If one intends to get hired as a trader, one should be careful, not about what one says, but how one says it.
Voice analysis technology aimed at identifying behavior associated with a successful career as a trader is being introduced by London-based Amplify Trading Ltd., which provides training services to banks and asset managers including HSBC Holdings Plc and Invesco Ltd.
Headlines are being made by how traders interact, and what they say. Citing “vulgar language” used by traders during their alleged interactions, European Union antitrust regulators fined a trio of banks 485.5 million euros ($524 million) Wednesday.
sales traders and fund managers are two groups that trainees are split into under Amplify’s eight-week program. Then to measure individual characteristics, calls between the two groups are analyzed. Speech analysis software will consider tone of voice to identify whether, for example, a trader is often agitated or frustrated based on top of simple metrics such as call length versus commission made. Banks able to pick traders with specific characteristics based on the their access to the resulting data pool.
The number of traders who still pick up the phone to talk to clients is falling, thanks to the spread of electronic trading. However an opportunity for talented individuals to stand out is seen by the shift from voice to electronic trading, notes Amplify.
“As more of the small value trading processes become automated, the value of the sales trader that can maintain a client relationship to win large block trades increases proportionately,” says Will de Lucy, Amplify’s managing director and co-founder.
A Cambridge University study earlier this year argued that “signals from the body — the gut feelings of financial lore” still have a significant impact on success rates and such focus on traders’ personal characteristics follows that study. Shown to be more profitable on the trading floor were interoceptive traders, defined in the study as those able to detect their own heartbeats.
Traditional tools by the financial industry to grade potential hires such as numerical and verbal reasoning tests have been shunned by Amplify’s methods.
“There is not one type of personality that makes a more successful trader,” says Steven Goldstein, whose company Alpha R Cubed Ltd. generates behavioral profiles of traders through psychometric testing.
Managers tend to choose people that fit their own specific risk strategy, says Goldstein, who also lectures in behavioral finance at The London School of Economics. “You often see previously successful traders struggle after changing companies. This is simply because their behavioral profiles don’t match that of their new firm,” the former Credit Suisse Group AG and Commerzbank AG trader says.
A trader’s personal characteristics can identify which market they are more suited to, Goldstein acknowledges. He says whereas risk-averse, excitable people are more suited to spot markets like foreign exchange, unemotional, logically-minded traders are more likely to have success in portfolio management or running long-term derivatives books.
Psychometric testing is a “proven” indicator of future performance, says HSBC’s Parul Shukla, To train graduate traders on the bank’s Global Markets program Shukla uses Amplify’s services.
But banks are now extending the use of behavioral profiling to identify potential compliance breakers, given the many high-profile legal cases seen in recent years.
“In addition to trading ability and soft skills like relationship management, we now attempt to measure honesty and integrity,” says Shukla.
Banks will be helped to identify the recruits most prone to mishaps and sharp practice by its voice analysis techniques, Amplify say.
“Simulation candidates very often make mistakes, by for example, quoting bids and offers incorrectly,” said De Lucy. “We record which candidates take advantage of these mistakes and which do the right thing and ask for re-quotes.”
(Adapted from Bloomberg)