A look into the life of a trader

From the Wall Street Journal:

Steven Schonfeld has nothing to worry about from the new U.S. executive-pay czar. The 50-year-old owner of trading firm Schonfeld Group Holdings LLC is living it up like the financial crisis never happened.

He says he made $200 million last year and just moved into a mansion near the Long Island Sound with its own nine-hole golf course. He has spent $90 million on the home, he says, and is currently erecting a poolside cabana designed to look like the Cove Atlantis resort in the Bahamas. "I don't think it's putting anyone's face in it," he said recently while showing a visitor around the property. "I live in this house."

Many of Wall Street's A-list firms are retrenching, but plenty of B-list firms like Mr. Schonfeld's are prospering and hiring. In Mr. Schonfeld's 27 years in the business, his small, little-known firm never had much success hiring traders from Wall Street's biggest firms -- until the financial crisis battered the industry last year. Since then, he has hired more than 20 traders from big banks, and he wants a dozen more.

Mr. Schonfeld isn't trying to rein in the every-man-for-himself culture that churned out big profits on Wall Street during the boom but even bigger losses at some firms during the bust. He provides seed money for new hires and gives them freedom to decide how to trade. Traders keep a percentage of their profits. His best ones make $5 million to $10 million a year, he says.

The firm, founded in 1988 with six employees, hasn't always focused so heavily on trading. Over the years, it also has handled trades for day traders and institutions, among other things. These days, it is betting more of its own capital than it once did, just as firms such as Morgan Stanley dump businesses that don't fit the lower risk profiles it adopted when it converted to a bank-holding company last year.

Last year, Mr. Schonfeld's trading strategies -- some are based on short-term market moves -- generated 35% of the firm's profits, says Mr. Fishman. Schonfeld Group expects revenues of $250 million to $350 million this year, down from $590 million in 2008, when volatile markets generated better trading opportunities. Mr. Schonfeld says he expects profit growth to bounce back as the firm's newly hired traders get established.

Mr. Schonfeld got his start on Wall Street in 1982 as a broker at Blinder, Robinson & Co., which got into trouble over its sales practices for penny stocks. He says he steered clear of those securities. In 1987, he left for Prudential-Bache Securities Inc. and began trading, but soon quit to trade his own money full time.

In the 1990s, he built a business around training day traders. When the Internet bubble burst, he acquired several struggling rivals. In 2006, he sold a majority stake in the day-trading business, but held onto the traders who were operating with the firm's capital.

Mr. Schonfeld developed a reputation for obsessing about statistical probabilities and making rapid-fire decisions. He sleeps just four or five hours a night, and often emails trading ideas to lieutenants between 3 a.m. and 5 a.m. At one dinner with traders, he said that anyone who looked at the menu for more than 90 seconds was in the wrong business.

In mid-2007, Mr. Schonfeld noticed that many traders using math-based strategies were notching losses. Figuring such losses wouldn't persist for long, he began trying to lure such traders away from big firms, an effort that gathered steam as Wall Street's troubles deepened last year.

In January, Ashwin Kapur, 33, left a Barclays PLC trading desk in New York to join Schonfeld. A veteran also of J.P. Morgan, Credit Suisse Group and Royal Bank of Scotland Group PLC, he is working on a trading system to exploit discrepancies between prices in stocks and derivative contracts such as futures and stock options. Schonfeld executives say they plan to bankroll the venture, called Systematic Trading LLC, with as much as $250 million in capital, and will split any profits with Mr. Kapur. If there are losses, the firm will have to bear them.

Mr. Kapur initially will have less capital to trade with than he did at Barclays. But he says he could earn more money because his compensation won't be affected by Barclays's various nontrading businesses. Working at Schonfeld "directly ties my take-home to my performance," he says. His contract entitles him to a few million dollars in bonuses if he generates consistently positive returns.

Mr. Schonfeld is rarely seen in the firm's Manhattan office. He runs his own trading strategies from the company's headquarters in Jericho, N.Y., near his mansion in Old Westbury.

Three or more times a week he keeps right on wagering at the gin-rummy table after the markets close. Playing cards, he said, is a lot like playing the markets. He doesn't like to play games where he doesn't have an "edge," he explained one recent afternoon as he stepped into a card-playing room in his home to sit down with five other players.

Wearing a gray sweater, faded jeans and white Nike sneakers, he settled into a chair embroidered with playing cards. Michael Sall, author of the book "Gin Rummy: A Predator's Guide," says Mr. Schonfeld can match up with the best gin-rummy players in the U.S., sometimes walking away with six-figure winnings.

The game broke up for dinner, and Mr. Schonfeld's chef served veal medallions and halibut. (At high-end restaurants, Mr. Schonfeld has been known to order one of everything on the menu, with his party leaving much of the food uneaten.) Over dinner, Mr. Schonfeld mused about, among other things, the odds of getting the same two gin partners twice in a row in a six-person game (10%, he says), and the chances that the Dow Jones Industrial Average will rally after a sharp decline (55%, he says).

Mr. Schonfeld has also become an avid golfer. No one is allowed to use his golf course if Mr. Schonfeld, a nine-handicap player, isn't at home. "It's not a private golf course," he explains. "It's a personal golf course."

I thought it would be interesting to do a post of the life of a trader. Apparently most, if not all traders use some kind of mathematical model to trade. The amount of money traders can make is incredible and the job is taxing to some degree. In another article, some of the mathematical trading models are developed by autistic people.

Apparently, a strong grasp of math and probability are prerequisites for the job. Some of the algorithms that traders use are incredibly predatory such as baiting other traders and taking their money. Some are self learning and never static. Trading strategies are always changing and can become completely obsolete at any time.

It's super interesting as their job isn't mundane like the typical day job of most people. Their life is a constant up and down depending on whether they make or lose money.