Morning Coffee: How to train your brain as a trader. Where banks want to pay big bonuses now

With quant hedge funds booming, large firms replacing their traders with machines and artificial intelligence hedge funds already a reality, how can you maintain an edge as a mere human trader.

The whole concept of humans’ gut instinct ultimately winning out may be something of a cliché and – according to some senior hedge fund managers who point out that algos are only going to get smarter – perhaps not something that will last particularly long.

However, if you think the secret to a successful trading career is all down to rational judgement and quantitative skills, you may want to trust your emotions a little more. New research cited by Bloomberg points to how the ability to read other people, and anticipate what they’re likely to do, is the all-important X-factor that makes a good trader.

“I would describe the X-factor of risk judgment as part of a suite of emotional competencies that extends from knowledge to recognition to understanding,” said Denise Shull, founder of Rethink Group, which trains both professional athletes and financial professionals.

It’s one thing trading in the right frame of mind – or getting out as the cortisol builds up – and quite another learning who to focus your unconscious brain. But Shull believes you can train your brain for this: “Cognitive empathy is thinking about it and trying to do it intentionally, and that’s where you can train yourself.”

Separately, banks are seeking a way to back out of the EU bonus cap, but not for their super-star traders, rainmakers or senior executives. Instead, the FT reports that Spanish bank BBVA is attempting to convince regulators to water down the rules for technology specialists.

Bear in mind that the bonus cap, which limits variable compensation to 100% of salary (or 200% with shareholder approval) only applies to those earning more than €500k who are considered material risk takers, so the implication is that technologists can do very well indeed within banks now.

“In some cases we compete against US banks or tech companies on acquisitions. Their bonuses are not capped, so we may lose out,” said Juan López Carretero, BBVA’s head of digital M&A. “If you can design an app so a payment is done in two clicks instead of eight clicks that is valuable but it isn’t putting the bank at risk.”

Maybe not, but what if you’re developing a cutting edge trading platform?

Meanwhile:

Like human hedge fund portfolio managers, AI hedge funds need to develop a track record before they’ll be taken seriously (Bloomberg)

Goldman Sachs is targeting 15-year-old female coders: "I was really intimidated walking into Goldman Sachs. At the beginning no one was talking to each other." (Business Insider)

Nomura's yo-yo U.S strategy has swung back into hiring mode (Bloomberg)

Neil Woodford has scrapped bonuses for his staff: “There is little correlation between bonus and performance and this is backed by widespread academic evidence. Many studies conclude that bonuses don’t work as a motivator, as expectation is already built in. They also suggest that bonuses can lead to short-term decision-making and wrong behaviours.” (The Times)

The co-head of equity capital markets at BAML, Mary Ann Deignan, has left to join Lazard’s ‘corporate preparedness’ division, which aims to arm company defences against hostile takeovers (Financial Times)

Paul Singer thinks this is a very, very large bond bubble (Market Watch)

HSBC’s head of FX, Mark Johnson, is in his $3.2m London suburban home and the U.S. Department of Justice seems in no rush to deport him (Bloomberg)

Big banks are not just in the UK because of the EU, says the woman negotiating with U.S. firms in New York for the British government: “They say they feel optimistic about the Government’s focus on maintaining the UK as a highly competitive economy. And I think that’s important.” (Telegraph)

Citadel, Point72 and Millennium are the biggest hedge fund hirers of interns (HF Observer)

Bank M&A deals are booming, but there will be no new TBTFs: “There’s a reluctance of banks to join the ranks of what we call systemically important financial institutions. (Bloomberg)

Goldman Sachs has re-named its retail arm ‘Marcus’ (Financial Times)

BNY Mellon has hired UBS’s blockchain expert (Financial News)

Analysts at Credit Suisse made managing directors in investment banking test their pitching skills against one another…all for charity (Financial News)

“I doubt that the City’s new advocates really want Goldman Sachs to double its workforce in London: I fear instead that they think that highlighting any finance job losses from Brexit will help them “prove” their point that the vote will turn out to be damaging. (Telegraph)