009, everyone was incentivised to take risk no matter what at any cost. Being run by customers, run over your peers, it just didn’t matter. It just brought the dark side of a lot of people and that is something that I never enjoyed banking or trading as I used to.
People, they’ve become my fan critic when it comes to money and that and regulators thinks banks have, specially in FX which is a market that was not regulated. They’ve decided to step in and now scrutinize every move the banks makes.
It’s always been difficult to make money but you could always make a bit of a spread in when you get your flows and everything. Getting flows and being more involved in the market and I’m not going to say, “To say that it is easier to make money trading flows than prop trading.” Yes, if the spreads are there.
The problem is since, I think the early 2000 e-commerce started, different banks, different investment banks, they developed this tool that would buy all the prices that trading desk would make — would be directly — sent to a different customers so spreads over time just vanished.
If I want to trade, if I want to bank a price from a bank, I would get a super aggressive bit of a spread because every banks wants to capture a flop which happens to retail traders. One of the reasons I was able to trade by myself or trade PA, my own capital, it’s really easy and very, very cheap. All you need is a decent broadband and a PC with 8 megs of RAM and you’re off the races.
The prices, Walter — this is the amazing thing — the prices that you can get as a retail investor are pretty much the prices you get as a big bank.
Walter: Wow! That is amazing.
Raul: I am not saying you have the same treatment. You’re still part of this, you’ve got slippage if you are a retail trader but as far as the spreads, that’s how it’s competitive the industry has become.
Walter: That is interesting, the common about the slippage and the treatment that you get as a retail trader. How would you suggest that retail traders can back that, knowing that that is the case? What is something that you can suggest?
Raul: Just be a little bit smart about how you leave your orders. There’s one time — I don’t want to know — I tried to trade as technical as I can but I’m, obviously, working for a bank, I’ll be aware of the big events. Do not leave tight stops over big events or if there is an event that is going to cost you a lot of volatility, just square up.
If you have tighter stops and you are trading a low timeframe upto 4-hours, it is just not worth it because you will get triggered time and time again and you’re always on the losing side.
I know that there are brokers out there that are benevolent but it’s a business for them. Even for a bank, if I leave a stop order over the weekend and then the market gaps up, I’m done. If it is a buys order, I’m done no matter. Even if the market hasn’t traded there with open higher and done at my price which is worst.
Walter: Yeah. So, how do you deal with that? Do you always close down every end of the week?
Raul: The timeframes that I would trade is 4-hours, I’ve got a trailing stop and I try to give myself enough breathing room with stops. That is what I’ve learned the hard way. I was obsessed with placing stops in a special way but I try to use a formula out there — I think it’s one of the videos. I think Darren mentioned this. I forgot the name of the lady who gave it to me — the woman — but it’s 2x the average range. That is what I use at the very least so if I’m trading weekly or the daily, it doesn’t matter. I would usually just let those run over the weekend.
Walter: But, if you’re close… You are saying, basically, if you’re in a position and the week closes and your stop is close to where the week ended and you’re in trouble when you come up.
Raul: Exactly. The other thing, I just mentioned this impossible thing that the banks, everyday, every close of business, the orders get past from an I-desk in London to an I-desk in New York, and then to an I-desk in Hong kong, Singapore and so on. So, it’s a 24/7 market.
Let’s say a handful of banks that know where the stops are and they get triggered. It happens a lot. Whatever you see of the price action, a quick run to a figure level and then the markets comes right back it’s because their stops are being triggered now. The markets stop fully and it happens all the time.
Walter: So, there’s like a little magnet sitting there on the chart waiting for the…..
Raul: Yeah, without getting too obsessed about where you should place your stops. My advice — and this is how I trade. I always want to give myself enough room, enough breathing room and I tried to which is tough. About this, I’ve learned a lot from you, Walter and Darren. It’s okay to preserve your capital but sometimes you’ve got to let your stop behave, otherwise you end up micromanaging your trade, baby sitting on your trade too much and you will never let your winners run, simple as that. That’s a challenge.
Walter: Yup, that’s a good point. Now that we’re on the topic, what are some of the things that would be helpful to retail traders like you’ve mentioned. A couple of things now, coming out from your perspective you’re aware of, what are some of the other things that the average retail trader may not think about it and that’s sort of top of mind for you?
Raul: Let me start by saying the following. A lot of traders — and I’ve met some of them and I’ve spoken to some. There’s a lot of traders in this forum that circles around most of the traders I know in the city. These amazing people with amazing skills, ever since I joined the forum I’ve had admiration for them. For the likes of Nicola, for the likes of Reima, and so on and people that having worked for banks and it’s just incredible the way they trade.
So, what I’m getting with this is I think it’s a little bit of a myth out there. Bank traders either have more information, have better skills. That’s not true! If these, you call it an advantage. One thing the bank traders have is the boss that they have to report to. S,o everyday you have to send every report of your risk, every P&L you’ve worked out and everyone gets to see that.
So, you’re obviously accountable for your actions on a daily basis and you get paid at the end of the month so, you are not trading your own money. That is an advantage but I have no choice but to sit in front of the screen for 10 to 11 hours a day which is tricky, which is painful, which is hard, which is challenging when you have open risk.
I can’t just walk away and say I’ll be gone for 3 hours because I don’t want to get tainted by the on going commentary by the rolling news, by the events of the day, by the daily noise so, that’s definitely an advantage retail investors have if should they choose to put on a trade and walk away, which is something that I would strongly recommend.
Walter: I’ve heard, you’ve talked about this before. So, you feel that it’s obvious to you, if someone sitting at your position, that you have so much information that a large part of your job. I suppose is either filtering it out or just blocking it from affecting your positions.
Raul: That’s right. I do all the analysis most of it from home. I work then I just deal with that name, with emails, with a conference calls and all the stuff. I don’t plan my trades at work because there’s just too much noise around it.
What ends up happening more often that I would like is you just break your rules. You hear something, there’s a news event and an economic data comes out that goes against you and start panicking.
You lose your discipline a little bit. Maybe you can deal with it once or twice but for the third time, you don’t want to take the pain about it because you’re down for the week and you don’t want a big loss. When you do is you make a mistake which is commonly known as you trade your P&L and you shouldn’t do that. You trade your trades. Your P&L is something, that trade will be a winner, loser or you’ll end up breaking even. It’s not about trading your P&L. That’s a recipe to lose money every time.
Walter: Right, that’s interesting. Essentially, you’re saying when you trade your P&L, you’re basically trading where you are with your account, or the past, or something like that.
Raul: Yes. So if say, for argument sake, if I had a bad week and the closing rates are my P&L for the day is going to post another loss, I’m like, “Okay, I probably would take risk off or I will take some profit in positions that are profitable”. I take profit too early or I pump up my risk too soon, breaking my rules.
You obviously ended up regretting it no matter what happens because if it goes against you because you broke your rules. If the positions goes back into profit you’re pulling your hair out because you’re not being disciplined following the rules which is very annoying. I hate doing that.
Sometimes, Walter, you end up putting up what you call the boredom trade. You’re bored and you’re fishing for ideas, you don’t have a clear view but you’re here. You’ve just finish reading reports, macro economics report on something and you’re like, “Okay, well that sounds interesting”.
Then, you choose to put on trade which will be fine if you then you’re trading on the back as a fundamental analysis trade but then you’re going to apply your technical rules on the report you’ve just read. That’s just where the position goes a little bit against you, you’re going to be closing it out because you’re going to be crapped in your pants. You know this and you know this happens.
One of the things that I’ve done that sort of helped me with this becoming aware of these emotions, it’s meditation. I still make mistakes, I’m doing wrong, I make a lot of mistakes but I’m very aware of them right away. I can see myself in slow motion doing the wrong thing. It helps because it gets me out of trouble.
That, by the way, is a big recommendation for any whole traders out there. If you can get to a point where you become in tune with your feelings while you’re trading and don’t become hijacked by them. It’s half the bottle, if not more, because that’s another big need in the city.
You don’t have to become the idea that’s posted in many places and talked about, “Oh, you know if you’re going to a big swing trader and super trader that’s going to make millions.” You cannot feel any emotions. You’ve got to be cold and still. I believed that for a while, I did believe that for a while. I could not stick with that statement anymore now. It is wrong.
We all feel in a different way. I mean certain people don’t feel anything. I do and I know I have very good friends working partners at hedge fund here they tell me like, “Man, even after 10 years, I put in a trade and it’s a waiting game. I think they feel pretty much the same they did the first time they trade it.”
It’s just how you deal with those emotions. I know this gets repeated from time and time again but men, it’s true. That’s how it is.
Walter: Yes. It sounds like to me hearing this, your meditation practices, has helped you become more mindful and aware and accepting of this rather than trying to fight it and say that, “I’m going to put this aside and they’re not going to affect me.” You just sort of embraced that and accepted them for what they are.
Raul: Yes. And sometimes, what it takes is to just get up and go get a coffee or just break, just get out of the the moments that you’re in there. Those emotions are ok. They’re what we have to feel, we’re human. It’s okay to feel emotions. It’s just understanding where they come from. I just sit on them.
What I do is I have a copy of my trading rules next to my desk and whenever I say I’m getting emotional and I can’t solve it, then well okay, that’s not part of the rules. But, sometimes, you end up self-sabotaging the whole thing because again as part of being human, you’re self-critic, your voice inside tells you, “Well I’m not going do it anyway.” And you do, knowing full well that it’s wrong.
Again, it’s something that what happened to me a lot in the past but meditation is like I said I cannot recommend enough. It doesn’t have to be 20 minutes just, 10 minutes whenever you can just breathe in, breathe out. Enjoy, be grateful and appreciate all the things that you have. It’s just something that I don’t do enough.
If I can give another great tip. Smile and just be thankful and grateful whenever you have half a chance and it’s incredible how that will change your mindset right away. It will help you face the same reality that you’re going to face but with a big smile. You’re on top of things.
Walter: Yeah.
Raul:It’s something that I strongly believe in and it’s helped my trading immensely. It’s helped my trading immensely so I want to share that with you guys.
Walter: Absolutely, that’s great. I mean, that’s a big debate in emotions research and psychology which is “Which comes first, the smile or the emotion?” In other words, if you smile, can you create that sense of joy in yourself rather than having the sense of joy and lead to a smile? I think that’s a great tip, that’s beautiful.
So really, Raul, it sounds like to me what you’re saying is that a lot of retail traders probably don’t understand the advantages that they have. I mean, they look to the banks they think that they have all these things that the fingertips in some cases are sure. But ,it sounds like to me that in essence you do most of the trading decisions at home and you do a bunch of admin stuff at work then you have to suffer through the trade as well.
Raul: And then I get home and my wife is like, “What the hell are you doing? Are you trading at home, as well?” And it’s hard to explain to her that while I’m at the office, there’s no way and the most kind of work. I can get done in the office is to update my chart and to get a bunch of printouts and analyze at home. The analysis will happen at home.
And, yes like you said, you say everyday is the challenges to tell myself when I go in just follow your rules don’t get stuck doing a daily nodes. If I can give an example of something that happened just recently how you can get stuck into a daily nodes. A few weeks back there was, I was long year Sterling batch deter on a 4-hour timeframe.
Actually, I put on a trade on a Thursday and it was going okay. I was happy to pull the trigger. I set my stops and have a couple of trailing stop for the profit as well. Just really one day into the trade. Come Friday, big news breaks out on Deutsche Bank. They have to pay huge sum billed to the Justice Department in the US. Their shares tanking.
Everyone’s talking about Deutsche Bank. EUR/USD there’s lots of selling, leverage accounts, all kinds of account selling EUR/USD. I’m seeing EUR/GBP go from a healthy profit down with my trade and I’m like what’s going on? And, the more I’m reading about the news story, the more I get freaked out. So what do I do?
The minute EUR/GBP was back to my break even, I’ll go, “Okay. I don’t want to have this position on over the weekend, I’m out”. Guess what happened by the end of the day? EUR/GBP was off to the races because, the news was completely just altered knowledge. It’s just noise, it’s just daily noise.
It could have happened, could have sent EUR/GBP 200 points blow up. Yes, I broke the rules and I go all I could hear and read about is Deutsche Bank and Deutsche Bank and there is EUR/USD. Those emotions will take over and it’s hard unless, you walk away unless you’re not reading these stuff. I think it all goes back to one of the challenges we have as traders and that is you don’t want to be wrong.
Being wrong is not a pleasant feeling and that if you like great nights those bad emotions. You run for cover and you end up hating yourself for not following the rules it’s not about making or making money. It’s just not sticking to the rules which is it’s the Trading 101. No trader will ever make it or will ever be consistently profitable if you don’t follow your rules. As simple as that.
Walter: So, you spend a lot of time focusing on execution and it sounds like your rules next year, your monitor essentially will try to keep you on track. What are some of the things, like this idea about having to be accountable everyday for your P&L? Can you talk a little bit about the pros and cons for that? Like in a lot of ways that’s really, I can see that being very positive and we encourage traders to do that. Finding an accountability partner but in other ways, I can see where it’s also a negative.
Raul: Yes. And, if your sport on it’s being accountable for your trading, it’s a must. It does help. It will stop you from over trading. It will stop you from breaking the rules. You have to be accountable in the beginning and that’s great. That’s great, you have a trading buddy or trading buddies that you can share this information with.
What happens in the bank is everyone gets to see your P&L. You become — and you can get a bit paranoid with all those stuff. After a string of losses, you’ll feel like everyone is watching you. Like, it starts to have impact on your confidence because you feel you’re being judged.
There’s nothing worse that can happen to a trader than when your confidence starts taking beating. It’s a when the irony is you’re down road spiral, you feel the losing streak, but you have to stop trading until you get your confidence back somehow.
Having to report your P&L daily to your direct boss, to your boss in a whatever it is — head offices — everyone get’s to see that. It’s very transparent. That thing can be detrimental to one’s confidence. That’s my own opinion.
It’s good for risk-control purposes but it encourages also this ego-macho mentality that go make millions everyone should shout out like you do and whatever I play, it does. It’s not good for your ego either. so, as a retail trader you’re not expose to that.
I think having an accountability partner is just a friendly way of making sure that you are walking right down the line. You’re sticking to your rules, you’re being disciplined, you’re not over trading when you have to.
This is an exercise. It’s highly recommended and this is what I think a lot of people in the forum record their trades exposes you to think about on why you’re taking the trade and that’s a great thing. That’s a great analysis.
You shouldn’t over-analyze stuff but by all means you just plug the tape in your hand and go through the different rules you have. It makes sense to put it on then go with it. If you don’t have an accountability partner, it’s like doing testing in forex tester and going back in time uncheated.
You’re not being true to yourself and, in the beginning, I think you need that push. Also, it’s good not to feel alone and that’s why one of the reasons I love forex is it’s a great community. People get, they feel the part of these few family right away. I get an advice from very, very good trader. It’s great to say, Walter.
Walter: So, you’ve made me think here, Raul, that I wonder the difference between I’m a retail trader. I have an accountability partner that perhaps I speak with every weekend and then I have this bank or that I have the alternative. I’m working at a bank so, from talking to my accountability partner on the weekend. My accountability partner, in theory, should really be looking to see if I’m executing my system as I should.
Whereas, the bank isn’t going… The bank ,they’re not — correct me if I’m wrong — but they’re not going to say, “Well, Rau,l are you sticking to your system?” They’re going to say, “Raul, how much money did you make today?” or, “how much money did you lose today?” The pressure is not on execution, it’s on delivering P&L.
Raul: That’s right, Walter. That is spot on. That’s what makes being accountable at the bank so different from being accountable to a trading partner. Bank doesn’t care less. My boss doesn’t care less about the system I use.
At one point, I was too open with him and I told him a couple of systems I was using to enter on extra trade and he looked at me and said, “Will you keep that to yourself and don’t tell anyone because you’ve told me too much information?” They don’t care.
All they want is the bottom line. “Have you made money today and how much risk you’re running? Are you comfortable with the risk you’re running?” and, “What are you going to do?” I think the little banks are similar. Before you hit your stop loss for the month, you have a pre-stop loss where like on a 20% 25% off your big stop loss. I think is a great thing by the way.
You’re supposed to write an email or have a conversation with your direct boss and your boss’ boss and tell them why you want to stay on the trade and why do you think this is a good trade. Basically, you have to explain why you’re not getting out of that position when you’re down another month. That is what you should be doing on a daily basis.
Whether you’re up or you’re down money, it’s okay. What have you done today and why do you like this trade? That’s a healthy discussion but to be put into a room and say, you’re down now for the month. Your stop loss is 1.2. All of the sudden you — what are you going to do?
All of a sudden, you start being defensive and that’s again is not conducive to be trading. So, Walter, that’s spot on. The way this conversations, the way they take place of issues I brought up have nothing to do with your execution, your exit strategy or why you have a trade on.
Walter: That’s fascinating. So, in a way they’re doing the right thing when they have with that pre-stop loss procedure that you go through but day to day it’s just not there. It just focuses on how much money you’re making.
Raul: Yes, and how much risks you’re taking and that’s one thing where banks have changed. I know back in the day, probably, there weren’t enough control. That’s why with the scandals and the losses, that’s why the regulation lack of compliance control but now it’s just gone the other way.
There are departments out there that would look at whether the daily tolerance, when volatility picks up, I start getting calls, “Oh, you’ve traded that level but that’s outside the daily tolerance. Is this a good trade?” So, this is how I spent my days, by the way. Just dealing with these things and justifying my existence to compliance and the likes. It’s fun, I like it. You can’t take it too seriously like this. It’s our job and whatever.
Walter: You’re there to do your job and just to make them money and they approach it the way they know best I suppose which is their procedures are. Dealing with compliance like you say, which grown like the issues and the concerns have grown over the last 10 years, haven’t they?
Raul: Yeah. What I’ve mentioned before about working, being a consultant for this hedge fund specialized in Financial Investigation. I wrote one that was called the Expert Witness Report and one of it was a bank being investigated for collusion.
To summarize, it’s when bank’s bank traders get together and they head of a fixing, popular one’s 4pm London time and they all agree to either sell or buy a certain currency to move the fixing. That’s happened way too often. It goes back to this mentality where traders won’t take risks and take trades to make money.
Managers knew full well what was going on and managers, the senior managers, knew full well what was going on but no one was asking questions when the profits were rolling in so, in the end, the pro trader even lost their jobs, they’re in prison, and they were wrong. A trader should never do that but they just go for the… It’s also not fair either.
As these scandals started breaking out and there were investigations by the UK, regulated by the US, I mean all over the world, they then decided to make banks comply with all these different rules. So, banks have to go out and hire a lot of people to deal with this compliance, compute risk, and just monitoring every conversation a trader makes.
So, traders have abused this system. It was a good thing and is now everyone is paranoid, can’t say the wrong thing anymore. Walter, even as a joke, you can’t joke. Next thing you’ve got a phonecall from compliance and say, “You say the word x, you say the word phone running and you’re on compliance. You just come back later to be real.”
Retail traders, they have little good things going for them. Banks I’ve been working, I remember when I started working for a bank I got in as a trainee for a Spanish bank in London. Back in 1994, it was just a trading program for 3 months and a lot of times back then because there was a lot of jobs for a full time job. So, it happens in a dinner room and that went on for years and years and years.
To get in for trading now in banks, first thing, I don’t recommend it. There’s a lot of admin, no risk taken. You’re not really allowed to trade. I think a lot of traders I see in the forum if they were to put their mind into it and something that they really want to pursue. They could work for hedge fund, or boutique shops, and get paid a chunk of a percentage of what they make.
You know they’re good enough. They’re good enough for that. Working for a bank, it just pays you a decent base salary if you are a flow trader and you have no upside because you’re not suppose to take risk. No matter what you’re going to get, you are paid x amount so, you no longer appreciate or you don’t have the freedom to trade when you trade for the bank, I suppose, is what I’m trying to say.
Walter: Yeah, that’s interesting. I guess one of the questions that’s going to come up here is, how did you get into the bank? Essentially, it sounds like when times were different, when they had a lot of trainee programs, that’s how you got your foot on the door and it’s just kind of blossom from there for you.
Raul: Yes, and I’ve traded with 7 banks in London. I think followed my boss in 3 different banks and it was a big turnover of people when you stay in a place where 2, 3 years 4 the most and then a big project will come up with a bank and that was interesting. You’d move and that went a lot in London.
I think, very few people stay, at it’s same job for more than 3 years well at least I didn’t. A lot of people I know did the same. But, then the redundancy started and desk were moved to different countries. A lot of people, a lot of traders moved to hedge funds or places where they would find some sort of financial upsite.
Trading for banks is especially I think, it was 2008, 2009 trading desk had record years in terms of profits and people didn’t get paid. And rightly so, also because banks lost a lot of money and it was just an awful year. There’s a certain day when there was a movie up there the Big Short, I think. That sums up what I’ve been really really well. Everytime I watch it I watched it like 5 or 6 times I get depressed. You think, “How can we do this? How can we get so how do we lose in the plot in such a way?”
Walter: Yeah.
Raul: Yes, the bank traders were incentivized to take risks up until 2008, 2009 and after that the regulators started coming up. They started regulating the FX market which wasn’t til then. And ,yeah, and the landscape is very different so that’s something I suppose I’m happy talk in more detail at the conference. It’s many years to cover many things to talk about an anecdote I suppose. Happy to I was talk to about those.
Walter: Yeah, and maybe we can hear also… I’d love to hear at the conference this idea that there are these excellent traders out there in the retail world and yet, the banks don’t get their hands on them. As a retail trader who’s built up a track record, how do you catch the attention of critique firms of hedge funds or private funds? How do you get your foot on the door? Those are the sorts of things I think people will be very eager to hear.
Raul: Let’s just leave them waiting for those and I have a few stories that I can tell of people that have made that move. I can give some advice but I’m happy to talk about that in the conference, for sure.
Walter: It’s so fascinating to me because I heard this before which is the banks would be amazed at what traders are doing in the retail world. Yet, it seems as that though banks and private funds don’t necessarily have this pipeline where they’re pulling these people in. It’s almost like they’re coming in from somewhere else which is fine. It’s not a bad thing. It’s not a bad thing at all.
It’s just interesting that I can see the trend because you understand the dilemma, right? You have these traders who don’t have a big stake and they’re trading quite well and they don’t want to wait to 5 or 6 years that takes to build that up. They want to get their hands on money right away, right? They don’t want to wait that long to build up their stakes.
I can understand why that’s the case. But, yes, it’s fascinating that sort of like the pros and the cons. Like, who’s got what, the banks have the money but they have to approach it in a different angle now. Post excessive regulation, post GFCs, and then the retail traders not have some really good approaches to trading but yet they don’t have their hands on the big chunks of money so it’s fascinating to me. Yeah.
Raul: Also, I think as a retail trader, you’ve never been to a best position to trade because the price you pay to access the market is minimal. That’s something that 10 years ago price was much wider, you have to prepare when you put up for bigger margin. It will cost you more money to be able to access.
There weren’t too many brokers around and they were obviously 4, 5 times where they are now. We can talk about this in more length. My humble opinion, one of the things haven’t been on both sides. Banks, because I’ve never done it. Very few people have traded their own capital. I’ve done a day job and other job trading or have traded for a living.
What matters to make it as a trader to be consistently profitable. It has nothing to do with how much you know about macroeconomics, microeconomics or technical knowledge even. It boils down to Psychology and hedge funds get that.
Majority of retail banks now, when you sit down with them, when I had conversations with traders from other banks, you get funny looks because there’s a different set of beliefs out there. Fine, their beliefs and if it works for them I don’t have an issue but don’t come and tell me that what I’m thinking is naive. Sometimes, you’ll get laughed at when you talk about psychology. That’s okay. So, I think that’s one of the barriers.
Unless you have an amazing track records and you can tell the bank, “I traded with my own capital for ‘x’ amount of years and these are the results”. It’s tough because they’ll say, “Have it worked before? What’s your degree? Do you know anything about Economics?”
I can teach someone what they need to know about macroeconomics to trade in half an hour, okay, or an hour and you’re off to the races. If you can get the other stuff right, the microeconomics aspect of trading matters little to nothing. I think that’s one of the issues in my opinion.
Walter: Right, that’s fascinating. Yeah, it makes perfect sense though. Everyone comes with their own approach. Is there anything else, Raul, that you would like to leave the listeners with before we see you at the event?
Raul: I think we’ve covered man, I can’t talk. There’s stuff about e-commerce that I want to talk about how that has changed the banking landscape. Maybe, I want to talk about that in more detail. The compensation, how compensation has changed. Definitely, I want to talk about a what a trader, know more what a bank trader does on a day. I think that would be interesting for people to know how much time is wasted at a bank.
Walter: Yeah. Okay, just one last question I have for you because this interests me, it’ll be a contrast for the listeners. So, if you were not trading at the bank and let’s say you’re trading for yourself what would your day look like?
Raul: Okay. I would get up in the morning, doing meditation, have a good breakfast, or maybe breakfast then meditation. I would look at the charts for like I don’t know for 30 minutes or an hour, see if any triggers are close. If not, I just walk away, do some backtesting, trying to fit in an hour, two throughout the day or an hour, have some lunch, go to nursery and pick up my son, have fun with them.
Look at charts, maybe at the London close just briefly and then after dinner just look at the closest I don’t know at 10:30 so, amount of time spent looking at charts during the day, no more than 2 hours and that’s a lot.
That’s a lot versus amount of time you spent looking at charts in a bank 10 hours. You know the stats, man. How much information our brain can retain? It’s tiny compared to the amount of information you are bombarded with. After a while, you’ll go dizzy.
So, that’s a big difference. Again, going back to retail difference between retail and banking as a trader. You’re able to live a much healthier, live where you can enjoy the things that are fun. Listen, I love trading. I have passion about trading but there’s little things I’ve got to do during the day where I have zero passion for. As a retail investor, you get to choose what you can do, how you spend and how you’re filling those gaps. That’s a beautiful thing.
Walter: That’s excellent, Raul. That’s so cool. I really appreciate your time and I’m looking forward to seeing you at the conference and hearing more about how retail traders can get into the institutional world. Your experiences and your worst stories I think, is going to be great.
Raul: It’s been a pleasure to have a chat with you to maybe help traders gain more confidence in what they do because they’re amazing. All these retail investors or retail traders in the forum, I cannot wait to spend more time with them and just talking about trading in a conference. I think it’s going to be amazing.
Walter: That’s great. Thanks so much, Raul. Well, see you soon.
Raul: Take care.
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