Rookie Currency Traders Are Causing Big Problems

by Lananh Nguyen from Bloomberg

  • Job cuts leave fewer senior staff to handle black-swan events
  • Inexperienced traders amplified pound’s flash crash, BIS says

It’s been something of a common lament among Wall Street veterans for a while now. And it goes, more or less, like this: All these darn twenty-something-year-olds around here have no idea what they’re doing.

Perhaps it’s just the typical grousing of community elders, but last week, the Bank for International Settlements said there may be something to the notion.

Tucked deep into a report on foreign-exchange market liquidity was a brief paragraph on how rookie traders could be partly to blame — along with falling volumes and the growing prevalence of electronic trading — for the flash crashes that have roiled the $5.1-trillion-a-day currency market over the past two years.

One case the BIS found particularly worrisome was the time last October that the pound plunged 9 percent in a matter of minutes during early trading hours in Asia. The organization concluded that “less experienced” traders handicapped by a limited knowledge of which algorithms to use at that moment “amplified” the rout.

For Keith Underwood, the report just confirmed what he’s known for a long time.

“If there’s a shortage of senior people, there’s a shortage of knowledge,” said Underwood, who runs his own foreign-exchange consulting firm after a 25-year trading career that included stints at Lloyds Banking Group Plc and Standard Chartered Plc. In his trading days, he said he was leery of handing off positions to junior staff in other regions overnight. “I’ve certainly adjusted my orders, and I’ve also adjusted my sleep.”

Younger, lower-paid employees make up a greater percentage of trading desks today than they have in years.

Part of banks’ broader effort to cut staff, boost electronic trading and lower costs following the global crisis, the “juniorization of Wall Street,” as some call it, has been especially acute in the foreign-exchange market. The world’s 12 largest global banks cutfront-office staff by about 25 percent in Group-of-10 currency markets over the past four years, according to Coalition Development Ltd.

That’s coincided with a shift to automation, which slashed staffing needs and spawned a new, and small, generation of quantitative traders whose decisions are driven by mathematical models. For every managing director with about 10 years or more on the job, there are as many as seven less-experienced staffers on currency desks, Coalition said. The ratio was one-to-four just five years ago.

“The old hands who have seen crazy things happen, they’re gone,” said Michael Melvin, a professor at the Rady School of Management at the University of California San Diego and a former managing director at BlackRock Inc.

‘World Is Ending’

BIS’s write-up on the effects of juniorization, which stemmed from discussions with market participants, echoed conclusions put forth in an earlier study that BIS staffers did in tandem with the Bank of England.

Franz Gutwenger, a recruiter in New York, estimates that about 75 percent of recent job openings at banks’ currency desks were for candidates with three to five years of experience. The advertised roles are mainly for assistant vice presidents with base salaries of up to $150,000 a year, or vice presidents who earn about $200,000 a year. That kind of pay is a fraction of the salaries that top traders can make.

Having so many inexperienced people manning a trading desk is risky, Gutwenger said, and senior staff should be on hand in critical situations. Melvin said that many young traders can panic and think “the world is ending” when suddenly exposed to a market crisis.

Read Next: Currency Traders Race to Reform ‘Last Look’ After Bank Scandals

“For many of the jobs, day-to-day, it’s all good, there’s no issue,” he said. “But when extraordinary events happen, it really is useful to have some seasoned old hands around.”

Deliberations in Retrial of Jefferies Bond Trader May Raise Concern for Prosecutors

Prosecutors may be wise to watch out for black cats

By

 Some things are just not meant to be. With jury deliberations in the federal retrial of former Jefferies bond trader Jesse Litvak on 10 counts of securities fraud now entering their second week, a somewhat unexpected development, federal prosecutors may now be wondering whether that fateful old saying will soon apply to the conviction they originally won against Litvak back in 2014, but saw reversed on appeal in late 2015 by the Second Circuit Court of Appeals.

Late Friday afternoon, as the parties and a handful of spectators gathered in her courtroom in anticipation of a verdict, Chief Judge Janet Hall instead announced that the jury would be going home for the weekend before resuming deliberations on Monday morning. And while the significance of the jury not yet reaching a verdict after three full days of deliberations is far from clear, it is likely that Litvak and his defense team were more encouraged by the news, as it could be an indication that the jury is struggling to reach a unanimous decision on whether the government has met its heavy burden of proof on some or all of the fraud counts against Litvak. In a criminal case such as this one, the government’s burden of proof is ‘beyond a reasonable’ doubt with respect to each element required to prove securities fraud. The 12-person jury must be unanimous in its decision whether or not to convict for each count.

And if timing is everything, Litvak’s defense team may have come up with the savviest move of the trial by putting on their entire case in a mere three hours, ensuring that the long Martin Luther King weekend would prevent the jury from even beginning its deliberations in earnest for three full days following closing arguments and jury instructions on Friday, January 13th. After deliberations were then delayed an additional 24 hours following the shocking news of the MLK weekend death of one of two alternate jurors, and a car accident that injured a sitting juror, prosecutors may be wise to watch out for black cats as they make their way back and forth to the Richard C. Lee United States Courthouse from the adjacent Connecticut Financial Center building which houses the United States Attorney’s Office for the District of Connecticut in New Haven. Calendar superstitions notwithstanding, no prosecutor is happy when a jury is still deliberating ten days after closing arguments.

A critical issue the jury may be wrestling with is whether lies Litvak told his customers about his purchase price on bonds those customers were seeking to buy from him were material to those customers’ decisions to buy from him at the prices they bought. At the recently concluded retrial, Litvak’s defense lawyers presented long-awaited expert testimony to show that Litvak’s customers were sophisticated bond investors who use detailed fundamental and quantitative analysis to arrive at prices they are comfortable paying for bonds, so that regardless of what Litvak told them about prices he had paid in acquiring the same bonds, if his customers ultimately agreed to trade with him at the prices they did, it was because their own work suggested to them that such prices were good and agreeable to them. Such expert testimony was not permitted by Judge Hall at the original trial, a decision which Litvak successfully challenged on appeal.

Based on the evidence presented at retrial, there appears to be no disputing that Litvak’s customers were fully aware of the prices they paid for the bonds they bought from him. He informed them of the exact prices he would be willing to sell bonds to them, and they agreed to pay those prices. It is the government’s position however that Litvak unlawfully duped his customers into paying more than they needed to by lying to them about how much Litvak himself had paid to acquire the merchandise, as well as misleading them to believe he was in the process of negotiating to acquire the bonds from counter parties when in fact he had bought them into Jefferies’ inventory earlier.

This central fact—that Litvak’s customers were fully aware of, and agreeable with the exact prices at which they purchased bonds from him when they made the trades—may be giving the jury pause in reaching a unanimous view that Litvak’s behavior was fraudulent beyond a reasonable doubt. And on the critical issue of materiality, the jury may be weighing the evidence that Litvak lied to customers about his own purchase prices against evidence that some of these customers themselves may have been less than truthful themselves in trying to get the best price they could from Litvak. Litvak’s defense team presented evidence at trial that one customer told Litvak a bond they were discussing would need to be priced as low as $57 to achieve a 10 percent yield, in contrast to the customer’s internal discussions inside his own firm showing the same bond would yield 10 percent at the higher price of $58.

It is also entirely possible however, that the jury is simply taking its time to methodically go through the evidence in order to reach a decision as to each of four required elements that must be proven for each of the 10 fraud counts Litvak is charged with. The jury must reach a unanimous decision as to each of the ten counts charged before the jury can come back with a verdict, or else inform the court if it cannot reach a unanimous vote on one or more of the counts. And with nearly that many days—10—having passed now since the trial portion of the proceedings concluded back on January 13, one thing is certain:  all parties involved are hopeful that a decision is reached soon, although only some will be happy with it.

Andrew D. Beresin is a practicing securities attorney, former hedge fund trader, and a senior consultant with UnderwoodFX. He represents Wall Street firms and individuals in compliance, enforcement defense, and regulatory advisory matters, and provides expert services on exchange-listed trading. Beresin is a former federal district court judicial clerk and a graduate of Harvard Law School.

 

Bond Traders Beware: Jesse Litvak Reversal Is Not a Get-Out-of-Jail-Free Card

Former Jefferies bond trader has not entirely escaped the Feds’ grasp

This November 15, 2011 photo shows the US Treasury Building in Washington, DC. AFP PHOTO/Karen BLEIER

The U.S. Treasury Building in Washington, DC. Karen Bleier/AFP/Getty Images

It’s been nearly a year since former Jefferies Group Inc. bond trader Jesse Litvak had his federal conviction overturned by the Second Circuit U.S. Court of Appeals, despite evidence that he lied to clients about mortgage bond prices in order to inflate his trading profits by $2.5 million. But whether you’re a sell-sider hawking merchandise to the highest bidder, or an institutional buyer looking to scoop up bargains from a slightly-less-in-the-know dealer, here’s a word to wise about playing fast and loose with the truth about bond prices: Not so fast!

While Litvak’s conviction was indeed overturned by the highly influential Second Circuit, where so many complex and cutting-edge securities cases are tried, the reasons could aptly be described as good old-fashioned “technicalities” in legal parlance.

Litvak’s fraud conviction related to misleading customers who were participants in the U.S. Treasury’s Troubled Asset Relief Program (TARP) could not stand, the Second Circuit decided, because of a lack of evidence that Litvak’s misleading conduct was material to an investment decision by the Treasury. Because the Treasury had ceded complete authority to its investment advisor—who actually purchased the bonds from Litvak for the TARP program—it wasn’t actually the Treasury’s finger on the trigger. Thanks to that technicality, Litvak’s conduct could not have been fraud against the TARP.

The Second Circuit also decided that the trial court judge, Chief Judge Janet Hall of the New Haven, Connecticut Federal District Court, erred when she did not allow Litvak’s trial attorneys to present expert testimony that Litvak’s misstatements were not material to the decision by other investors to purchase bonds from Litvak. This is where it gets very interesting for bond traders wanting to know where the right side of the line is when it comes to communicating with customers about pricing.

Despite having his conviction reversed, Litvak did not escape the Feds’ grasp entirely—unlike the portfolio managers whose insider trading convictions were overturned by the same court in its now-famous Newman decision back in 2014. There is a chance Litvak may not escape at all, because the Second Circuit ordered another trial—scheduled to begin in January—where such expert evidence about materiality will be permitted.

At Litvak’s new trial, his attorneys will present expert witness support for the idea that (brace yourselves) investors normally expect statements from bond traders they deal with to be biased and misleading, and so such statements should not be considered material to investor buy/sell decisions. The government will likely counter with arguments that investors, in deciding whether and at what price to buy or sell bonds, do take into account bond traders’ representations about the prices where they’ve traded the exact same bonds in the minutes and even hours prior to the investor’s buy/sell decision.

The overarching question is this: do sophisticated bond traders actually care, or even believe it when their broker tells them that he or she just bought the same bonds a few ticks lower—when in actuality the broker has been sitting on the bonds for days after having bought them for 5 percent less? In an opaque market like mortgage bonds, where you can’t just reliably punch up a ticker symbol and see a real-time quote like you can with stocks, it’s at least an interesting question. The government certainly thinks the answer is yes.

In the meantime, while they wait for a second crack at Litvak, the Feds have not exactly beat a retreat. They’ve been busy filing Litvaktype cases against other sell-side bond traders, as well as extracting guilty pleas and levying large fines and industry suspensions on others. Three ex-Nomura traders are slated to go on trial early next year in federal court in Hartford. This past August, the former top RMBS trader at Goldman Sachs Co. agreed to pay $400,000 and accepted a two-year ban from the industry in order to settle similar charges by the SEC. In September, a former Jefferies colleague of Litvak’s agreed to a smaller SEC fine and shorter suspension for merely stretching the truth, as opposed to bludgeoning it.

And the spotlight may not just be on sell-siders, as SEC enforcement staff have stated publicly that more Litvak-type cases would be coming, and that they would not just focus on bond dealers. What’s that mean exactly? It’s hard to say at this point as no similar cases have yet been brought against any buy-side bond market players. But unless President-elect Trump takes a hatchet to the SEC and DOJ after he gets done with the EPA, all bond traders may want to tap the brakes before telling clients or counterparties stories about bonds—the kind of stories that would more appropriately be found in the fiction aisle.

Andrew D. Beresin is a practicing securities attorney, former hedge fund trader, and a senior consultant with UnderwoodFX. He represents Wall Street firms and individuals in compliance, enforcement defense, and regulatory advisory matters, and provides expert services on exchange-listed trading. Beresin is a former federal district court judicial clerk and a graduate of Harvard Law School.

Trump change: Winners and losers in the FX market

Keith Underwood, CEO of Underwood FX

Donald Trump

Carlo Allegri | Reuters
Donald Trump

OK so you’re as surprised as everyone else at the outcome of the U.S. election. So, what does a President Trump mean for the FX market? Who are the winners and losers?

Winners

1.The U.S. dollar
2.The Swiss franc
3.The Japanese yen

The U.S. dollar is still the most-traded currency in the $5.1 trillion a day FX market according to the latest BIS Triennial Survey. It has been strengthening since 2011 (see broad U.S. dollar index chart) in the belief that the Federal Reserve will normalize (raise) interest rates as job creation continues and inflation reaches 2 percent.

Trade-weighted U.S. dollar index vs. major currencies

My U.S. dollar view is torn between what appears to be two divergent Trump policies, isolationism and lower taxes. Isolation has an implicit lower dollar to help US exports, while lower taxes foster a stronger dollar over time as the US economy strengthens.

In isolationism, I don’t see Trump supporting a weak dollar or a weaker dollar. Weak is not in the Trump vocabulary. Period. I think the U.S. dollar will rise as the U.S. economy breaks with Obama policies and adjusts positively to the Trump lower corporate taxes (the U.S. has one of the worlds highest corporate taxes) that promote higher growth and higher tax revenues (higher tax rates increases tax avoidance and lowers tax receipts), higher spending, and higher inflation. The U.S. dollar is set to rise further.

The Swiss franc is regarded as a safe haven currency when uncertainty and volatility is prevalent in the markets. Short-term traders (generally trades held less than an hour or two) will trade the franc back and forth today to make a few shekels and for those that have less enthusiasm for a Trump economic turnaround, they will find themselves increasing their exposure to the franc. As my regular readers know, I’m not the biggest fan of the Swiss franc, given their negative interest rate policy (Negative interest rates: A disincentive to risk), but the safe harbor status of the franc can’t be ignored in times of uncertainty. Over the course of 2017 the Swiss franc will maintain its store of value in the FX market.

The Japanese yen has been manipulated for years by the Bank of Japan trying to keep the yen artificially weak in the face of badly performing monetary policies and unrealistic inflation goals. I don’t believe that manipulation in FX ever works over time. And, because the Japanese have been at this for many years, I think the yen is poised to strengthen once this calamity curtain is pulled back. I have recommended buying yen from 112.00 and I see little standing in the way of 95.00 aside from verbal intervention, which doesn’t work.

Losers

1.Mexican peso
2.Canadian dollar
3.China

Trump campaigned on terminating the North Atlantic Free Trade Agreement and calling it the worst trade deal ever signed anywhere. Our neighbors to the North and South will see their currencies suffer as uncertainty over a future without NAFTA lingers.

China is and has been an easy target for Trump. He will continue to skewer the Chinese on trade and currency manipulation all during his presidency. He will do this to keep the appearance of pressure on the Chinese to enact reforms that benefit the U.S. but the reality is that China does nothing that is not in the interest of China.

Commentary by Keith Underwood, a 25-year veteran of the global foreign exchange market. He is currently CEO of Underwood FX, a firm that provides traded markets intelligence and expert testimony to the legal community and financial institutions globally. He is also a FINRA dispute resolution arbitrator and an adjunct professor of economics at Mercy College in Dobbs Ferry, NY. 

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

Underwood FX builds out expert offering

The firm brings in legal, futures, and other OTC professionals as it expands into traded markets intelligence

FX Week

By: Laura Matthews

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November 4 2016
Underwood FX has expanded its expertise through a new hire and several shared working relationships, as the financial consulting firm continues to broaden its footprint in traded markets intelligence.

Barclay Leib, an alternative asset research consultant at Sand Spring Advisor, is partnering Underwood FX to provide alternative asset consulting and securities law-violation investigation intelligence.

Meanwhile, Andrew Beresin, a practising New York State attorney, has joined Underwood FX, bringing experience in equity derivatives trading. He also specializes in legal issues such as regulatory inquiries, investigations and enforcement defence.

Jennifer Ropiak, director of Trusted Partner Metals, will also be collaborating with Underwood FX. She brings a wealth of experience in over-the-counter and futures markets, and will lend her knowledge of precious metals market structure, trading and product development.

Keith Underwood, a 25-year veteran of FX trading and risk management, launched Underwood FX in 2015, in an effort to help the legal and investment community better understand and evaluate foreign exchange issues. He confirmed the hires and partnerships.

“We are thrilled to have the depth of experience and insight that Barclay, Jennifer and Andrew will be bringing to our clients. As Underwood FX expands further into traded markets intelligence, all will contribute unparalleled insight in their respective expertise to supplement our existing derivatives and foreign exchange expertise,” Underwood said in a statement announcing the hires.

Brexit puts fintech and high-frequency trading firms in FX winners’ circle

Friday, 24 Jun 2016 | 3:28 PM ET

CNBC.com

By: Keith Underwood

 

The British pound has dropped in excess of 10 percent from its previous close in the New York market overnight. Traders, portfolio managers, hedgers, punters, and economists have all denounced the Brexit decision as a huge negative for the pound. Money managers throughout the world have sold billions and billions of pounds to limit their U.K. exposure. What happened?

The analogy I use with my clients is to consider how Texas voted secession from the United States between 1836-1845. Yes, Texas exited the United States as its own country and there is even a Texas embassy in London to prove it. Anyway, if Texas were to do the same today, they would have greater autonomy to decide their own fate and pick and choose the laws they wish to impose on the electorate. They would own immigration, taxes, the law, and most everything else that didn’t require outside assistance. The U.K. just left their United States but it’s called the European Union.

OK so now what? Who wins and who loses in the currency market now that so much uncertainty has been unleashed for months and years to come? In my view, the London Foreign Exchange (FX) banks, still suffering from the manipulation scandal, will bear the brunt of the Brexit vote as will their clients, while the trading exchanges, high frequency trading firms and Fintech will benefit.

Losers

FX banks in London traditionally did very well during periods of increased volatility. Today however, with regulations crimping the amount of risk they can run and increased capital costs applied to holding those risks, banks are less likely to garner outsized gains. In an environment of increased volatility, banks tended to eventually widen their spreads and capture more profits. Today, with non-banks providing an ever-increasing amount of liquidity to the market, banks will find it tougher to pass their costs onto their clients.

End-users will also suffer, as wider spreads due to a larger risk premium in the market will make hedging and trading more costly. They will chose to forego hedging in the face of increased volatility (costs) thereby increasing their risks. The fallout is that doing business in British pounds will become more costly. Period.

Winners

Fifty-two percent of the U.K. voting population won today. Other winners will be the centrally cleared exchanges where currencies are traded. They will see more business as counterparty risk will be re-priced higher after the vote. Also, high frequency trading firms will undoubtedly benefit. These are firms that utilize computers to quickly scalp small price differentials or exploit changes in currency correlations over thousands of transactions an hour. They are typically winners in higher volatility periods and these firms have stepped into the currency market where the banks have retreated.

Additional winners after today’s U.K. vote will be the fintech companies that figure out how to develop, implement and manage a distributed ledger technology (DLT) that will quickly reduce counterparty risk, margin requirements, and settlement in the roughly $5 trillion a day FX market. As these technologies come to market, they should be in a position to attract new entrants with lower transaction costs, increased transparency, and ultimately bringing increased liquidity to the market.

The currency market in the U.K. flourished for decades with liquidity on tap 24 hours a day with little to no regulatory oversight. With the result of the Brexit vote I’m afraid this trend will be reversed and the London market will undergo a period of lower risk tolerances from liquidity providers and increased costs which will bring forward the shuttering of loss making 3rd tier FX banks that can no longer afford to operate in such an operational unknown.

FastMatch to penalise liquidity providers that impact market

The changes, taking effect in the third quarter, aim to push away those who move the market after receiving an order

water_rate

FX WEEK

Laura Matthews

06 May 2016

FastMatch will be adding a new variable to its rules in the third quarter of this year, which could result in a price penalty for liquidity providers who move the market, FX Week has learned.

Currently, the foreign exchange platform takes into account three variables when it determines which liquidity providers are best for customers to trade against – the price quoted, the historical response time and fill rates. The venue will soon introduce a fourth: market impact.

“We will look to see if, historically, the liquidity provider caused a market impact after they received orders from FastMatch,” says Dmitri Galinov, chief executive of FastMatch.

If the liquidity provider causes market impact… then the liquidity provider will be penalised. We will adjust the price they quote Dmitri Galinov, FastMatch

“If the liquidity provider causes market impact – i.e. they moved the market in a direction of FastMatch’s client buying or selling – then the liquidity provider will be penalised. We will adjust the price they quote. Basically, their price will not be as aggressive, so it will be a price penalty,” he adds.

The fact that the venue has moved to include market impact in the core of its matching system highlights the increasing importance of this issue in the FX market.

Regulation has forced some participants, such as banks, to take fewer risks and customers looking to execute large orders can sometimes find it becomes more expensive to trade.

Sell side hit

“The regulations are really starting to bite, and I think this has negatively impacted businesses on the sell side. We see periods of extreme price movements that happen very quickly these days and I think those are going to continue to happen where there are fewer orders in the market. Top-of- book will still continue to look healthy, but the depth of the market could deteriorate over time,” says Keith Underwood, principal consultant at Underwood FX Consulting.

“Regulations will pinch sell-side profits short-term, but will also produce a global code of conduct, similar to the ACI Model Code, which is being drafted by the Bank for International Settlements’ Foreign Exchange Working Group. Ultimately, I believe the FX market will survive and thrive after regulations are fully implemented and a code of conduct is globally embraced,” he adds.

“Natural selection”

Until then, FastMatch’s Galinov has high hopes for his platform’s rule change. Speaking with FX Week, he says the new rule will push away those who have an impact on the market and attract those who do not.

“It is really a natural selection of liquidity providers. I think what we are saying to the market is that FastMatch, as a venue, prefers the providers that don’t move the market after they receive an order,” he says.

“So it will attract the liquidity providers that really hold inventory. That’s what a market-maker is supposed to do. Providers who as soon as they get an order from FastMatch just turn around and hit the market are the providers I think will kind of go away. We would give preference to market-makers that internalise more,” he adds.

 

Image 2016. 02. 24. at 15.33

The forex trading floor of a bank in Singapore back in 2006. Photographer: Munshi Ahmed/Bloomberg

BLOOMBERG

February 7, 2016

By Lananh Nguyen

Charlie Stenger, a currency-broker-turned-recruiter, has seen it all. One fired trader wept in his office. Another admitted he hadn’t told his wife he was unemployed, and left the house every day in a suit to sneak off to a coffee shop. Then there are the delusional guys, who carefully explain how they’re not interested in jobs that don’t pay as well as those they just lost.

Stenger, who was laid off from ICAP Plc in 2013 and now works for Sheffield Haworth Ltd., tells the men and women he counsels: Take the pay cut. Oh, and don’t wait for the phone to ring.

“This is crunch time — it’s not looking good,” Stenger said. “This is a shrinking pond.”

The investment banking business has shed tens of thousands of positions since the end of the financial crisis, and the downsizing has been hard on foreign-exchange desks at many banks, including Morgan Stanley, Barclays Plc and Societe Generale SA. The industrywide job-axing sweep coincided with a shift to automation, which slashed staffing needs and spawned a new, and small, generation of quantitative traders whose decisions are driven by mathematical models.

There were 2,300 people working in currency-market front-office jobs at the world’s biggest banks in 2014, a 23 percent drop from four years earlier, according to Coalition Development Ltd., an analytics firm.

488x-1

The layoffs have continued and are unlikely to stop in the $5.3 trillion-a-day market. Revenue from from foreign-exchange divisions hasn’t bounced back after falling to $6.5 billion in 2014, down almost 45 percent from 2009, Coalition data show. Currency trading in the U.K. and North America shrank by more than 20 percent in October from a year earlier, according to central banks in those regions. London is the biggest center for foreign-exchange trading.

“The business has to be downsized,” said Keith Underwood, a foreign-exchange consultant who ended a 25-year trading career, including at Lloyds Banking Group Plc, in 2014. But it’s not easy “for people who have been in a market for many, many years to see that they’ve been replaced by an algorithm.”

Humans are up against formidable opponents across the industry. Take Virtu Financial Inc. Deploying sophisticated technology in the business, the company’s computers can trade more than 11,000 securities and other products on more than 225 trading platforms in 35 countries. Because automation is so deeply ingrained in its business, it had only about 150 employees last year — generating more than $5 million per worker.

From his office at Sheffield Haworth in Chicago, Stenger doles out advice to friends still on foreign-exchange sales and trading desks. First, prepare to be laid off. When you look for work, plan on having to take a 25-percent reduction in pay. “Your stock goes down once you lose your job, and that’s just the nature of the beast,” said Stenger, whose clients typically earn annual salaries of $250,000 to $1 million.

Transferable Skills

Some ex-traders have moved to smaller houses or pulled kids out of private school. Those waiting for the ax to fall hoard paychecks. Stenger was out of regular work for a year after he lost his job; he was told about the lay-off four days after he learned his wife was pregnant with their first child. “There were periods where I wouldn’t make money for 90 days at a time,” he said, “and the insurance bill was still due every month, and the rent and the car payments.”

Underwood, the consultant, said he left the market because regulators were cracking down on his niche by implementing stricter derivatives rules after the financial crisis. “My style of trading went out of vogue,” he said. So the former head of foreign exchange trading for the Americas at Lloyds, who also led teams at Credit Agricole SA and Lehman Brothers in London and New York, reinvented himself.

In Control

“I couldn’t be more happy,” said Underwood, who described the hourly rates he charges as comparable to those of a senior lawyer. “There is more empowerment, with control of my future.”

Many traders have discovered they have transferable skills. Some have landed work as salespeople or executives at financial technology companies, payment providers or trading platforms and exchanges. Others are using their knowledge to bolster banks’ risk-management operations. Franz Gutwenger, a recruiter in New York, said one of his financial-institution clients has expanded its regulatory-compliance staffing by a factor of five.

“I don’t think there’s a whole lot from my generation that are still in the industry,” said Guy Piserchia, who during a three-decade career led North-American foreign-exchange trading at Bank of America Corp. and Paribas, a precursor to BNP Paribas SA, in Asia. He left Wall Street in 2012 to become mayor of the 8,700-person township of Long Hill, New Jersey. Now he’s deputy mayor, but said he wants to get back into the business in a role that combines his financial and government experience.

“With automation and electronic dealing, I think there are going to be fewer people” on foreign-exchange desks, Piserchia said. “The ones that have evolved and survived may be some of the better ones — or, as in life, may be some of the lucky ones.”