Any prop firms willing/able to compete?
- Thread starter coon
- Start date
Leverage is a non-issue at Bright. If you're trading risk-arbitrage you will not make good money with 10:1 leverage. I've gone as high as 50:1 without any problems, just keep in mind that these positions are subject to haircut charges. I would not make a good living with any retail firm with my trading style. If you're trading one-sided you probably have no need for more than 10:1. Be sure to strongly consider what your trading style is before choosing a firm. Bright is very good at allowing traders to push the envelope with leverage when the risks are acceptable and well understood.
ArbProfit, you want to explain how you can do 50-1 without substantial risk of BLOWING UP?
There are VERY few opportunities to arb where there is not some risk, even if it's only execution risk. Merger arb and the like I can't believe 50-1 is allowed, unless you are hedging with options or some other technique to limit downside.
There are VERY few opportunities to arb where there is not some risk, even if it's only execution risk. Merger arb and the like I can't believe 50-1 is allowed, unless you are hedging with options or some other technique to limit downside.
is not that hard to achieve....
Take JPM-ONE...lets say you are long that spread from .10 and your position is 5-6k shares. Your risk at this stage in the merger is .10...potential gain is several points. This position alone would take up 1/2 million in capital while your risk is under $600. Diversify that type of position across a few mergers...throw in some smaller pair positions and a scalp here and there and you easily hit 50:1.... All while keeping your risk very minimal. Of course this is not for everyone and is probably something you should work up towards slowly.
Daryn
Take JPM-ONE...lets say you are long that spread from .10 and your position is 5-6k shares. Your risk at this stage in the merger is .10...potential gain is several points. This position alone would take up 1/2 million in capital while your risk is under $600. Diversify that type of position across a few mergers...throw in some smaller pair positions and a scalp here and there and you easily hit 50:1.... All while keeping your risk very minimal. Of course this is not for everyone and is probably something you should work up towards slowly.
Daryn
Sorry...I used to .10 as an example without looking where the spread was currently at. The safest way to play that spread would be long JPM short ONE...IMO. Try to make a few cents and if the deal were to turn sour you would have a homerun. If the deal were to close tomorrow you would lose .30 or so. Not likely it will close tomorrow or that another suitor would be able to step in this late in the game...so risk is probably much less than .30. I was just using this as an example of how leverage adds up. Of course many spreads have a risk of more than .30 so you may have to adjust your position size accordingly. I am by no means an expert on the subject.... I am sure others can offer a much better insight than I can. I would add that personally there is no way I would hold a position of several thousand shares short that spread for any great length of time. Maybe intraday but that's it.
Cheers,
Daryn
Cheers,
Daryn
This is the commission: http://www.gndt.com/comm_cost.aspx
And this the "Other fees": http://www.gndt.com/comm_fees.aspx
It still is one of the best prices. Another firm with even cheaper rates is RMLtrading: http://www.rmltrading.com/tools/commissions.html
but I don't know if they have an API too.
Daryn did an excellent job of explaining how leverage can be used without excessive risk. JPM/ONE is a great example, I also trade this along with other mergers from the long side. Trading from the long side doesn't mean that I expect the deal to fall through, it just means that I have a capped risk level (once approvals are in and the deal has a large premium). Much like Daryn I rarely take mergers short overnight and definately not with any significant size. As far as risk goes I'm actually a low-risk trader even with this leverage, because I only take trades with extremely high probabilities of being profitable and only build positions in market-neutral trades. I would never use leverage in excess of 10:1 if I were a one-sided trader.
The point is that you may need access to substantial leverage if you plan on trading market-neutral strtegies.
The point is that you may need access to substantial leverage if you plan on trading market-neutral strtegies.