My introduction to the financial markets came about almost by chance. Although I graduated in Electronic Engineering in 1988, my first job was as a systems analyst at the London Stock Exchange – a decision influenced mainly by the fact that the London Stock Exchange paid a salary of £500 more than the going rate for graduates. In 1990, I responded to an advert in the Financial Times for trainee dealers at Smith New Court, the premier market maker later taken over by Merrill Lynch. I was offered an opportunity to work on the index arbitrage and derivatives desk with Gerald Freedman – widely acknowledged as the pioneer of equity CFDs in the UK.
From the moment I walked into Smith’s dealing room for the first time, and experienced the rush of the stock market, I was hooked. Three years later, an opportunity arose to establish a European equity arbitrage desk at the derivatives powerhouse Bankers Trust. After that, in 1999, I joined GNI, an exchange-traded derivatives broker, which became one of London’s foremost CFD providers.
My experience at a UK market maker, as a proprietary trader, and more recently at GNI, enabled me to learn at first hand how the market really works. I witnessed some incredible success stories – trading accounts that were opened with just a few thousand pounds and then turned into seven figure sums – and also the slow decimation of many novice traders.
I saw that the consistent winners were ex-market traders, especially those who were able to combine trading discipline with knowledge of the trading characteristics of certain stocks. A good fundamental knowledge didn’t seem terribly important to trading profitability. The other successful individuals were those who brought a competitive advantage to the market. Almost without exception they would restrict their trading to a certain sector, or group of stocks that they understood. Often they had a professional background relevant to the stocks they were trading.
Those who lost money seemed to have no clear strategy and no clear competitive advantage. They approached the market as though it owed them a living. Demise was sometimes gradual – through a steady erosion of capital and conversion of equity into commission – or sudden, through an irrecoverable loss sustained from too large a leveraged position or poor trading discipline. There is a certain truth to the oft cited mantra at training courses that novice traders overwhelmingly lose their capital while learning their apprenticeship. Market professionals meanwhile have usually already served their apprenticeship risking an investments bank’s capital rather than their own.
The combination of electronic trading, increased market accessibility through direct access, visibility and cost effective trading instruments such as contracts for difference, mean that it is now possible to trade for a living in the UK as many of my friends successfully do. The internet also allows the active trader to research situations 24/7, as well as in real time during the trading day, offering a competitive advantage. Not all price sensitive information reaches the market through the regulatory news services!
My own trading strategy has been to focus on market inefficiencies and special situations, often involving takeovers, which can be loosely categorised under the term arbitrage. Keeping a close eye on stake building, particularly by established savvy investors with a proven track record, can be rewarding and often results in later corporate activity.
There has been a quiet revolution in the financial markets in the UK over the last few years. This has been driven by the introduction of electronic trading and the growth of the internet. Despite this transformation making the stock market more accessible to a much wider audience, it became clear to me, during my time as Chief Strategist at GNI, that no clear reference work existed on the modern stock market. There was a great deal of information out there, but it didn’t seem available in one place.
Thus, many people, while drawn to the market by this new accessibility and with a natural interest in trading and investing, are coming to the market without the benefit of the knowledge of the workings of the market taken for granted by market professionals.
The UK Trader’s Bible aims to fill that gap and provide a basic explanation of the marketplace that all traders (and investors) need to know.
This book is not primarily about either of the two traditional methodologies for trading: fundamentals or technically-driven analysis. Its primary aim is to give the reader an insight into the workings of the modern UK stock market and what makes share prices move, as well as the opportunities the marketplace offers. Anyone who subscribes to the theory that a stock price reflects all the information currently in the public domain, simply doesn’t understand how the market works.
I believe the book will be of interest not only to those who wish to trade the market full time, but also to anyone with a desire to interpret the nuances of the modern market and achieve a deeper understanding – both essential to mastering the financial markets.