Any firms out there that are created for position traders

Quote from Don Bright:

For discussion sake, and I had a nice lunch with my friend David, who is the Managing Director at RBC Carlin, and a good meeting with Don Shear who sold Generic/Carlin to RBC.

It's about allocation of capital, risk management, cost of capital use...not about how long someone holds a posiiton. The primary purpose is for traders to make money, those who trade more will obviously pay less per share, but profits and longevity are the motivating factors for firms and traders. Traders need to make money, firms have to allocate capital and manage risk. In our case (we're not owned by a bank or brokerage or a software firm), we use our experience to make these decisions.

The example of using over $5million to buy 127,000 shares of something, means simply that there is $5million being used for a directional bet. I'm not sure of the downside risk, but I give the poster the benefit of his ability to limit losses. $5million, assuming $250K or so in account would cost the trader about 1 percent per month in haircut ($5,000), and about 4% in interest per annum, or $3333 per month for a total of $8333 per month. Now if the stock went up only $5 (not the higher price target), for a profit of $635,000 on 254,000 shares traded, not bad. 20% of $635,000 = $127,000 paid to the firm, plus commissions vs $8333 per month for carrying costs. I have no way of knowing how long that trade would need to be held, but let's assume 6 months.... 6 x $8333 = $49,998, again vs paying 20% or $127,000.

I'm just trying to show you a thought process, and of course there are other variables involved, and many possible outcomes, but this is a way of approaching it.

FWIW,

(Better double check my math, I've been trying to trade and type at the same time, LOL.

Don
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Don, when you get some free time please redo your math and post again, or I will have to cite you for misinformation.
 
I copped to trading and typing, let me correct.

The $5,000 would be $50,000 in this example, so the holding time frame would come into play much sooner....3 months would be about a break even...

(sorry, I don't try to mislead, even though I get accused of it... but I was under Sniper Fire at the time while chasing after gun toting religious nuts in Pennsylvania, LOL).

The main points still stand...we have traders who do pay a lot in haircut, not $50K per month or anything, but maybe $5K-$10K, and they don't mind when it allows them to make an additional $50K or so per month.

Now, at 50% profit split, well, you see my point. And since very few simply "buy and hold" forever, active trader time frames are rarely more than a couple of months.

Thanks for pointing out my error....back to the snipers now (actually GE, LOL).

Don

Additional edit regarding "haircut"

Most are hedged, at least somewhat, long vs. short.

They get 12 times equity overnight for 1% per Year, up to 30 times for about 3.75% per Year...and double equity for naked positions free.
 
Don-

I'm confused on what a haircut is. Normally in finance, a haircut is a percentage subtracted from the par value assets used as collateral. The size of the haircut reflects the perceived risk associated with holding the assets.

For example, Treasury bills (which are seen as fairly safe) might have a haircut of 1%, while for a stock option (which are seen as less safe) the haircut might be as high as 30%.

What do you mean by a 1% per month haircut, and is this only charged on the net position? In other words, if someone was long $2 million and also short $2 million overnight in paired trades, would there be any haircut?
 
Quote from george_s:

Don-

I'm confused on what a haircut is. Normally in finance, a haircut is a percentage subtracted from the par value assets used as collateral. The size of the haircut reflects the perceived risk associated with holding the assets.

For example, Treasury bills (which are seen as fairly safe) might have a haircut of 1%, while for a stock option (which are seen as less safe) the haircut might be as high as 30%.

What do you mean by a 1% per month haircut, and is this only charged on the net position? In other words, if someone was long $2 million and also short $2 million overnight in paired trades, would there be any haircut?
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These threads will help explain.
http://elitetrader.com/vb/showthread.php?s=&threadid=1865&highlight=haircut

http://www.elitetrader.com/vb/showthread.php?s=&threadid=90662&highlight=interest
 
Quote from george_s:

Don-

I'm confused on what a haircut is. Normally in finance, a haircut is a percentage subtracted from the par value assets used as collateral. The size of the haircut reflects the perceived risk associated with holding the assets.

For example, Treasury bills (which are seen as fairly safe) might have a haircut of 1%, while for a stock option (which are seen as less safe) the haircut might be as high as 30%.

What do you mean by a 1% per month haircut, and is this only charged on the net position? In other words, if someone was long $2 million and also short $2 million overnight in paired trades, would there be any haircut?
More...

Haircut is basically a risk fee for excessive use of overnight capital. However, for hedged positions our traders can keep 6 times their equtiy overnight for free, and 12 times their equity for 1% per year. We try to slow guys down at around 30 times equity use overnight.

Don
 
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