In the past if you wanted to become a trader you would get a job at a major bank
The aspiring trader would be chucked in the deep-end with an order book and those smart and determined enough would survive to grow into accomplished traders in their own right.
How did they learn?
There was no text book, it was actually about the people. If they were lucky enough the new entrant would befriend some wise old trader who would act as a mentor of sorts.
It was really though a process of osmosis - of being around people that knew what they were doing - absorbing what worked, and figuring out how to fit it to their trading style.
Today that pathway is gone. Banks aren't hiring or are closing down their desks.
Why?
Automation
The job function of the trader has been slowly becoming more and more automated. What was traditionally performed by the trader on the desk is now done by a computer.
This results in three things:
Existing traders are far more efficient, the downside of which there is an excess of traders, making it hard for new entrants to get into the game.
When things turn to custard (think SNB) there are less experienced hands around to stay cool and handle the problem. This has resulted in more illiquid conditions and rapid moves.
Funds have become more important as market participants.
Regulation
Since the banking crisis in 2008 a raft of new regulations came into force making it difficult for banks to continue with their propriety (prop) trading activities.
Prop trading is when traders take directional trades in order to profit, as opposed to making a market.
One of the side effects of this is that hedge funds and trading organisations don't have the same pool of talent to pick from. In-fact they are actively looking to develop new sources of traders.
What next?
Now is the new age of the retail trader.
But how do you master the skills you need to trade without access to the traditional bank way?
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access)
