You’re a star trader in waiting who just happens to have attended a tier-three university, studied Medieval History and spent most of your spare time playing World of Warcraft. Any application to an investment bank will go straight into the ‘no’ pile. Until now.
Alongside psychometric tests, CVs and assessment centres, trading games are becoming a central facet in the recruitment process of both investment banks and hedge funds. Applicants are subject to real-life style trading simulations that test their skill, risk appetite and compliance with rules and guidelines. The results have been an ever-bigger pool of candidates.
“The entire Street is moving across to these tools because they’re a meritocratic way of finding talent,” says Sean McCormack, a former Deutsche Bank trader who now runs StockFuse, a ‘candidate evaluation and talent development platform’ that uses trading games to uncover potential employees. “Traditional recruitment methods uncover traditional candidates – Oxbridge and Ivy League graduates who majored in finance. There could be a rock star trader studying history at an Estonian university who would never come on a bank's radar.”
Barclays and Morgan Stanley have signed up to StockFuse, initially as part of their graduate recruitment process. Meanwhile, David Hesketh, COO of Trading Hub, says that Bank of America Merrill Lynch, Citi, Credit Suisse, HSBC, Royal Bank of Canada, TD, CIBC, Unicredit, Scotiabank and Bank of Tokyo Mitsubishi are all using its trading simulator, particularly for their interns.
“The interns get to trade the real events that occur during their internship,” he says. “If they make money on our simulator, they would have made money on the real trading floor. Rather than just getting the coffee for the head trader, they are engaging them in intelligent conversation on macro-economic events and their impact on the market.”
Gamification of the recruitment process to unearth the decision-making powers of potential recruits was all the rage a few years ago, with a number of investment banks all running competitions on their websites. These where fairly basic though, and the new form of trading simulators are a different breed.
For a start, says McCormack, they’re gathering huge amounts of data, not just on what decisions candidates make when they’re trading, but why. There are strict sets of rules, so they’ll test candidates’ compliance. Imagine there’s a talented trader who flies too close to the edge – they could be a Kweku Adeboli waiting to happen and are unlikely to get the job.
“Our simulator enables banks to identify which interns tend to break the rules more often,” says Hesketh. “With a shifting attention towards compliance and regulation, being able to identify interns who sail too close to the wind is becoming a big priority.”
“But banks are more interested in uncovering traits that reveal potential recruits for different business areas as well as trading roles,” says McCormack. “They’re using it to find sales staff, researchers and risk managers.”
The games assess risk-adjusted returns, the sustainability of investment styles – namely, whether it was skill or luck – risk management, behavioural biases and how influential you are. At Stockfuse, other candidates see everyone’s trades, meaning star performers can often inspire other interns to ape their trades.
“We have a hedge fund client where interns are playing against their portfolio managers – it’s all good fun, but there are a lot of internal bragging rights,” says McCormack. “More practically, if an intern has a similar investment style to a portfolio manager, then they could be a good match for mentorship programmes.”