Bright Trade

Quote from nitro:

While there is probably some truth to both of these statements, I strongly disagree that they don't like their traders trading options because the Bright principals want to churn their traders. I have traded options and equities for a long time and I have come to appreciate the advantages of both.

The biggest problems with options in relation to trading the underlying directly is that when I want a 1:1 move in the options as I get in the underlying, I have to go with either 1) a deep in the money option, or 2) I have to do several ATM or OTM so that the delta's match.

The problem with 1) is that the B/A spread on most of these options is at least .20 to .30. That means that you often give up a bigger spread than you want to, or you have to sit there forever and hope someone hits you, usually against momemtum. The problem with 2) is that while the B/A spread may be tight(er), there is no advantage to doing it over the underlying because when you are done matching the delta, you have used the same buying power than had you just done the underlying.

In short, options traders trade options because they are multi-dimensional and offer than more than one way to profit (or lose to those that are of poor skill.) We have heard it from Don many times before as to his opinion (write or wrong) that options are meant to be sold, with the intent of capturing theta, and that in his opinion that is a game best left to people with killer commissions and no cancel fees on the floor of the exchanges. While we may disagree with that, there is no reason to believe that he is being dishonest when he says that.

nitro
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Nitro, you are comparing apples to oranges here. First of all, most option traders are not day traders, they are position traders. Most stock traders are daytraders, not position traders. Of course there are exceptions, but I'm referring to the prop environment here.

Nitro, I have traded at several prop firms and have been involved behind the scenes and I know why certain firms do things the way they do. The reason for example I can count on one hand how many prop options firms there are relative to stock and futures which number close to 50 is because of the profit margins. There simply is no money in it.

In the late 90's and early 2000 there were over 50 prop stock firms. The margins on stock were huge and the margins on bullets were downright illegal. It made oil companies look modest with their bottom lines. Once bullets went away, prop stock firms got cut in half over night. Why? The easy money was gone. Once stocks went to decimals, some more left the game. And once the volatility started to dry up, reducing overall volume across the board, even more left the business. They did not leave the business to pursue saving the whales, the left the business because it made financial sense to. Stock commissions were going to zero and bullets were gone and no one was trading. The risk/reward simply was not there.

Then came the proliferation of the prop futures model. They benefited sharply from the abundance of homeless stock traders that needed a new home and a new vehicle to trade. And what model was the choice model? The spread model of course. Teaching traders to scalp interest rate spreads and index futs spread. Double the commissions, double the fun.

However, this model began to weaken as well. As futures markets became more and more automated, the volatility was not there. And one by one, the future prop model began to evaporate. Again, these firms left the business or reduced the size of their business because of their downward sloping p&l.

Nitro, I talk to probably 20 to 30 traders a week. I talk to guys at every prop firm in Chicago and NY. I know what's going on out there. I understand the various models that are being executed and why they are succeeding and failing.

The bottom line is, these prop firms need to make money. Every one of them has a portfolio of various risk and they need to be compensated for that risk. That is the nature of the business.

I will give Don credit for seizing on the pair trading stock model. But they stole it from the prop futures firms that were spread trading. The problem becomes of course an issue of subsistence.

As more and more traders struggle to make money, they are going to demand lower commissions. As the lower the commissions go, the less it makes sense for that prop firm to shoulder the risk.

Don had stayed in the equity business for a couple of reasons. One, most of the equity firms have left the business so he enjoys the benefits of all the homeless equity traders that need new homes. He has also kept his commissions high and can get away with it as there now is very little competition for him. Also, by seizing on the pair trading model, he has found a way to double his margins while at the same time actually reducing his personal risk.

But make no mistake about it, Don and Bob have put a lot of thought into what they are doing. And their model is serving the best interest of the Bright's, not the traders. That is not really a bad thing per se as most firms look out for themselves first and their traders second. So I am not trying to paint Don and Bob as these evil prop firm owners. Let's just not kid ourselves here.

And I will stand by my statement that the bottom line is, prop options simply does not have the same attractiveness for the prop firm owners as does stock. If Bob and Don could find a way to milk the option business, they would. But they can't and so it will never be a priority for them.

As for the benefits or lack there of for trading options over stock, that argument is not applicable to this thread. They are apples and oranges. Most people who trade options, prefer to trade volatility and soft deltas. People who prefer futures or stock over options prefer hard deltas and direction. Two different animals.
 
Maverick74,

I can't find much to disagree with in your post because I believe it is an accurate history of the events that came to be and you described succinctly.

But I can tell you is that I have inside information into the Bright offices. The story that I hear simply don't jive with what you are saying in regards to being in this business to find ways to churn their traders. For example, Bobs own daughter trades the same methodologies that they teach to all their incoming traders, and she makes a frigging fortune almost every year! So they eat their own dog food and do so successfully.

I can go on with stories like this that I have heard since 1998 about Bright and the way they treat their traders, and I have over the years on these forums. But the biggest "evidence" that what you are saying can't be the whole truth is that there is a core of traders at Bright that have been there forever and are consistently profitable. You can't tell me these people are there surviving after all these years just so that Don and Bob can churn them?

What I am trying to say is that perhaps Bright is really two companies - those that come in through Don and his marketing efforts to people that should never step into the trading career path because they don't stand a chance in hell (probably the company you see), and those that end up trading at Bright seem to leave Don's supervision and try to align themselves with Bob and his kin as soon as possible - I claim that is the company you don't see, and those traders get as good a deal as anywhere else.

And btw, I happen to know that you can trade options and minis and whatever the heck you want at Bright, as long as you have the cash to back it up. But what most traders do is they search the best deal in each catergory and trade each at different firms based on deal. Who cares if Bright offers options or not? The people that care are undercapitilized to begin with because they can only plop down $25k at one pro firm and they are done. If you had $100K, you could join as many pro firms as you wanted and trade whatever each has to offer.

nitro
Quote from Maverick74:

Nitro, you are comparing apples to oranges here. First of all, most option traders are not day traders, they are position traders. Most stock traders are daytraders, not position traders. Of course there are exceptions, but I'm referring to the prop environment here.

Nitro, I have traded at several prop firms and have been involved behind the scenes and I know why certain firms do things the way they do. The reason for example I can count on one hand how many prop options firms there are relative to stock and futures which number close to 50 is because of the profit margins. There simply is no money in it.

In the late 90's and early 2000 there were over 50 prop stock firms. The margins on stock were huge and the margins on bullets were downright illegal. It made oil companies look modest with their bottom lines. Once bullets went away, prop stock firms got cut in half over night. Why? The easy money was gone. Once stocks went to decimals, some more left the game. And once the volatility started to dry up, reducing overall volume across the board, even more left the business. They did not leave the business to pursue saving the whales, the left the business because it made financial sense to. Stock commissions were going to zero and bullets were gone and no one was trading. The risk/reward simply was not there.

Then came the proliferation of the prop futures model. They benefited sharply from the abundance of homeless stock traders that needed a new home and a new vehicle to trade. And what model was the choice model? The spread model of course. Teaching traders to scalp interest rate spreads and index futs spread. Double the commissions, double the fun.

However, this model began to weaken as well. As futures markets became more and more automated, the volatility was not there. And one by one, the future prop model began to evaporate. Again, these firms left the business or reduced the size of their business because of their downward sloping p&l.

Nitro, I talk to probably 20 to 30 traders a week. I talk to guys at every prop firm in Chicago and NY. I know what's going on out there. I understand the various models that are being executed and why they are succeeding and failing.

The bottom line is, these prop firms need to make money. Every one of them has a portfolio of various risk and they need to be compensated for that risk. That is the nature of the business.

I will give Don credit for seizing on the pair trading stock model. But they stole it from the prop futures firms that were spread trading. The problem becomes of course an issue of subsistence.

As more and more traders struggle to make money, they are going to demand lower commissions. As the lower the commissions go, the less it makes sense for that prop firm to shoulder the risk.

Don had stayed in the equity business for a couple of reasons. One, most of the equity firms have left the business so he enjoys the benefits of all the homeless equity traders that need new homes. He has also kept his commissions high and can get away with it as there now is very little competition for him. Also, by seizing on the pair trading model, he has found a way to double his margins while at the same time actually reducing his personal risk.

But make no mistake about it, Don and Bob have put a lot of thought into what they are doing. And their model is serving the best interest of the Bright's, not the traders. That is not really a bad thing per se as most firms look out for themselves first and their traders second. So I am not trying to paint Don and Bob as these evil prop firm owners. Let's just not kid ourselves here.

And I will stand by my statement that the bottom line is, prop options simply does not have the same attractiveness for the prop firm owners as does stock. If Bob and Don could find a way to milk the option business, they would. But they can't and so it will never be a priority for them.

As for the benefits or lack there of for trading options over stock, that argument is not applicable to this thread. They are apples and oranges. Most people who trade options, prefer to trade volatility and soft deltas. People who prefer futures or stock over options prefer hard deltas and direction. Two different animals.
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Quote from nitro:

Maverick74,

I can't find much to disagree with in your post because I believe it is an accurate history of the events that came to be and you described succinctly.

But I can tell you is that I have inside information into the Bright offices. The story that I hear simply don't jive with what you are saying in regards to being in this business to find ways to churn their traders. For example, Bobs own daughter trades the same methodologies that they teach to all their incoming traders, and she makes a frigging fortune almost every year! So they eat their own dog food and do so successfully.

I can go on with stories like this that I have heard since 1998 about Bright and the way they treat their traders, and I have over the years on these forums. But the biggest "evidence" that what you are saying can't be the whole truth is that there is a core of traders at Bright that have been there forever and are consistently profitable. You can't tell me these people are there surviving after all these years just so that Don and Bob can churn them?

What I am trying to say is that perhaps Bright is really two companies - those that come in through Don and his marketing efforts to people that should never step into the trading career path because they don't stand a chance in hell (probably the company you see), and those that end up trading at Bright seem to leave Don's supervision and try to align themselves with Bob and his kin as soon as possible - I claim that is the company you don't see, and those traders get as good a deal as anywhere else.

And btw, I happen to know that you can trade options and minis and whatever the heck you want at Bright, as long as you have the cash to back it up. But what most traders do is they search the best deal in each catergory and trade each at different firms based on deal. Who cares if Bright offers options or not? The people that care are undercapitilized to begin with because they can only plop down $25k at one pro firm and they are done. If you had $100K, you could join as many pro firms as you wanted and trade whatever each has to offer.

nitro
More...

Nitro, no where in my post did I say the Brights were churning traders. Traders are churning themselves. Don cannot make anyone do anything. He is simply a facilitator. The traders churn because the model lends itself to churning. And no where did I say it wasn't profitable for the traders. I worked for the largest churn shop in the world in NY. And I assure Nitro, we had some of the most profitable traders in the business. The terms are not mutually exclusive.

My post was regarding the profit margins such a model generates and why more prop firms do not either offer options or specialize in them. Remember, that was the original question I believe.

And btw Nitro, at my old firm in NY, all members of the owners family traded there as well, including the inlaws. Again, it's non sequitur.
 
Quote from nitro:

Maverick74,


And btw, I happen to know that you can trade options and minis and whatever the heck you want at Bright, as long as you have the cash to back it up. But what most traders do is they search the best deal in each catergory and trade each at different firms based on deal. Who cares if Bright offers options or not? The people that care are undercapitilized to begin with because they can only plop down $25k at one pro firm and they are done. If you had $100K, you could join as many pro firms as you wanted and trade whatever each has to offer.

nitro
More...

Nitro, nobody said you couldn't trade options or futures at Bright, it's simply not encouraged. Just ask Don what he charges for rates on options and futures and you will see what I mean.
 
Nitro , You and Mav raise very cogent points about the state of firms these past years. I tend to agree with Mav about the reason very few offer options (i.e. little money in them). I got it straight from the Class A member of a firm here based in the NYC area. He basically said such.In addition, a bigger reason is that very few clearing firms know how to calculate risk based haircuts for their JBO's.

I don't think the Brights deliberately churn their traders any more so when a landlord accepts a signed lease from a tenant who want to sell ice in an Alaskan storefront. Where it fails is when the methodologies being taught are "curve fitted" to the business model. For example, OO's and pairs are capital intensive. An accident? I don't think so.

BTW, let me go out on a limb here that when Reg NMS goes full implementation in 3-5 months , OO's will be relegated to the "Do you remember the time when?..."

In addition, an owner teaching their traders a currently working system, while laudable, might not seem as generous as it appears.

A trader with $x coming in from another business (i.e. commission business, would simply be a better trader because he is trading with F U money. Now if the Class A owners of the world find a way to incentivize a persistenly profitable "regular trader" who makes $500 daily with 10K account, to share it with new traders, then that is another story.
 
I see. Well, then by these arguments, the "daytrading" model is a churn model not just at Bright, but at Echo, Shony, etc etc.

I thought you were singling out Bright trading in this regard. If this is what you are saying, that most if not all pro equities trading shops that want you to intraday equities with volume are essentially churn shops today, then while I don't agree with you, I certainly think that by the standards of pre decimalization etc, you are certainly correct.

nitro
Quote from Maverick74:

Nitro, no where in my post did I say the Brights were churning traders. Traders are churning themselves. Don cannot make anyone do anything. He is simply a facilitator. The traders churn because the model lends itself to churning. And no where did I say it wasn't profitable for the traders. I worked for the largest churn shop in the world in NY. And I assure Nitro, we had some of the most profitable traders in the business. The terms are not mutually exclusive.

My post was regarding the profit margins such a model generates and why more prop firms do not either offer options or specialize in them. Remember, that was the original question I believe.

And btw Nitro, at my old firm in NY, all members of the owners family traded there as well, including the inlaws. Again, it's non sequitur.
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Quote from Maverick74:

Nitro, nobody said you couldn't trade options or futures at Bright, it's simply not encouraged. Just ask Don what he charges for rates on options and futures and you will see what I mean.
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Ok.

nitro
 
Quote from nitro:

I see. Well, then by these arguments, the "daytrading" model is a churn model not just at Bright, but at Echo, Shony, etc etc.

I thought you were singling out Bright trading in this regard. If this is what you are saying, that most if not all pro equities trading shops that want you to intraday equities with volume are essentially churn shops today, then while I don't agree with you, I certainly think that by the standards of pre decimalization etc, you are certainly correct.

nitro
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Yes, Nitro, the daytrading stock model is a churn model. Does Echo and Schony also focus on pairs? Because pair trading is the (churn model)^2.

Double the commissions, double the fun. :)
 
The $10K you put down is not the money you trade. It is just used to keep score. The money you trade with is many many times that. So they are not making $500 on 10k per day, a 5% per return which would turn you into a billionaire in no time compounded, but they are making use of $1M to $2M in equity to do things like OO or other intraday strategies.

Whether these strategies continue to work as well as people here claim to or not is debatable.

nitro
Quote from GATrader:

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A trader with $x coming in from another business (i.e. commission business, would simply be a better trader because he is trading with F U money. Now if the Class A owners of the world find a way to incentivize a persistenly profitable "regular trader" who makes $500 daily with 10K account, to share it with new traders, then that is another story.
More...
 
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