Annual Returns for Prop Traders?

[ScottSam]

Quote from Don Bright:

Most traders that I know, and all of our traders, don't consider "Annual returns" in the classic sense, not relevant.

We all try to make a living trading, the amount of money used is just another tool, like a computer. If you have $20K and make 100% annual return, that's still not enough to be called "trading for a living" of course.

Our trader seek to make a decent income. Some put up $20K, and may use $500k or so of our money, again as a tool. They are seeking to make a decent 6 figure income, many do, many don't (but at least have a chance to do so)...

Just my feelings on the subject....

Don

Agreed 100% for me. I hate when non-traders ask me about my "annual return" with that half-curious half-condescending look on their face.

I don't care about annual returns. I work for absolute dollars. I've never paid a bill with a %.

Of course, all keeping in mind that we're talking about prop traders.

 

[stock777]

Quote from Don Bright:

LOL, nah... the "use of" vs. "abuse of" capital is often misunderstood. Our traders don't bother "backtesting" strategies very often, they simply are able to engage in things that most retail traders cannot. We may enter $500k worth of opening only orders, knowing full well that we can't get filled on both buys and short sales... and will likely get a 10% fill rate.... just to make $500-$1000 in the morning. We "use" $500k, but that's not risk capital.

Of course, our quantitative people can go up to 20 or 30 times equity (hedged of course) to make money...

several things we can do...

All the best,

Don

So if I give one of your traders capital they can make me 500-1000 in the morning , on average, 200 days a year. Sounds like a plan , where do I wire the money? Whats really cool, is I only have to give them 20k, which I'll get back in 40 days worst case and then its all free money for the rest of my life!

I know its just 500-1000 a day , but thats not too bad , especially in this tough market. Sometimes we have to settle for less.

 

[Antihero1776]

Quote from ScottSam:

Agreed 100% for me. I hate when non-traders ask me about my "annual return" with that half-curious half-condescending look on their face.

I don't care about annual returns. I work for absolute dollars. I've never paid a bill with a %.

Of course, all keeping in mind that we're talking about prop traders.

Ok, how much in earnings do you generate from trading full time? Also what is your capital contribution? I mean no disrespect by asking, "What is the annual return of a prop trader? I am trying to learn more about prop trading.

 

[Don Bright]

Quote from stock777:

So if I give one of your traders capital they can make me 500-1000 in the morning , on average, 200 days a year. Sounds like a plan , where do I wire the money? Whats really cool, is I only have to give them 20k, which I'll get back in 40 days worst case and then its all free money for the rest of my life!

I know its just 500-1000 a day , but thats not too bad , especially in this tough market. Sometimes we have to settle for less.

Nope, and I won't take your money to play blackjack either (people have been trying to give us money for that for years)... it all takes a lot of personal work, a few do well, many don't... and good trader would not want to take money from others... and legally cannot.

Don

 

[Maverick74]

Quote from Don Bright:

Nope, and I won't take your money to play blackjack either (people have been trying to give us money for that for years)... it all takes a lot of personal work, a few do well, many don't... and good trader would not want to take money from others... and legally cannot.

Don

Now wait a minute Don. You guys could have structured a hedge fund and make 100 times what you are making now. I've never understood why you didn't. You are far more regulated as a JBO then as a hedge fund. You get better tax treatment. And you could actually afford better technology and software.

 

[stock777]

too bad, I was just gonna put my pushcart in storage, guess I'll have to restock those apples.

How come all these hedge funds that are struggling dont just play opening orders and make 20-30% or more on their capital a year? Maybe you should offer them lessons.

 

[DemTraydor]

Quote from stock777:


How come all these hedge funds that are struggling dont just play opening orders and make 20-30% or more on their capital a year? Maybe you should offer them lessons.

Based on my own experience, I'd give Don the benefit of the doubt on this.

I trade a variation of the opening strategy at another firm and while I average less than the numbers Don is quoting here, I can see the numbers he gave being achievable.

The hedge fund argument makes sense, but also keep in mind that the scale of a prop firm's capital being used for this type of strategy is more realistic.

Each trader is given about 500k of buying power, some less and some more presumably, to work with in this case. Assuming there are maybe 100 traders at Bright who run this strategy (not all do) on roughly the same basket of stocks (and I say roughly because in my experience, most traders choose a different enough basket that each can avoid taking the others' liquidity even on less liquid stocks, but I can't speak for Bright on this part), that's about 50 mil of buying power in total.

A hedge fund with a 50 mil NAV is among the extremely small funds. (The minimum to be registrable on a federal level with the SEC after Dodd Frank is 150 mil if I remember correctly, just off the top of my head.)

I'd suspect (haven't actually looked into this part) that most of the ones struggling to make 30% annually are more than ten times bigger and would probably single-handedly throw off the opening imbalance of each stock in the basket if they allocated even 1% of their capital to a strategy like this. (I guess in theory they could do a very very large basket with even smaller allocations each, but I'm not sure if the payoff for something like that would work for a medium or large fund's scale. At least the way I learned to choose stocks for this strategy makes it hard for that to work, but I know Don's is a bit different.)

Of course, this is all just off the top of my head. I've never personally dealt with Bright so I can't say one way or the other how accurate a picture Don's painting here of his traders or their success and consistency.

 

[Maverick74]

Quote from DemTraydor:

Based on my own experience, I'd give Don the benefit of the doubt on this.

I trade a variation of the opening strategy at another firm and while I average less than the numbers Don is quoting here, I can see the numbers he gave being achievable.

The hedge fund argument makes sense, but also keep in mind that the scale of a prop firm's capital being used for this type of strategy is more realistic.

Each trader is given about 500k of buying power, some less and some more presumably, to work with in this case. Assuming there are maybe 100 traders at Bright who run this strategy (not all do) on roughly the same basket of stocks (and I say roughly because in my experience, most traders choose a different enough basket that each can avoid taking the others' liquidity even on less liquid stocks, but I can't speak for Bright on this part), that's about 50 mil of buying power in total.

A hedge fund with a 50 mil NAV is among the extremely small funds. (The minimum to be registrable on a federal level with the SEC after Dodd Frank is 150 mil if I remember correctly, just off the top of my head.)

I'd suspect (haven't actually looked into this part) that most of the ones struggling to make 30% annually are more than ten times bigger and would probably single-handedly throw off the opening imbalance of each stock in the basket if they allocated even 1% of their capital to a strategy like this. (I guess in theory they could do a very very large basket with even smaller allocations each, but I'm not sure if the payoff for something like that would work for a medium or large fund's scale. At least the way I learned to choose stocks for this strategy makes it hard for that to work, but I know Don's is a bit different.)

Of course, this is all just off the top of my head. I've never personally dealt with Bright so I can't say one way or the other how accurate a picture Don's painting here of his traders or their success and consistency.

It is my understanding that opening orders is maybe 2% of what Bright does. The rest is stat correlation (pairs). You can run a fund north of a billion dollars with stat correlation. So no, I never understood why they never went the hedge fund route and I've asked Don repeatedly about this and the only answer I got was different strokes for different folks.

 

[ScottSam]

Quote from Antihero1776:

Ok, how much in earnings do you generate from trading full time? Also what is your capital contribution? I mean no disrespect by asking, "What is the annual return of a prop trader? I am trying to learn more about prop trading.

Annual earnings are hard to average for prop traders.

I've seen a few clues in my years, but nothing extremely informative as far as yearly averages go. And these annual earnings have to be judged against the cost of living of your location. And then personal goals/risk tolerance issues kick in.

My guess is the vast majority of prop traders that survive more than 6 months make less than 100k a year. I'm tempted to use the 80/20 rule. 80% of surviving traders make 0-100k a year, 20% make more than 100k. The chart stretches a lot from 100k, but the farther you go moneywise, obviously the number of traders is exponentially less. This is simply me guessing from countless conversations, encounters, and peeks at PNL lists throughout the last 7-8 years.

And I have no idea as far as their capital contribution and buying power. That varies widely (WIDELY) from firm to firm and from trader to trader.


Why 100k ? It just seems like a psychological number, the hyped 6-figure barrier. It could be 80k or 120k, but it's not going to be hugely different, as in 40k or 200k.

 

[Rayn]

I used work equity trade support at RBS, and our prop guys had so so results, obviously because they had so much to play with they made millions but as a % it wasnt great, besides good performance or not the bank made them all redundant as they dialled down the balance sheet risk, although 2 of the guys set up their own hedge fund and are doing very well.

I still wonder why people ask what type of returns they should be getting, or comparing themselves to others, the truth is 8/10 dont make awesome money, but I think if you stop reading into the hype and simply apply yourself properly you too can be part of the 2/10 that do make a good living.