Market trading: How hard can it be?

By Edwin Lane
Business reporter, BBC News

image captionMoney can be made and lost quickly on a trading floor, Edwin (right) found

It's a relatively quiet day on the financial markets, but within 10 minutes of sitting down at my trading desk, I have made about $1,000 betting on a fall in the price of oil.

With the price hovering at $81 a barrel, I place a handful of "sell" orders with a few clicks of the mouse.

Then as the price begins to fall, my profits start racking up.

A small window in the bottom right-hand corner of the screen records my potential profit: $50 it reads, then $100, then $200, $250, $350, $600…

I lose my nerve and decide to buy, banking my profit at $1,000, but I kick myself when I see the oil price fall even further - I could have made so much more.

"Watch oil," another trader calls out over my shoulder. "It's really starting to move now."

I take some comfort from the fact that the money I am trading with isn't real.

In the Canary Wharf offices of trading firm Amplify Trading, I am trying out my skills on a simulator.

The market movements I am tracking on my computer screens are real, but the cash isn't.

Market psychology

My mistake of bailing out of a trade too soon is a classic mistake of novice traders, says Piers Curran, Amplify's head of trading.

The best traders, he says, are the ones that can detach themselves from the profit numbers and think purely in analytical terms.

His colleague, managing director William De Lucy, agrees.

"Market traders have to be good on the psychological side," he says.

"It's a marathon, not a sprint. You need to be someone who can accept that you aren't going to make money every day, and not let the result of one trade affect your decision-making on the next."

The trick is to analyse the data to hand, make a decision on what price to buy and sell at, and then stick to your plan.

To do that, traders have to be on top of new economic data or other news releases, and how the markets could react.

For example, bad news on US unemployment on Friday saw US stock markets take a dive.

It gave intra-day traders an opportunity to make some money betting on those market falls. They also made money betting that the market would rise again, as investors realise the news might not be as bad as first thought.

"Markets like to price in something before it happens, and they always price in the worst-case scenario," Mr Curran points out.

There is a current nervousness in the financial markets, he adds, which makes them very sensitive to any kind of news.

"You have to be a jack of all trades. You need to know about politics, economics, even the weather."

Even without big news releases, traders can still profit by making judgements on how far the market might move.

What you are basically looking for, explains Mr De Lucy, are "levels of support and resistance" in the market.

Information is king

image captionMany trading houses use simulator software to train up traders

These levels might simply be psychologically important levels, like the 5,000-point level in the FTSE 100 index, or historic highs or lows that would need a big shift in market sentiment to breach.

There are computer programmes available to help traders, but they also rely heavily on each other.

Among the clutter of charts and trading platforms on Amplify's trading screens is a chat room, where the company's 70-odd traders discuss the markets and where they think prices might be heading.

Over the course of the afternoon, traders raise their concerns over where the euro-dollar exchange rate is going, or highlight news articles that might be important.

So vital is information to traders that they are across dozens of news sources at once.

Many use Twitter to keep up with the latest news and MSN will keep them in touch with key contacts around the world.

So do the top traders earning six-figure salaries have an innate ability to play the markets, as so many in the City claim?

"It's hard to see if someone can do it from their CV," Mr De Lucy says.

"Markets are often irrational. In real life, things don't happen as they say they should do in text books."

But the financial rewards are deserved, he says.

"If you are an intra-day trader, you earn every pound you make, because you go through such a roller coaster psychologically."

And most successful traders are also surprisingly nice people, not the arrogant, money-obsessed image popularly portrayed.

"You need to be confident, but I think that Wall Street stereotype is completely invalid.

"It's really important to be humble. As soon as you think you're untouchable, the market will take you down."

As I end my day's trading, I humbly bank a cool $1,728 profit. Let's call it beginner's luck.