Why traders need to get themselves to the gym, and the psychologist

Traders have traditionally been among the more portly members of the financial community, unafraid to imbibe a few drinks once the markets close. However, if they’re lucky enough to remain on the trading floor in the future, they need to ensure that they’re both physically fit, and at the top of their game mentally.

As banks and hedge funds pay closer attention to what frame of mind traders were in when they made a winning move, the traders themselves need to ensure they’re at their peak. The chances of muddling through a day with a huge hangover, or fudging a period while under immense stress are likely to be consigned to history.

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Clare Flynn Levy, a former fund manager at Morgan Grenfell in the 1990s and head of Essentia Analytics, has already signed hedge funds up to its new software that aims to produce the right environment for fund managers and traders to excel. A combination of physical fitness and mental toughness are what banks and hedge funds will be looking for in their traders, she believes.

“It still attracts ex-athletes, but for their mental toughness. Mental toughness is all about dealing with highly stressful situations, which is fundamentally important to successful professional investing,” she said. “Of course, the mind and the body are very much connected, and I think we can expect to see mental toughness testing and/or training, which may include physical training, to emerge as an aspect of how banks and hedge funds get the best from their people.”

Traders, though, are taking it upon themselves to ensure that they’re in the right frame of mind. Rather than booking in for sessions reactively, most traders going to City psychology practices are doing so in an attempt to become more resilient, said Dr Michael Sinclair, managing director of the City Psychology Group.

“More than any other group, traders coming into the practice are concerned about their performance and productivity, and are taking proactive steps to ensure emotional resilience,” he said. “Traders must keep on top form to keep their jobs, and this can be stressful, but of course stress is something that will eventually deteriorate their functioning and affect their performance. This is not aided by the pressure to hide signs of stress from their employer.”

Of course, barring illness, traders generally come into work five days a week, even if they’re not on top form. In his book The Hour Between the Dog and the Wolf, John Coates argued that, like athletes, traders could be tested on their hormone levels before a working day and, if there’s too much cortisol or other performance-affecting hormones in their systems, they shouldn’t trade.

This course of action is unlikely, said Flynn Levy, but managers are still likely to “reduce risk limits based on observations about a given trader's emotional state”.  In a world of increased electronification, this new focus on mental health doesn’t bode well for traders in the ongoing battle of man versus machine. However, emotions in trading are a good thing, she argues.

“But I do think that they should be training traders and fund managers to be more self-aware, and to know when they are not in the right frame of mind to make their best decisions,” said Flynn Levy. “That requires encouraging them to honestly track data on their own emotions, but it also requires assuring them that stepping away from the screens when they're reaching a certain state is an act that will be rewarded, not punished.”

For the time being, though, traders are trying to improve their focus, said Sinclair, largely through employing mindfulness – a meditation technique that aims to increase awareness. “It manages stress levels, improves intuition and focus, and gives traders that split second of enhanced awareness to make the best decisions,” he argues.