Optiver Amsterdam

Addicted to Beating the Market

 
Trading seen as a game

Young calculation specialists dominate trading on the stock market, supported by high-speed computers. 'We do not think in money but in numbers.

The corridor turns red, then orange, then purple. Hundreds of computer servers are stacked behind a long
transparent wall, illuminated by the mood at the exchange. Red for busy, blue for calm. Like in a space station, tunnels lead the via a course to the control room: the dealing room of trading firm Optiver.

Sjoerd Hoving (26) has been working for two years as a trader in the tower at the Amsterdam Zuidas. He even traded when he was a Mathematics student in Enschede - "in some smaller funds", he says almost apologetically. He has a friendly face and bright eyes. In his faded jeans and sneakers he does not look like a typical Zuidas Employee. The dress code at Optiver is casual, every day. Optiver is one of the trading companies who make money with the so-called high frequency trading. Computers using complex algorithms trained to think like a trader, but with a much higher speed. In 250 microseconds, 2,000 times faster than a human eye blinks, the transaction can be completed.

Recently this flash market has been strongly criticised. Through enormous volumes, the stock market can become
volatile and unpredictable. With their fast computers, traders can have an unfair competitive advantage, and what if the software is faltering? In June the computers of Deutsche Bank accidentally placed an order of 150 billion euros to the Osaka Stock Exchange. In May the Dow Jones index went down 1000 points in 20 minutes for unexplained reasons. Experts pointed directly to the high frequency trading firms, where the U.S. regulator SEC was considering a speed limit to be introduced. On the contrary, European Supervisor CESR, recently announced that no preliminary action would be taken.

For Sjoerd it is a dream job. "I would not want anything else," he says. "Maybe in five years, but not now." Of course, you have to constantly remain sharp and it can be stressful, but you get used to it. "You're really an entrepreneur from your own desk. If you do it well, you get a lot of freedom. "
Around him the computers buzz. Endless rows of screens at empty desks. No pens, no paper, no pictures or other
office gadgets. Nothing to distract attention. With a quick glance double check and verify his screens - one for email, one for quotes and charts and four for the long lists of option positions - to see if he missed something. It is quiet, luckily.

It is addictive, he admits. His eyes sparkle when he talks about " beating the market ", "better than the rest" and "the strongest". "Everybody in this business is very competitive," he says. "In that sense, it is an elite sport. It is a matter of probability and being smarter than your opponent. "Poker Tournaments are not popular among the workers for nothing, just like computer games." Therefore near the trading floor, there is a playroom with pinballs, table tennis tables, billiards and table football. The chance to be outside of the abstract world of numbers and play a game that is not about a lot of money.

Sjoerd has little difficulty regarding the fact that his work is so abstract. He takes it for granted that his friends still do not understand what he does. "Of course I sometimes think about the added value," he says. "That is really there. We make the market more efficient and ensure that such, insurers and pension funds can do transactions. We provide liquidity in the market, that is very important. "

A little further on is a 23-year-old Malaysian boy - back slumped, legs up - with the click of the mouse he is able to adjust his prices. He appears to be overshadowed by a thick black puffa coat. "We have a lot young foreign guys," said Sjoerd. "They come without a friend or family so we do a lot. It's like a student culture, where close friendships last."
He points to a boy the phone. "There's Dimitri, a Greek. To him we have made some jokes about the debt crisis.
"Dimitri grins without interrupting his conversation." I pay tax in the Netherlands, and pay so I also participate in the rescue operation, "he said as he hung up again.
Another desk is having an active discussion:
"I don't think it's that good." "I understand that."
"What can we do?" "I also need to sell some." "53?"
"Yes, I think 51 is just a little too..." "Could we do 52?"

Since the demise of open outcry trading in 2002, the work became less exuberant. The disappearance of the central
trading floor made coloured jackets and shouting traders redundant. Analytical ability and fast computers are more
important than having a big mouths. The marketsellers of the Albert Cuyp, are replaced by whiz kids - the younger
the better.
But the trading screen has its own dynamics. Number rapidly flash in small boxes over long lists. Different colours filter what is important. Every trader has his own warning sounds: boing, chirping, pinging. Anything to prevent him wandering and missing a transaction. The speaker of the phone, the 'box', sounding the voices of the brokers, agents enquiring about prices on behalf of their clients. "Hi mate," What Can You Do for me today? "

"We are market makers," explains Sjoerd. "We will create a market for options by giving two amounts; the buy price
and increased sell price. Then I say for example "18 to 21". That means I want to buy an option at 18 euro and sell again for 21 euros. " The trick is to determine a good price, otherwise you will not be able to sell your options. "The computer determines the initial price, but we adjust the variables. You must quickly decide what to do in order to beat competition. "
Because being faster than the competitor, is the whole point in option trading. The margins are small and therefore have to be fast and in volumes. Thanks to electronic commerce formulas are successfully copied by anyone.
It is one of the reasons why Optiver takes only graduates and not experienced traders. "We prefer home-grown",
says Hans Pieterse, director of the Optiver Europe. "Why does someone walk away from a competitor? You do not
know what the motives are, they can leave us also." The risk factor also plays a role. "Young traders start with small limits, so we can gauge their risk appetite, don't they do strange things!? We install a low risk culture from the start."

"The whole industry is more introverted," said Sjoerd's more experienced colleague Sweder Blaisse (35). After his
law studies at Leiden, he began at Optiver eight years ago. He has seen the IT systems is becoming increasingly
more important. For each trader, there is now an IT specialist employed.
Does the software makes the trader redundant? "No," said Sjoerd and Sweder simultaneously. The computer may be
especially fast, but has no eye for market conditions. "It takes no account of a volcanic eruption in Iceland, or a debt crisis," explains Sweder. "That's what we are for".

"You could compare it to driving," said Sjoerd as he gets a cup of coffee in the cafeteria - an American diner, with plenty of fresh juices, sandwiches and hot meals.
"A Ferrari is obviously faster than a Fiat 500, but you must be able to drive. Even the most advanced computer
system must have someone to introduces the variables. Without a driving license in a Ferrari you won't get much
further than a Fiat with a license. "
Although an understanding of ICT is increasingly important, it is not part of the selection. Most stumble anyway in the numerical test, which assesses whether they continue to think straight under pressure. Eighty questions - how much is 0.034 x 0.2 - in eight minutes. "You do better coming as far as possible with a few mistakes, than coming halfway through with everything correct," says Sweder. Ten percent get it and go to the next round. If they are hired there will be a trainee class of three months, which they practice using a dummy system. After that, life starts as a 'real' options
trader.

A day begins in the morning at eight o'clock in research on the various listed companies, explains Sweder. The news is kept by Bloomberg, "who are a second faster than Reuters." Just one second can make a difference.
Between nine and one, brokers call with orders for UK banks. At half past three to the stock exchanges in the United States and becomes busier. To the bathroom or fetch some coffee is allowed, but only if a colleague is watching screens monitors.
After 5:30pm, the exchanges close. "You immediately see how much you've earned, because we are responsible for
our own accounts," says Sweder. Everybody knows who is good and who is not. "No, we have no employee of the
month, as some competitors do," he laughs. "For us it is more: if you do it well it's nice, but can you not do it better?"

 
On the other side of the city, Beursplein 5, are in a much smaller space, ten boys doing the same. Just before Van der Moolen their employer went bankrupt last year, they began to himself. Finally, there was room for their own ideas and trading strategies. Caerus Trading was born, named after the Greek god of the favourable moment.
One of the founders is Arne Kanters (39). He actually wanted to build airplanes, or Formula 1 cars. He studied
aerospace engineering in Delft and worked with car manufacturer Porsche. Until he saw a job as an options trader.
He was curious. "I was not like most guys here as a student I had already started investing. I was more a "wheeler-dealer", always busy trading. "Now he works in the French index, the CAC40.  The back of the old Stock Exchange looks out to Warmoestraat: strip club 'La Vie en Proost "pub and" Dirty Nelly's.
Even inside it is less than sterile than Optiver. Red lino floors, technical ceilings, indoor plants, fresh cans stacked in the fridge. The only glamour can be found in the stock of champagne available, "for when the targets are met".

From a table by the window you hear excited voices, from something likening to a pirate radio station. It is a wire box that partly replaces the costly systems of Bloomberg and Reuters. When something happens in the financial markets you hear shouting from a few London boys as though their lives depend on it.
Caerus must also compete in this competitive race for the smartest marketing strategies and the fastest connections
to the exchange. However, the trader does make a difference, Arne thinks.
"You have two types of traders. Those who are theoretically very strong and those who purely act on experience and feeling. "He falls into the latter category, and enjoys it when the market is unsettled.

"And contact with reality? "We do not think in money but in numbers", colleague Arnout Crucibles (35) supported him.
"You should see it as a game only you do not get carried away by such large amounts."
A game where you do well to remain aware of the risks, recognising both. A typo and then there are too many
thousands of orders on the screen. "That's why we have several safeties built", says Arnout. "We can state a
maximum thousand contracts to be closed simultaneously. We do not want more. This is different to the trading floors of large banks. "There are the really young guys, cowboys, playing with money. Recognised for great results. "
With less risk there are also goods to be earned, but only if there is movement in the market. Whether the stock goes up or down makes little difference. "If it is not busy enough, I wander off," says Arne. The busier the better. Then I will come home shattered, but they are the best days.

Although, sometimes something happens that even more experienced traders does not want to earn money from.
September 11, 2001 for example, when the exchange went straight down after the attacks in New York. "It was
chaos. When the second tower came down, I left. What happened was so violent, that was not a game anymore. "  

What is an option?
An option is the right to have a predetermined price within a specified period to buy (call option) or sell (put option) something. The value of the option is based on the value of the underlying product (eg equity), maturity, volatility of the price of the shares and interest.

What does a market maker?
A market maker creates a market for options by increasing amounts two to indicate the price for which he wants to
buy an option and the price at which he wants to sell, for example 18 to 21. If the purchase price on the market rises above the 18 euro he deserves because he has bought it cheap. If the selling price will be 21 he lost because he has sold it for less. So he literally makes the market: if anyone wants to trade in options, there is always a counterparty. A market maker earns only the difference between the buying and selling prices. It does not matter if the stocks go up or down.

Amsterdam big in options trading
The Amsterdam options exchange in Europe was first founded in 1978. The Dutch option houses have since become top internationals. Companies like Optiver (600 employees, 3 offices), IMC (600 for 5) and All Options (300 for 5), all originated in Amsterdam, but now act on option exchanges around the world.

26/08/2010 NRC