Separating out professional traders for your business requires a methodical approach. Due Diligence Questionnaires (DDQ) provide the necessary structure to this interview process.
For the few that manage to survive that first year, even fewer find a path to consistent profitability.
Sheer probabilities dictate that selecting any trader at random won’t yield a professional one. Even if you’re lucky to find a profitable one, chances are they won’t be able to manage money for others.
So, what are we left with?
Using an organized process brings the top traders to the forefront, letting you decide not just among who can do the job, but who’s best.
In this article, we’ll discuss:
What is a DDQ
Due Diligence Questionnaires (DDQ) contain a set of questions for potential traders or money managers to answer. They aim to weed out any unqualified applicants, leaving you with candidates that best fit your needs.
Especially for smaller firms, DDQs are essential to finding a person that meshes well with your organization. The last thing you want is to pick the person with the best record only to have them drive away every last one of your customers.
DDQs ask the essential questions to what you want out of a trader or fund. Most of them cover the following areas:
How to use a DDQ
The best DDQs don’t just ask the basic yes or no questions. They create open-ended answers for the person to fill in. You want them to explain not just their ideas and concepts, but try to speak about practical experiences where this applied in the past.
For example, a trader who managed through the Swiss Franc crisis in 2015 should be able to relate that experience to the relevant questions, such as how they managed risk and delivered under pressure.
As you work through the questionnaire with applicants, you need to be wary of red flags. Individually, these may not be issues but should warrant follow-up explanations.
Getting the most out of the process
At some point, you do want to meet the candidate in person, through a video chat, or conference call. For as much as you can pick up from a questionnaire, people communicate a significant amount of information non-verbally. There isn’t a set time limit, but you should at least meet with the person for 30 minutes to get a cadence in the discussion.
For as much as a formal process helps, don’t try to cram everything into structured steps. Some of the best interviews occur organically as a natural part of the conversation. Also, realize that ‘gut feelings’ or ‘intuition’ are often based on personal experiences that we just can’t verbalize. While they shouldn’t be relied on entirely, they can’t be ignored either.
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