Bright Trading's new payout model

[Don Bright]

Quote from Szeven:

What would be the benefit of the profitable Vancouver stat arb group giving up half the profits of their systems to other traders? If they made a lot of money and had adequate capital, wouldn't it be more profitable to keep it to themselves?

Many don't bother with the JVC plan, many think of it as "easy money" - Nothing to stop them from actually "double dipping" - making money in both accounts - spread out the risk, etc.

(Unless I am misunderstanding your question).

Don

 

[Sun Light]

Let me try to understand this 80/20 better.
We are talking about the 1st account only. Let’s leave JVC out of it for now.
If I deposit 20k with BT .
Scene 1: 1st month, I made 10K profit. Does BT get to keep 2K profit? (immediately or eventually)?
Scene 2: 1st month, If I make a loss of 10K. Does BT absorb 2K loss?
What is it? 100% traders capital, Zero % BT’s loss or 20% BT’s profit?
Then it should be called 80-0-20. Yeah...I still think... "they got you by the balls"

 

[Szeven]

Quote from Don Bright:

Many don't bother with the JVC plan, many think of it as "easy money" - Nothing to stop them from actually "double dipping" - making money in both accounts - spread out the risk, etc.

(Unless I am misunderstanding your question).

Don

In a lot of strategies I have observed that profitable entry points can be quite crowded, and become more crowded as more and more traders and capital are committed to the strategy. I know there are a million pair combinations you can come up with, but with fills the way they are, I wondered if a group of innovators could be cannibalizing themselves.

 

[Midas]

Quote from Szeven:

What would be the benefit of the profitable Vancouver stat arb group giving up half the profits of their systems to other traders? If they made a lot of money and had adequate capital, wouldn't it be more profitable to keep it to themselves?

By selling picks and shovels during a gold rush. (software, updated pair data, etc)

 

[Celine]

Quote from Szeven:

In a lot of strategies I have observed that profitable entry points can be quite crowded, and become more crowded as more and more traders and capital are committed to the strategy. I know there are a million pair combinations you can come up with, but with fills the way they are, I wondered if a group of innovators could be cannibalizing themselves.

The edge disapears and they will all end up chewing on each others orders....

 

[GGSAE]

Quote from Szeven:

In a lot of strategies I have observed that profitable entry points can be quite crowded, and become more crowded as more and more traders and capital are committed to the strategy. I know there are a million pair combinations you can come up with, but with fills the way they are, I wondered if a group of innovators could be cannibalizing themselves.

It's not really taking the best strategies, all that's going on is using some of the software tools to people that may not have had access to them before. There's more communication, yes, but for a lot of the experienced traders they already had their own groups/colleagues they were in contact with.

And I definitely agree with you on the second point...I've been trading a pair with a low ATR over a period of 2 years i've had about a 90% success rate (winners/losers). Nothing spectacular, nothing amazing, just hitting a lot of singles...the irony is the typical 'screening stats' most guys flock too wouldn't pull this pair up in a result so it doesn't look that good until you start trading it. The liquidity is there, but there have been times premkt i've taken amazing anomalies that if others trade it would be lost opportunities for me....sorry for getting on a rant but there's one more point I want to make.

I don't think I agree with the whole, let's put everyone in a room together and brainstorm/call out trades. There's clearly different types of traders where hearing other positions trades can affect your plan and this also creates dependency which hinders creative learning.

 

[EricP]

Quote from Midas:

By selling picks and shovels during a gold rush. (software, updated pair data, etc)

Exactly, and after the gold is all gone.

As Szeven pointed out, any otherwise profitable strategy will lose it's effectiveness and become worthless when too many traders begin trading the same methods. Unfortunately, Bright's business model ensures that their traders have to continually find new trading strategies as the old ones constantly fail due to over use. This happened to OPG trading in the past few years, and you now rarely hear a word about that strategy (and Don's OPG thread is dead as essentially is the strategy). The same is now true for pair trading, as this strategy seems to be in the final stages of a death spiral as well.

A profitable trader should think long and hard before trading at Bright with a new innovative and consistently profitable method (I would never, ever do it). Why? You will be quickly identified as a very good trader, and your trades will be evaluated to see if they can figure out how you are trading. Before long, your methods will be taught to 'bootcampers' and your successful edge will eventually be diluted to the point of it's demise. I know of a trader that had this exact experience. (the only winner will be the broker, that benefits from the additional flow of bootcamp training fees and subsequent commissions generated)

On the positive side, few traders should see any adverse effect from the new 80/20 profit split, as I doubt a large percentage of the traders there have net profits in their accounts. Instead, they slowly bleed their accounts and will never pay a 20% share of their net profits. While this is good news for the losing traders (no additional 'fee' from the profit split), it is also bad news that they are destined to lose money in their trading. Hard to spin a good marketing angle from this 'good news', though.

 

[GGSAE]

Quote from EricP:

Exactly, and after the gold is all gone.

As Szeven pointed out, any otherwise profitable strategy will lose it's effectiveness and become worthless when too many traders begin trading the same methods. Unfortunately, Bright's business model ensures that their traders have to continually find new trading strategies as the old ones constantly fail due to over use. This happened to OPG trading in the past few years, and you now rarely hear a word about that strategy (and Don's OPG thread is dead as essentially is the strategy). The same is now true for pair trading, as this strategy seems to be in the final stages of death as well.

A profitable trader should think long and hard before trading at Bright with a new innovative and consistently profitable method (I would never, ever do it). Why? You will be quickly identified as a very good trader, and your trades will be evaluated to see if they can figure out how you are trading. Before long, your methods will be taught to 'bootcampers' and your successful edge will eventually be diluted to the point of it's demise. I know of a trader that had this experience.

On the positive side, few traders will see an adverse effect from the new 80/20 profit split, as I doubt a large percentage of the traders there have net profits in their accounts. Instead, they slowly bleed their accounts and will never pay a 20% share of their net profits. While this is good news for the losing traders (no additional 'fee' from the profit split), it is also bad news that they are destined to lose money in their trading. Hard to spin a good marketing angle from this 'good news', though.

I agree with you to some extent Eric but for the most part it's not that simple. For the first few months of 2008 I was in a group of remote traders (between 5-10) where my results were far and above everyone else's - I didn't know this at the time until several months later. The head trader could see all my positions and my trades; the group was using the same tools/information but my results were far and above everyone else's. I remember he kept asking what I was doing, i'm like fuck can't you see? And i'm telling you guys exactly what i'm doing...I'm not trying to brag but time and again i've seen multiple traders trade the same pair sitting side/side with entirely different results...

 

[GGSAE]

Quote from EricP:



On the positive side, few traders should see any adverse effect from the new 80/20 profit split, as I doubt a large percentage of the traders there have net profits in their accounts. Instead, they slowly bleed their accounts and will never pay a 20% share of their net profits. While this is good news for the losing traders (no additional 'fee' from the profit split), it is also bad news that they are destined to lose money in their trading. Hard to spin a good marketing angle from this 'good news', though.

Contrary to the prevailing sentiment here, Bright is working hard to making those that aren't making money, profitable.

 

[EdgeHunter]

Quote from Sun Light:

Maverick, Don

Thank you for this thread. And thanks to Don for replying. I am (or should I say, I Was?) in the process on joining BT, but what i have learned from this thread and new 80-20 development that did put some doubts in my mind.
This is how i compared BT with my IB account. Points that I considered in favor of BT, assuming the previous 100% model are as follows.

1. DB charges about $235 per month (that includes NY/NASDAQ exchange charges, GS software charges etc). This money does not go to BT directly, but goes to exchanges as professional membership fees etc. If you are Just retail trader(IB), you don't have to pay this fees.
These charges (or about $200) can be waived if you generate enough volume per month. I do not have exact number.
I looked at it like cost of doing business. about $2500 per year. It is worth trying for at least a year.
There is no point in taking trades, generating volumes for the sake of it so that one can save $200 per month on commission rebate.
At least not for the new ones starting with them.

2. It seems, you can get "streaming quotes" from the software (Redi plus?) for about 800-1000 tickers. Note that IB gives only 100.
to get that 1000 streaming quotes, one may have to pay about $120 per month from other service providers.
You can use streaming quotes to hook up with Excel and generate alerts based on strategies etc. And I have process/programs in place for that.

3. DB provides a audio conference call daily. Teamspeak, I think. They have at least few hundred traders and lot of them are experienced.
You get to interact with experienced traders. You can develop peer relations. the forum/conference can alert fellow traders on some stock that is moving. Traders Collaboration. Though I have a account with IB, it does not provide me that kind of forum. IB's traders chat sucks. This type of traders collaboration is in itself a great value for those who consider it. I think such service with (audio conference moderator) is available for about $100 per month for a good program. The loneliness of a full time retail trader and the need to connect with same species can be understood by only those who gone through it.

4. DB provided 100% payout earlier. (no longer I think. Though I read this forum frequently, I am yet to see words from Don that says "our Normal account pay out is 80/20 now, which was 100% earlier")

5. The capital use of firm. This point is less important for me or a new trader. Capital/leverage is two edged sword.
No point in using all that leverage that Don gives in initial years of trading.

6. The JVC program is 2nd account. Not the primary account. You can not have it without primary account. for simple reasons, i can not understand what is there that an able trader can do in 2nd account that he can not do in 1st account. If it is program driven pair, trader can generate pair trades using his own or third party program and trade it in 1st account and keep more than 50% profit. The benefit BT giving is Zero risk up to $5000 and I guess that is only one time. Once you loose $5000 your 2nd account is closed. I look at like $5000 sign on bonus. The primary account is what I have to trade to make my living. The "Normal" account is the only what I considered. With 100% payout it was still a sweet deal.

7. The commissions is again not too bad compare to IB. (0.007) I am not talking about high volume though.

8. Honesty. Reputation. I think Brights are there in market for years and even the strong critics also will hesitate to blame them on this front. If you want to stop trading with them, they will return your money. That is not the case with ease with so many other props.

9. You can still keep IB and trade a good volume there, if you are concerned about commission.

All in all, with earlier 100% payout, for a cost of doing business of $2500/year one will get good streaming quotes, opportunity to interact and stay connected with other good traders. It was worth a try. In a year or so, one will know if he can make that volume trades that will rebate his commission of $200per month back. Also if one can learn enough to use BT's capital/leverage. Basically to know if you are cut out as a professional trader. If yes then it all makes sense, otherwise still trying it for a year is worth.

But now if it is 80-20 then all bets are OFF. I mean really, in the first year if i am not big on the capital advantage or the JVC program is there still a point? The only advantage that i see here is my 3rd point i.e. Team interaction/peer support/ management support. I have to weigh that with all the odds to see if it still make sense.

That being said, I think the struggle is between the Big boys who can do HFT and all that, and the small guys likes us who used to seek shelter under the leadership like brights. I am with BT and other good firms here. They let us come together and do things as a team. But With this 80-20 rule, the Big boys have just hit back big time. It will test the zeal of prop trading as business. Unless BT shows me more "value" than what I see, joining them is pointless, I think.

One solution that I can think of is BT funding 20% capital and trader provides 80%. I am not talking about leverage, pure capital in the primary account. then 80-20 makes sense. In this case BT is willing to share 20% loss and entitled for 20% profit. BT should "let it go" i.e 20% loss if i closed my account with them when the loss is still outstanding. If i made 30% loss, I will pay 10% back even if I close the account.

Off course to trust a new trader with 20% of firms capital, they have to screen a trader well or should have to establish a process to qualify such traders. trading experience, Programming experience, understanding of Risk reward etc. These restrictions could come in the play. And the last thing I want to see is increase in "Training fees" to provide that 20% contribution as firms capital.

I am still supporter of BT even if it does not works out for me in coming weeks. I am not exactly a believer in "conspiracy theories" per se, but now I know what George Carlin meant when he said..."what can you do? They got you by the balls..."

Hi Sun Light...

Did you include the cost for eSignal or other charting and data feed service at about $200 a month... so it would be an extra $2400... unless i missed it in your writeup...

also add on Exchange fee each year around $400 to $500 dollars...