Bright questions

[ArchAngel]

So are you saying that someone with $100K in equity can carry $820K in open posiition exposure overnight without a problem just because half of it is long and half of it is short??

They're not really offsetting exposures. Suppose they've got 10,000 shares of Stock A @ 40 long and 10,000 shares of Stock B @ 42 short. The exposure isn't only $20,000 (or -20% of equity as you noted).

Suppose both stocks come out overnight with news and the long stock (Stock A) opens the next day @ 30 (i.e., down 10) and the short stop (Stock B) opens @ 52 (i.e., up 10). The trader is now suddenly down $200,000 (twice their equity)

 

[Don Bright]

Originally posted by ArchAngel
So are you saying that someone with $100K in equity can carry $820K in open posiition exposure overnight without a problem just because half of it is long and half of it is short??

They're not really offsetting exposures. Suppose they've got 10,000 shares of Stock A @ 40 long and 10,000 shares of Stock B @ 42 short. The exposure isn't only $20,000 (or -20% of equity as you noted).

Suppose both stocks come out overnight with news and the long stock (Stock A) opens the next day @ 30 (i.e., down 10) and the short stop (Stock B) opens @ 52 (i.e., up 10). The trader is now suddenly down $200,000 (twice their equity)

The 20% applies to the overall net position (long $$ vs. short $$). There is no "haircut" charge on a fully hedged position ($$long vs. $$ short) up to 6 times your equity (in this case $600K), so the additional balance would be the only amount in which haircut is charged (at the 2% per year rate). Feel free to call directly with questions on this. 800.249.7488

 

[ArchAngel]

OK, let's use 6 times equity then -

What do you mean "fully hedged position"? - simply being long one stock for $300,000 and short another stock for $300,000 isn't a hedged position at all. You actually have UNhedged on both the long and short sides.

Example: Long 10,000 shares of Stock A @ 30 and Short 15,000 shares of Stock B @ 20 - Long $=$300K and short $=$300K but the long position could go drastically against the trader at the same time the short position also goes drastically against them.

There's no hedge at all.

I'm not talking about haircuts or margin charges here - what I'm trying to understand is are you actually allowing a trader to take home overnight such a set of completely unhedged positions @ 6 times equity?

 

[Don Bright]

Originally posted by ArchAngel
OK, let's use 6 times equity then -

What do you mean "fully hedged position"? - simply being long one stock for $300,000 and short another stock for $300,000 isn't a hedged position at all. You actually have UNhedged on both the long and short sides.

Example: Long 10,000 shares of Stock A @ 30 and Short 15,000 shares of Stock B @ 20 - Long $=$300K and short $=$300K but the long position could go drastically against the trader at the same time the short position also goes drastically against them.

There's no hedge at all.


I'm not talking about haircuts or margin charges here - what I'm trying to understand is are you actually allowing a trader to take home overnight such a set of completely unhedged positions @ 6 times equity?

Yes we allow this. Rather than deciding which "hedge" is currently appropriate, we spread the "market risk" by dollar amount (long vs. short). My brother and I reviewed your question together to be sure that we are absolutely clear on this. I hope this helps. We respect our traders ability to decide what might be appropriate for their type of trading. Since overall capital use is not a concern, we rely on our proven risk control methods.

Don't get the impression that we take excessive overall risk, because we don't...and we have constant risk control during the day.

 

[Shorteee]

Don

I'm sure you answered to question before so let me ask it again (just so there is no misunderstanding).

For remote Bright traders what is the buying power for intraday trades? I also am interested in knowing what the buying power. for overnight (1-7 days) positions?

Shortee

 

[murray t turtle]

Don ; Would you mind answering a related question?---------------------------------------------------Partial Archangel quote''There is no hedge at all. .....trader takes home overnite a completely unhedged position@6 times equity?-''------Question. Don ,would you agree your answer was a statement of overall safe risk to a nationwide trading company ;not a professional recomendation for a trader or a pro trader? Hopes this helps clear up something on risk.

 

[Don Bright]

Originally posted by Shorteee
Don

I'm sure you answered to question before so let me ask it again (just so there is no misunderstanding).

For remote Bright traders what is the buying power for intraday trades? I also am interested in knowing what the buying power. for overnight (1-7 days) positions?

Shortee

Hi Shortee. The remote traders are given the same consideration as in-office traders. All traders can keep up to 5 times their equity overnight without asking anyone. Many keep 20 or 30 times their equity for certain strategies. Haircut charges may apply in some cases. Check the website for the details on charges. This 2002 rollout of 250 remote traders is hopefully a basis for a much more expanded group, and we want them to have all the chances for success.

(I'll skip my normal commercial now)

 

[Don Bright]

Originally posted by murray t turtle
Don ; Would you mind answering a related question?---------------------------------------------------Partial Archangel quote''There is no hedge at all. .....trader takes home overnite a completely unhedged position@6 times equity?-''------Question. Don ,would you agree your answer was a statement of overall safe risk to a nationwide trading company ;not a professional recomendation for a trader or a pro trader? Hopes this helps clear up something on risk.

We do not recommend a high risk position like this at all. We simply judge the overall positions of the Firm to be sure that we are not in jeopardy of significant financial risk. We actually think our traders know what they are doing (most traders... )

 

[Shorteee]

Don:

Thanks for the info on overnight positions in reference to buying power but what about intraday buying power?

Shortee

 

[Don Bright]

Originally posted by Shorteee
Don:

Thanks for the info on overnight positions in reference to buying power but what about intraday buying power?

Shortee

Intra day buying power is not limited by dollar amount or xxxtimes equity. We monitor your overall risk. Many use $ 1-2 Million intraday with $25-$50K in their accounts. The openings alone can gobble up $3million (in my case) even though they aren't all filled, the capital is being used.