Forex Trading for a Hedge Fund

T4TCapital Professional Forex Trader Development Program

Program Overview

Trading For A Hedge Fund

T4TCapital Professional Forex Trader Development Program

Stage 3

Trading For  A Hedge Fund

Prerequisite: Graduation with Diploma in Professional Forex Trading & Traded for T4TCapital

Traders at hedge funds basically have the same job as proprietary traders at investments banks, except that in a hedge fund they are trading investors money as opposed to using the investments banks money. The pressures are high, but the rewards are even higher.

Hedge fund traders generally earn a wage and also get a cut of the profits they make. The cut of the profits is paid out as bonuses to the traders, although the structure of the bonuses varies from fund to fund but usually involves some level of reinvestment in the hedge fund.

In large hedge funds there are typically two types of ‘traders’ and their functions are somewhat different. There are the hedge fund traders, who are responsible for all trade execution and there’s the hedge fund portfolio managers who make all the trading/investment decisions. Both roles are important to the overall success of the hedge fund although portfolio managers are usually paid more because it’s their decisions which generate the most profits.

Also, traditionally the job of trade execution was outsourced to investment banks as they had the advantage of direct access to the market liquidity. Losing control of the execution process creates extra external risks to the hedge fund and on top of that they would always have to pay a spread to get in and out of trades and that trims a decent slice of the profits off the top.

At T4TCapital LLC the function of trade executioner and portfolio manager will be undertaken by our multi-skilled trader team. Our multi-skilled traders will determine all investment decisions for their own portfolios, and then execute these decisions through whichever strategies they deem appropriate. The merging of these two functions will allow our hedge fund traders to generate larger than normal bonuses as the overall revenue of the hedge fund will not be split amongst so many traders.

The Main Skills Hedge Funds look for in Candidates

Landing a trading job at a hedge fund is highly competitive and extremely selective. Great quantitative skills with a proven track record, the right educational background, and certifications are all helpful.

The skills that hedge funds look for in job candidates can be divided into two basic categories—knowledge-based skills (gained through education, self-study, and work experience) and personal skills in areas like communication, teamwork, and risk taking.

Knowledge-Based Skills

  • In-depth knowledge of financial instruments and strategies: If you lack a clear understanding of financial products and markets, you will struggle in understanding the product combinations, dependencies, and factors driving prices and performance. A good candidate must understand various financial products including forex, options, futures, commodities, interest rates, and equities.
  • Quantitative expertise: Hedge funds are always looking to gear their resources toward those components and conditions that are most likely to produce the desired outcomes and away from those tied to their areas of greatest frustration. Effective portfolio management at the trade level involves collecting and analysing components of your individual transactions. If you can’t gather and evaluate this data in an effective manner, you won’t be able to improve your overall performance, and this can lead to lost opportunity and wasted resources.
  • Qualitative expertise: Hedge funds are always looking to improve their overall performance by analysing and enhancing their trade execution processes. A good candidate must understand all aspects of trade execution and liquidity constraints in all market conditions. This is one area where experience is critical.
  • Understanding of risk: Hedge funds are high-risk, high-return investment vehicles. However, high risk does not mean taking unlimited risk with no control. Rather, it means taking on a high risk with fair knowledge and being prepared with alternate plans when risk levels cross a predetermined threshold. The job candidate needs to have good knowledge of risk assessment, not just of individual financial products, but also on portfolios.
  • Knowing how to adjust portfolio exposure: How is the price of oil related to the weather? How are bond yields affected by currency valuations? Such correlations play an important role in creating a diversified portfolio of products, and a candidate should be adept in understanding and quantifying the intricacies of a portfolio so they can adjust the portfolios exposure very quickly.

Personal Abilities and Traits

  • Communication skills: Meeting high net worth clients in five-star settings requires social etiquette as well as the ability to convince clients to entrust their money with you. Even if you are not applying to be part of the client-facing sales team, you may occasionally have to face clients to explain complex products and how they will generate returns on their capital. Pitching in a complex idea to the team and getting a buy-in to get it executed is equally necessary. Hedge funds look for excellent skills in both internal and external communication in job applicants.
  • Teamwork: Products and services from hedge funds are driven by dedicated teams, who are intended to work towards a common goal. A candidate should be a great team player, be willing to put team’s interest before self, be committed to the desired goal, and be willing to contribute.
  • Risk-taking ability: Understanding risk quantitatively is not enough. A hedge fund trader should also have the emotional ability to tolerate risk. Very few people (including many trading professionals) have the courage to trade when they see the initial trading opportunity. Showing proven success when facing risk makes an attractive hedge fund job candidate.
  • Education: Hedge funds pick candidates from a variety of industries and experience levels. Having a relevant degree in Economics or statistics may be beneficial but it’s not the only thing they are looking for. To get a true diverse trading team they will include traders from all walks of life with varied tertiary education and trading backgrounds.

The Bottom Line

High salaries, huge bonuses, and great perks attract a lot of job applicants to hedge funds, but only a few qualify. A candidate attempting to score a hedge fund job should research the industry, pursue the right education, and seek related internships. Beyond that, hedge fund job candidates should ensure that they have the necessary knowledge-based skills and personal skills required to be hired and thrive at a hedge fund.