What I learnt from bond trading
I would say the best learning experience in my career was the days I spent as a bond trader in IDBI Bank and Citibank. I spent around four and half years as a proprietary trader in the Indian bond market and it was a fruitful experience. What have I learnt from bond trading that makes me say that it took me up the learning curve much faster than any other function such as equity sales and research and fund management? Let me list out what bond traders learn.
What bond traders learn and learn fast?
The first lesson a bond trader learns is that profits are meant to be booked and losses are meant to be taken. Bond traders run leveraged positions that are meant to bring in profits in a maximum time span of three months. However, if profits come in earlier than expected or if the markets go against the positions leading to losses, cutting positions in the quickest time possible is the optimum choice.
Bond traders have to react to every single news. Hence a deep understanding of global and domestic macro economic issues is a must as is a deep understanding of currency, equity and commodity markets. Bond trading has taught me to instantly correlate movements in the USD, Euro, Yen, Yuan, Won to domestic interest rates and currencies. It has taught me to look at Libor and US treasury yields to link to FII flows to the domestic market.
Bond traders, while mainly trading bonds (either government or corporate bonds) have to also trade interest rate derivatives and currency derivatives. Bonds cannot be traded on a stand alone basis given linkages to other markets.
Bond traders cannot hide anywhere. There is no question of saying markets are bad, as bond traders are meant to take advantage of bull and bear markets. Bond trading is like an individual sport like Tennis, the trader is solely responsible for profits and losses.
Traders use investors. Investors are used for dumping unwanted positions or for offloading positions to book profits. Investors are suckers as they take on unwanted positions of traders and the only reason traders do not want positions is that such positions are expected to lead to losses.
Day’s start early for traders. Bond traders are usually the first on the desks, taking in overnight news, looking at positions and determining what to do for the day. Bond trading has taught me to be at my sharpest before markets begin as knowing news is the best weapon for a trader.
The bond trading experience is helping me in understanding and traversing volatile markets. Equity, currency, commodity and bond markets are all highly correlated and reacting to happenings around the world is easier for me than someone who has never learnt the behaviour of other markets.
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