Time to Trade for Yourself?

With more traders facing job cuts and lousy bonuses, is now a good time to consider trading for yourself?

The temptation to go it alone may be there, especially if your products have made money while others in your firm are losing cash, says Drew Mandler, a Connecticut-based managing director for Smith Hanley Associates, an executive recruiter. In those situations everyone shares in the pain, so your bonus isn't as fat as you might expect. Even though you may be on the positive side, "There are other parts of the firm that are still losing it," he explains.

For those looking for backing or using their own resources to trade, Mandler has some cautions: "This isn't exactly the best time to think of doing it," for one thing. In the past, those that went off on their own might be able to come back and work for another firm, if need be, maybe starting in a less senior capacity. But that's less true now, Mandler says. "There are simply less trading spots out there, more competition for jobs, and people aren't as forgiving as they used to be."

Plus, if you're out on your own, there isn't a vast balance sheet from the bank to access when you get into trouble. "That money could be coming from your life savings or your child's college fund," Mandler notes.

Making the Transition

There is a "comfort level when you're working at a large firm, as you share in the ups and downs," observes Mark Moyer, New York-based managing director of capital markets at the Peak Organization, an executive placement firm. "You simply hope there are more ups than downs."

Those who want to go it alone need to be financially prepared, Moyer warns. "It's a different mindset when you're on your own, since you're not making a guaranteed paycheck anymore."

Also, there'll be no infrastructure to for IT help or other needs. "You might have a client to deal with and you can't pass them off to someone else," Moyer says. "They'll be yelling at you directly." Plus, those who are new to the business aren't quite as aware of the cyclical nature of trading. "They haven't seen a period of extended downs. The ones that were there in the past often don't want to talk about getting creamed."

One Trader's Story

Larry Levin currently trades in Chicago Mercantile Exchange's S&P pit. Before going out on his own, he was a trading desk manager for futures brokerage Lind-Waldock. Levin admits he "blew out" a number of times, and says those who trade for themselves will almost likely experience the similar fate at some point. "You simply have to try not to lose too much," he says. "I've blown out and had to go back and work at other jobs on the trading floor and as a clerk and on the phones placing orders, and it was awful."

While he appreciates the flexibility and the ability to control his own fate, Levin advises those looking to trade on their own to remember that trading requires practice. "You can't trade well without learning to do it wrong at first," he says. Which leads to a hurdle: "It's hard to find your first backing, as everyone is looking for someone on their second time."