How Do Energy Traders Deal With Stress?
How do energy traders deal with stress?
Published by Rob Smith | 18th January 2022
2021 was a year of unprecedented volatility in European energy markets, with most days seeing the types of massive gains in gas and power prices that would have been unthinkable 12 months ago.
It really was the perfect storm for the bulls, with global economies recovering from the pandemic alongside an energy mix that had permanently lost coal production, a winter with a late sting and a summer and autumn when the wind refused to blow. Chuck in infrastructure problems with both gas and nuclear and then Russia deciding now was the time to start recreating the Soviet Union it meant that Yogi spent much of the year in hibernation.
Even with all that bad news, it wasn’t plain sailing for the bulls, with spurious flow data from NS2, empty words from Vladimir and a warm weather flip over Christmas all causing huge downward moves that must have had some risk teams checking their excel spreadsheets!
Wider Implications
On top of the market related stress, I know a lot of traders have also struggled with the moral aspects of what the high prices mean for people on the street. Pent up post lockdown demand had already sent the cost of living soaring and energy has added way more fuel to that particular fire. With interest rates also on the rise, the impact has created a triple whammy that will leave many low income families unable to heat their homes this winter and beyond.
The wider industry is also suffering a body blow, with demand plummeting across the continent as manufacturing becomes uneconomical and factories switch off. Challenger energy suppliers have been the first to feel the pain and devastation that has swept through the UK energy market. The terribly ill thought out price cap ensures retail companies can only ever make money in a falling market and this led to most retailers facing an existential crisis when the market behaved like it did last year. In theory a retail Nostradamus could have paid to go long, but in reality the cost of credit meant that wasn’t a viable option for many of the companies involved.
Of course traders are not to blame for the high prices. That burden lies with the pandemic, Russia versus the West politics, the weather, European energy policy, the rush for carbon neutrality and the rise of India and China as global superpowers. However most who I worked with and traded against are thoroughly decent human beings with a conscience (maybe the occasional idiot) and they are fully aware of the social implications of this energy crisis.
Thinking back to before the crash in 2008, I remember being very sheepish telling strangers at weddings what I did for a day job and can only imagine it’s a similar story at the school gates and at parties right now. Don’t worry I still know exactly how you all feel, saying the words ‘life coach’ makes me want to cry or punch myself in the face!!!
All of the above is an awful lot of stress for any human to deal with and while large financial remuneration helps to ease the burden, it doesn’t make it a zero sum game.
So how did I deal with the stress?
On a fundamental level I was very lucky to have the basics right. I wasn’t afraid of losing money and actually saw it as quite a compliment that the company trusted me with such sums. It wasn’t that I was negligent, just very confident in myself and the team – that over a 12 month period we would be winning and we always did (there was one year right at the end where we lost a small bit, but I’d given up by then so it doesn’t count).
When we did lose, the process was quite simple, discuss it with the team, evaluate what when wrong and learn from any mistakes made. If it was an event beyond our control like a war, a storage facility catching fire or a boat crashing into something and we were on the wrong side; it was just bad luck. There was no point feeling sorry for yourself, just get the analysts to sort the new fundamentals ASAP and position yourself accordingly (hopefully ahead of the curve, no pun intended).
So that’s the professional sounding bit and it is all true, but there is also another side which can’t be ignored. Win, lose or draw at various times over my career someone would suggest the pub. This fluctuated based on company, location and personnel, but was a consistent theme throughout my time in energy and not just when trading. I’m a yes person and really struggle to say no and being truthful I wanted to go most of the time anyway! When not at my desk or in the pub, I would be down the gym or playing 5-a-side with team members, brokers and traders from other companies. Weekends would follow a very familiar pattern and quite frankly I was loving it and having the time of my life.
What I wasn’t very good at was leaving work at the door and would spend a ridiculous amount of time on evenings, weekends and while on holiday looking at line pack, weather runs and anything that might move the market the following morning. It was an awful invasion of my personal time and in hindsight probably added very little to my P and L or that of the company.
Taking stock of the above there wasn’t really much time allocated or left for down time and looking back that most definitely cost me in various ways. My memories of those halcyon days are not the best either, partly clouded by booze and also because I never took the time to take them in, always rushing onto the next thing and the next.
Looking at the performance curve of an average human, I probably wasn’t near my best either (I know I’m better than average, but the point stands ).
The most stressful spell of my Trading career happened just after my 30th birthday. Never one for internal politics or conflict, when things became a bit difficult in London I decided to do the manly thing and run off to Geneva. It was a dreadful mistake and I instantly hated the city and missed my family and friends.
Like many of us, I’m at my best when feeling loved and wanted and suddenly I was just a number that was required to make P and L. I was way out of my comfort zone and continued to make mistakes, entering into a trade I didn’t really believe in, in an area of the curve that was not my bread and butter at the time. I didn’t lose a lot of money, but it was more than management wanted me to, and within a month I was faced with a decision. Go home with my tail firmly between my legs or face up to the challenge, change my trading style and make the most of a year in a different county.
It was never really a serious dilemma and I stayed of course, started a football team, made some great friends and enjoyed many parts of that year, especially the summer months. I also left with a slightly positive P and L and on good terms with the management.
A learnt a lot from the experience, I matured and believe I became a far more humble and better person. Some of the other key take homes from that year are below:
· Family, Friends and happiness are way more important than money
· No one is invincible
· You should always use a combination of your head and heart when making big decisions
· Do lots of research before you make the jump to that lush greener grass
· Head hunters don’t always tell the truth! (of course, Stuart at TUME is the exception!)
· Stick to what you’re good at
· When entering someone else’s house, stick to their rules (at least to start with)
The last role I would like to focus on before imparting some more wisdom, was my final job in trading. A start up, slap bang in the middle of Mayfair and it was amazing (for the first 2 years anyway). Surrounded by the best restaurants, a pretty grotty little pub, a gym in the building and Battersea Park football pitches only 10 minutes away. We had total autonomy, a fantastic team and loads of other great people surrounding us. It was like going to Vegas every day and I loved it. To make things even better, we absolutely smashed it and earned our rewards.
Sheltered wonderfully from the politics by a brilliant boss, I was too busy having fun to notice the storm clouds brewing and that was also the case on a personal front. Things unravelled quickly, the team disintegrated and all of a sudden I hated the company, was bored of trading and the pub, and just wanted out. With a flat year (that was the slightly negative one) and a marriage breakdown it was time for pastures new and the rollercoaster of a mid-life crisis gap year (it was mostly brilliant and lasted 2 years). During my travels I made the decision to go into coaching/mentoring and charity work and I am very glad I did. It’s very different to the old days, but offers a more natural type of high and happiness!!
Obviously with the beauty of hindsight I would have made some different decisions, but I feel extremely lucky and proud to have achieved so much and to have worked with and against so many amazing people, many of whom I still class as good friends today.
So How Should Traders Deal With Stress?
I’ve already offered some of my top tips earlier and combined with the list below, I hope the article will help traders and other professionals deal better with the stresses and strains of working life. The list is a mix of my own experiences, the opinions of other traders I rate, stuff I’ve learned through my coaching and also things that I’ve read and researched. Before blindly taking any life changing action, please read the first point regarding “taking responsibility”!!
· Take responsibility – We can’t control many elements of the markets and life, but we can always control how we react to things
· Have someone in the know to talk to –Your wife, partner, kids, dog and mate down the pub really don’t really understand or give a shit about the gas and power prices (under normal market conditions) and you probably don’t want to bore them with it either. You want to keep things separate and by having someone who knows the subject to talk things through with is a must when you are feeling the pressure.
· Stick to what you’re good at – Whether in trading or normal life stick to what your good at!! Stretching yourself too far causes unnecessary stress and may make you miss something in your own field while you are concentrating on something you don’t really know anything about.
· Leave work at the office door – Easier said than done, but try not to let work encroach on your precious time with family and friends.
· Don’t leave positions when you go on holiday – A holiday is time for you to relax and think about anything other than work. I learnt this one the hard way and had more than one holiday severely impacted by constantly looking at gas prices (loser).
· If you are working from home, make sure it’s NOT in a room you use normally for relaxing – The market can be stressful enough, without having it invade the space where you usually unwind. Don’t have your home office in the bedroom, the living room or anywhere else where you spend time unwinding.
· Make sure the company is a good fit for you – Big percentages are all very well, but make sure you fit with the team, the risk appetite and the infrastructure of the company you are joining. Plenty of people including myself have left comfortable shops to chase even more money, but in the end 20% of nothing will always be nothing!!
· Try meditation or mindfulness – Meditation is proven to decrease stress, increase happiness and performance and is used by top performers in every field across sport and business.
· Stay present – Time flies by so very quickly and we need to try and stay in and enjoy every moment. We have endured 2 difficult pandemic effected years and cannot afford to waste any more time.
· Get your diet right – Fairly self-explanatory, but even more crucial for people in stressful industries if you want to make it to 70+.
· Make sure you get enough sleep – Not getting enough sleep has an enormous detrimental effect on our mental and physical health and also on your performance
· Have a good exercise regime – Exercise is one of the key pillars to keeping us mentally and physically healthy and is also a great tool for managing work related stress
· Don’t compare yourself to others – It is very unlikely that you are going to be the best commodity trader in the world, so stop comparing yourself to others. Jealousy uses up a lot of energy and is a pretty toxic emotion that can only ever affect you negatively.
· Stay Under the Radar – With most volumes now on ICE, it’s easy to keep your head down, stay focused and to concentrate on making P and L. We have already discussed the fact that you’re probably not the best trader out there and by noisily trying to prove you are, you are just making life more difficult for yourself. The path from hero to zero in commodity markets is a surprisingly short one, especially when everyone thinks you’re a nob!
· If you are scared of putting positions on, get a different job! – We have all seen traders that break out into a cold sweat at the mere thought of putting on a position. Trading isn’t for everyone, so save yourself a lot of anxiety and look for a different career.
· Drink doesn’t help with stress – Not strictly true as drink does help with stress in the short term, but unfortunately compounds the problem in the medium/long run. Try and use exercise or mindfulness as your coping mechanism when things turn to shit!!
· Join a good team – Some traders are capable of acting as a one man band and making lots of money. Many of us can’t and having a good team of traders, with diverse personalities and styles was always a must for me.
· Have good analysts – I have always been absolutely convinced that good analysis is the cornerstone of any successful trading team and even more so now with gas and power markets looking more global by the day. I was never interested in doing my own analysis and think the two roles require very different skill sets. I just wanted to have good information presented to me, so I could then make trading decisions.
· Have a plan for negative P and L days – I don’t mean doubling down or sticking any remaining P and L on a horse race, I mean a plan for you to cope with the stresses involved in losing large amounts of cash. Even the best traders have bad days and having a clear plan about how you will deal with it will help to ease anxiety and lead to better decisions going forward.
Rob Smith was an energy trader for over 20 years having worked for the likes of RWE Trading, Mercuria Energy Trading and BTG Pactual. In recent years Rob has retrained as a coach and started his own business ‘Lust For Life Coaching’. He works with organisations and with individuals focusing on work:life balance & career path formulation. He has recently started running a corporate workshop and has already been rebooked by his first trading house client. Importantly for us Rob supports our role hunter community with a regular coaching exercise within our weekly TUME video call.
Rob has been a TUME Associate since October 2020.