- Monday, 22. July 2013:
My first day at work -ever- was an unbelievable experience. I was welcomed by the HR lady at the main gate/front desk. She brought me into her office and few more signatures and administrative stuff was due. I got a small tour on the way to getting my badge that will give me access to all the closed doors. Then I was introduced to the COO of the trading/treasury department. He showed me the exact hierarchy of the bank and who will be the people I will be working for. I was positively surprised when I was presented with a weekly schedule that planned my entire introduction week very detailed. It even included traveling to another city.
The COO then introduced me to a woman who is in charge of me within the trading department. She showed me around in the trading room and the cafeteria. My desk is located right at the entrance of the huge office. It contains two huge screens, a trading keyboard and a touch screen phone. After having some issues with my computer, I was given a list of directives to start getting into the world of trading. Constantly I had people around me talking in a "strange" language and picking up phone calls every other minute. Hopefully by the end of this internship I will be understanding it.
On that list I was faced with many new terms and vocabulary: Stock Market, Fixed Income, Listed Futures and Options, Foreign Exchange and precious metals, Financial engineering and the last but not least: Treasury, Money Market & Fiduciaries. For the next one or two days I will be busy trying to figure out what they all mean.
Today was very special because it was nice to feel welcomed with open arms and people caring about me even being on the lowest career status. My current status as an intern is 7 out of 7. People took of their time to give me a great insight into the offices and showed me a lot of respect and understanding even though I am not yet into the field yet at all. Furthermore I was invited for lunch to a fancy restaurant and was told that they will even be covering my travel expenses.
I confronted the COO with the question of what the Swiss Banking will look like and he explained me
After the first day getting to an end I am very tired and exhausted but excited and motivated for tomorrow.
- Tuesday, 23. July 2013:
Today was again an unbelievable day. I feel very welcomed by the people around me. Everyone is very understanding and wouldn't mind to answer all of my questions about anything related to trading. I had two bigger meetings today on my schedule:
The first one was with the team of the "Precious Metals" and the second one with the Project manager of the COO of Trading.
Both of them very incredibly patient explaining me everything into detail and giving me a real life experience of what it means to actually trade gold, silver, platinium or palinium. Furthermore it was very interesting what it means if two major banks merge and what it means to combine two full teams in one and making sure all the services are executed and the very best and (cost-) efficient way.
The morning I spent in the „Precious metals“ department. It consists of a team of 3 members.
First I was introduced to a woman who was in charge of the execution of the 4 main metals that are traded: gold, silver, platinum and palladium. She explained how the system is organized. Our bank is usually a “market users” and asks for the prices from big banks like UBS, CS and Deutsche Bank (they are the “market maker”). Never the less our bank is also a market maker for a few smaller banks. After the client gave in the order s/he has the option of either trading with ‘real’ metal, meaning that they actually want to have the physical metal somewhere in stock or to have an account where you have a position. Interesting is the job of this woman: After receiving the order from the client she has the option of doing some gambling for the bank: If she believes that for example the price will go down, she can wait with buying the gold and make some money with the difference between the price signed with the client and the actual market price. This is obviously connected to some risk since the bank will have to buy the gold also if the price goes up. Twice a day there is a “fixing”: Once in the morning and once in the afternoon. For about 15 minutes the prices is fixed at the equilibrium between demand and supply. Out of experience the price usually meets quiet in the middle between ask and bid.
Then I went on to a guy in charge of the futures and options on precious metals. They usually trade in Dollars, Euros and Swiss Francs. There are call and put options that can be traded up till 18 months. They are traded Vanilla-Style (this is just a fancy name for a regular option with no extra features). They are traded European, which means that they have a fixed expiration date (versus an American, which isn’t fixed). All the trading stand under the 4-Eyes-Principle, which means that every trade is executed and checked by two people.
The last person in this team was a guy in charge of creating and analyzing charts. Very interestingly he believes that there are two types of traders: There are the chartist and the fundamentalist. While the fundamentalist involves his feelings and own thoughts, the chartist only –and really only- listens to what the charts predict. The chart gives always signals of buying and selling. The chartist tries to predict the future based on the past. A chart has a big advantage of not including one’s analysts opinion. He furthermore believes that everything that affects the price of a metal is already included within the prediction of the chart. Preferred trading times are up- and downward trends. Steady development isn’t interesting for trading since there are no changes. There are a few rules that have to be kept: First, when there is a gain stay with the position but limit when having a loss. Second, buy low and sell high, or sell high and buy low. Someone who strictly followed the charts predications for this year had a very good year (2013) so far.
The analyst explained me that a few years back the precious metals dealer had much more freedom in trading, while these days very often the legal and compliance department has to be involved to make sure everything is according to the law. Furthermore he said that the future of swiss banking is that there will be about seven to eight banks that provide a high standard of 7x24 trading services. Furthermore there will be a great comparative advantage for the bank that will come up with a strategy to advice and manage American money.
Following a thrilling and fascinating morning, the afternoon was very exciting too. I was introduced to the guy in charge of the “Trading and Treasury Projects”. His tasks are mainly many little projects that have to be organized and executed in a professional and efficient way. As of now their main project is organizing and supervising the merger between the two banks.
Today was very enriching. People here feel that there are big changes going on within the bank and also within the Swiss and financial market. They expect that many banks will close and/or merge. Furthermore the legal and compliance department is constantly growing, which is also for no reason: People lose their freedom in trading and are more and more restricted due to new regulations and laws.
- Wednesday, 24. July 2013:
Within the options you can either buy/sell call options and either buy/sell put options. A call option gives you the right but no obligation to buy a stock at a certain price. If you buy such an option than you can either execute whenever the actual price is above the pre-determined price and all the fees and premiums are covered. In that case the option is either “at the money” if it is exactly at break even and “in the money” if it gives you some profit. If you buy a call option you expect the stock price to raise since then you have the right to buy at a lower price and immediately sell it to a higher price. On the other hand we can also sell a call option and receive for this a premium that is traded at equilibrium where demand and supply meet.
The opposite is true for the put option: A put option gives you the right to sell a certain stock at a pre-determined price. Here you expect the stock to fall, which will give you the right to sell at a higher price. Meaning, you will buy the stock on the market and immediately sell it using the option. You only execute at a price where the option is “in the money”, since only then you have some gain. In case you the opposite occurs and the stock goes in the opposite direction than the option is “out of the money” and has zero value and won’t be executed. In both cases – buying a call or a put- has a maximum risk of the money invested for the option.
In case someone owns a stock, which has a high volatility (goes up and down a lot) but the investor wants to keep the stock but at the same time insure himself against losses (lower the risk), so he can buy a put option (reminder: option to sell a stock at a higher price) together with the underlying asset and can await the increase of the stock. If the stock actually goes up enough to cover the price of the option than he will just sell the option to a lower price and so too the stock. In a case the stock price drops a lot, the investor is insured and can execute the option and will only loose a pre-determined amount of money and risk.
The price of an option is dependent on a few factors: First the duration of the option, then the dividends influences the prices as in that they before they pay them out people will execute the option to be eligible for the dividends. Second the volatility has a great impact: The more it goes up and down the riskier it is. The price of a stock reflects what people are actually willing to pay and their expectations of the stock. The higher the expected price of a stock the higher actual price they are willing to pay and vice versa.
Then I was explained some technicalities about options: Options usually expire the third Friday of the month, they are traded mainly “American” (execute at any point during lifetime). There are “Warrants”, which are options issued by the bank and are usually less risky. There is the OTC (over the counter), which means that a client buys an option. Interestingly, most options are never executed but much rather only traded till expiration day. “Open Interest” (open contracts) usually decrease the closer the expiration day comes.
Then there are some futures: Here you buy a certain market, for example: the Swiss market, American market or anything like this. Here someone expects a certain trend of a market. The price is determined by the expectations: Is the reality better or worse than what we expected. If it is better than expected, the price is high otherwise low.
After the options I was introduced to the “underlying asset” of an option: the stock itself.
There is the Swiss market desk and the foreign market desk.
The Swiss Stock Exchange (SMI) starts the trade from Monday to Friday between 9:00 and 9:02 in the morning and closes between 18:30 and 18:32. To ensure no one knows the exact time it is randomised and it is unknown to anyone. These days is all very much automatized, meaning one to two workers can handle the entire traffic of the bank. Wasn’t imaginable 20 years ago. These days a “regular” person is able to do what back in days only professional were. This has its up and downsides: It’s advantage is that the whole system is much more efficient on the expense of the knowledge and skills of the people. Also here I was told again that it was much more fun back in the days since people were much less limited and were able to use their skills and knowledge to trade and charge for that. These days everything is limited and regulated to avoid any kind of scams.
While the Swiss desk consists of all the stocks traded in Switzerland, the foreign exchange consists of all the stocks that aren’t members of the Swiss Stock Exchange. It is basically the same as before just that there is a time difference and you can only trade with amounts of stocks and not percentages nor nominal. The guy explained me that it is very difficult to keep track and the overview of all the different software that is running on his screen (Key Trader by UBS, Bloomberg and the Broker over the phone). Here is a software problem since newly issued trades by the CRM aren’t “popping” up on his screen to assure he sees them as immediate as possible.
In the afternoon I met with the guy in charge of all the Trading Software. There is a special language between the “engineers” for trading. This language is called “Fix Box”. They have several crucial tasks. Firstly they have to make sure everything works efficiently and fast. For example when a client gives in an order and request a price to get an offer, to offer is only valid for 30 (!) seconds till it expires. When the time is up the price isn’t guaranteed anymore. To assure the clients gets the price he wants, the software has to work properly. Second they have to make sure that there aren’t too many steps included in the whole process. This is important for the client since it lowers the fees.
Before this exiting day was over I had one last meeting: Financial Engineering. They deal with return and risk. Trying to generate a product that has the highest return for the lowest risk.
Value versus Price
If Value > Price then you want to buy.
If Value < Price then you want to sell.
Apparently many people question how you can make money with money. The example he brought down is of a field of trees. I have an orange tree and you have a lemon tree. So either I can trade with you oranges for lemon or at the beginning of each term I buy of an option in case I want a lemon (but I don’t have to actually buy it, I just own the option). Now during the year all of a sudden he prefers to have the option of having peaches. So he will try to find someone who wants to trade with him the Peach-Option for the Lemon-Option. And here is a case were you trade a money value: option with a certain value that’s price is higher than my utility with an option that’s value is smaller than my utility and I am willing to pay for that. Another example are insurances: here you pay for a possible eventuality. In the case of an insurance your increased utility is that you can sleep quiet at night and you don’t have to be worried about many eventualities.
Risk no Risk
Not Wanted +
The situation here that is actually good for the investor, if someone wants risk and gets risk or if someone doesn’t want any risk and also doesn’t get. The two other options are bad for the investor and very unpredictable.
Someone can invest in a “Basket”, which are a bunch of stocks in one paper. So if an investor wants to invest in many different stocks at the same time, this will be the tool he is using.
In case of high dividends and after buying a call option, you expect the underlying asset to decrease. And in case of high dividends and after buying a put option, you expect the stock to rise.
From the perspective of Swiss tax law you can avoid taxes if you assure that the gain will be on Capital.
The higher the volatility is the higher the prices of options (and vice versa). Furthermore the worse the economy is the high the volatility.
Last term for today: “Arbitrage”, which means riskless gains.
Today I came up with that theory why there are much more men (approximately 30) and ‘only’ a few women (approximately 5 women). My theory is that men are much more rational and focused on charts, while women are much more emotionally involved and therefore are more likely to make decisions based on their feelings over doing them based on facts. That seems to me that just based on the jobs requirements and what skills are needed men are much more suitable.
Tired and exhausted but enriched with great insights I am leaving the office. Can’t wait for tomorrow. Exciting day tomorrow!
- Thursday, 25. July 2013:
My first meeting in the morning was with the managing director of the bank’s treasury. Very interesting department. They are in charge of making sure the bank is constantly liquid enough to handle the daily business. Apparatnly also this department got strongly regulated in the past few years by the government, which makes it much less enjoyable. It’s very important for a bank to be liquid exactly at the best position. It’s not good for a bank to be too liquid or not having enough money on hand. You have to imagine this as if the bank switches in the position of a client. The CRM’s are other banks and very often also the SNB (Swiss National Bank). Before the big economical crisis it was very ‘nice’ every bank ‘helped’ each other out when they needed money and in return they got some interest. Banks got interest from the SNB too but now no one is paying any interest. Meaning there is a 0% interest rate. What does that mean? That means Bank A needs money and Bank B has money. Now Bank B would like to give it to A but expects a certain return, but they aren’t willing to pay so they wont get the money. This lead to a very untrustworthy situation between the banks and the SNB. More about this a little later.
It was interesting to hear from him how he feels about the current and future situation of banking. These days totally mainstream people are well informed about the stock market and are able to negotiate with the CRM conditions that weren’t known to clients 20 years ago, this means that they are able to compare between the banks much easier and then bargain with the CRM. Back in the days everything said or offered by a CRM was taken as a given. These times changed. Now the main remainder of what is left is the reputation of the bank that makes them all different. Very interestingly he told me that the most important things within the bank and the relationship between the client and the CRM is “human” and their interaction. We are living in a post-black-Money world, which closed many business opportunities but also opened many new ones. When it was possible to make big profit with untaxed money, it’s not possible anymore these days.
To summarize the task of the treasury desk: Assuring the bank’s liquidity and super vising the banks activities.
Treasury has two more desk here in Zurich: Money market and Fiduciary deposit. Cash Management are the ones who are actually taking and giving loans to other banks. As mentioned earlier they are trading with other banks or the SNB. Having said that and the current economical situation, in state of receiving some interest, they have to pay to give out money. Yes, you heard correctly. It’s like going to a restaurant and getting paid for eating there. This is a totally new situation that never happened before and is in none of any Finance or economic books. This trade is called a REPO –Trade. Everything is traded in currencies (usually CHF, Euro or USD) and everything less than one year.
Now, for the very first time I was sent to a different city for work. This afternoon I was sent to Basel to get to know the Headquarter and it’s rooms. The expenses were covered by the bank. There I went to the first floor to the trading department. Facility wise it looks great and there are much more people working there. They have a big “Financial Engineering” (FE) department. We first had a short briefing about DCI (Double Currency Investment), which is one of the products offered by the FE.
What a great day. On my way back by train to Zurich. Crowded and smelly trains since there are so many people commuting between these two cities. But honestly it is very relaxing. According to my schedule I will go to Basel again tomorrow morning.
Can’t wait for it.
- Friday, 26. July 2013:
Train leaving at 08:00 am from Main train station from Zurich to Basel. Expected arrival time is 8:53 am. Traveling is great. Lets see how i can use the commute time in a smart way. as of now I am using the time to write my reports. Honestly though it is very difficult to stay focused with all the other people around me.
Let the day begin.
On the schedule today is another but deeper introduction to financial engineering. The headquarters in basel are the ,aim office for this. While in Zurich they prefer not to have too much risk, they only the main transactions in trading. Basically taking the order and execute them. In basel they are more into the development of new products and to mange the entire circle of the trading.
There is a subjective judgment of the market. If the subjective risk is smaller than the market evaluation, than you as an investor are willing to invest. The FE has four main task: developing new ideas, decide about the pricing, do the actual trading and being in charge of the administrative stuff.
FE has four main desks:
1) Origination: This is the binding point between the CRM and the FE. When there is an advice necessary or the client requests a certain product, they get to this desk. During uncertain times it is usually recommended to invest in these products. The only problem is that investors don't have the courage to actually do it during these times. The higher the volatility the lower is the risk, since the risk is based on it.
2) Development: mentioned already earlier.
3) Middle Office: This desk is responsible for the actual execution and all the administrative stuff around it. They have to generate templates for each product to assure the clients gets to see what they actually bought. Furthermore they do the execution, documentation for the electronic stock exchange (scoach), and for the secondary trading, meaning if a client wants to sell his/her product but it is still hasn't expired. To assure that the client see in his portfolio a correct portfolio evaluation, this desk has to re evaluate the products every day. Last but probably the most important task is the risk management , which is also administrated by this desk.
4) Trading / Market Making: on this desk they are actually putting these products on the stock exchange. The currency is usually euros or swiss francs. They traid vanilla in exotic ways.
One famous example of this product: Kapitalschutzprodukt.
This product takes a sum of money and invest its interest. Worst case you get back your sum of money without interest and in a good case you can hedge your interest. Since interest rates are so low they gamble with ten percent of the capital, which means in any case you get back approximately 90% of the invested money. The client has some good chances in receiving a higher return than just regular interest and for the bank it is a very low risk investment. Since the crisis a few years ago, it is again so that the more return you want the higher risks you have to take. This wasn't given just before the crisis. People were arbitrage seekers till the entire market exploded and since then crms are much more hesitant about all this FE. Futures and trends are very uncertain.
Afternoon is approaching and the travel back to Zurich. One last meeting for this week.
Meeting with the trading operations team. Their job is to do the link between the stock exchange and the Zurich office. It is in their responsibility to discover mistakes and keep proper track of all the things going on. Anyhow, 95% of the trades are correct.
Weekend!!! Amazing week is coming to an end.
- Monday, 29. July 2013:
This weeks schedule is Basel. A project was found for me. Many products from the financial engineering department need detailed protocols, for many reasons. One goes to the client, one to the stock exchange and one stays with the bank. For that reason they have tons of templates, which are automatically filled in once a client filed a trade. Due to the merger these templates have to be updated. There are about 150 templates. This will be my job for the next 3 days.
Apparently this is exactly the kind of job every intern is destined to do at one point or the other. Now is my time. I will have to constantly remind myself not to complain since why would anyone give me a more responsible task if i cant get a job like this done properly.
First day is over. Lets say like this. The job isn’t as diverse as my last week but still against my expectation much more important. This is because these documents also serve as legal documents for all its users. I am more than half way through. See you tomorrow.
- Tuesday, 30. July 2013:
- Wednesday, 31. July 2013:
Indeed I found some mistakes so I hopefully was able hand in a perfect job. They will let me know by next week if it was ok.
For now, have a good weekend and see you again on Monday morning, bright and early.
- Thursday, 1. August 2013: Swiss National Holiday
- Friday, 2. August 2013: "Bridge" - now work too!
- Monday, 5. August 2013:
- Tuesday, 6. August 2013:
- Wednesday, 7. August 2013:
- Thursday, 8. August 2013:
- Friday, 9. August 2013: