Capital Available for Traders

[gmst]

Quote from Maverick74:

Total BS. First of all, the percentage of retail guys making 50% is probably .00001%. Two, most serious institutional investors would never go near a guy making 50% returns on the volatility alone. You just don't get it. In the real world outside of ET, people are not trying to make 10,000% returns. They are looking for 10% to 15% returns with low volatility. Especially from an inexperienced retail trader. You think they want to get behind some newbie with no capital shooting for 50% returns? See, you just don't understand how this game works. People who invest in these schemes want a risk adjusted return that is reasonable. The irony is, if you made a 50% return your odds of getting an allocation are probably slim to none and slim left town.

They are going to allocate capital to maybe just 30-50 top retail traders in this country. Please don't tell me that you won't have 50 top retail traders making 50-100% return.

As far as volatility, again they are not pitching to CALPERS or anyone of that size. Most likely the source of their capital is HNIs. These guys are happy with 50%-70% return with 30-40% drawdown, unlike FoFs.

As SLE said in another post, this is for pikers by pikers. It is for pikers who otherwise will never get a chance to trade big money, its your typical IT engineer working in a small firm in silicon valley who can trade but is not going to get into an investment bank or a hf. He is also not confident to approach his uncle, aunt etc and operate a F&F account at IB, maybe he doesn't want to take capital from his uncle or whatever. But if his returns are solid, going to RAPA to get access to a million dollars is surely a good start for such a guy.

Lets not belittle RAPA, they are offering an avenue to retail traders, not to JPM, Infineon pedigree guys.

 

[Maverick74]

Quote from gmst:

They are going to allocate capital to maybe just 30-50 top retail traders in this country. Please don't tell me that you won't have 50 top retail traders making 50-100% return.

As far as volatility, again they are not pitching to CALPERS or anyone of that size. Most likely the source of their capital is HNIs. These guys are happy with 50%-70% return with 30-40% drawdown, unlike FoFs.

As SLE said in another post, this is for pikers by pikers. It is for pikers who otherwise will never get a chance to trade big money, its your typical IT engineer working in a small firm in silicon valley who can trade but is not going to get into an investment bank or a hf. He is also not confident to approach his uncle, aunt etc and operate a F&F account at IB, maybe he doesn't want to take capital from his uncle or whatever. But if his returns are solid, going to RAPA to get access to a million dollars is surely a good start for such a guy.

Lets not belittle RAPA, they are offering an avenue to retail traders, not to JPM, Infineon pedigree guys.

I'm sorry, I simply cannot agree to this. I don't know any HNI that would ever allocate capital to a small retail piker who is "shooting" for 50% to 70% returns. The world does not work that way. I know guys on ET really believe that. But ask anyone in this business. No one will agree with you. I'm sorry. And if you don't have the self confidence to pitch your uncle, why the hell would a stranger give money to you. That's the other problem here. Today most allocators want their traders to have real skin in the game. They don't want to give 1 million to a guy who is sitting on a 10k account. Talk about a free call option. I'm sorry man, the business simply does not work the way you think it does.

 

[gmst]

Quote from Maverick74:

I'm sorry, I simply cannot agree to this. I don't know any HNI that would ever allocate capital to a small retail piker who is "shooting" for 50% to 70% returns. The world does not work that way. I know guys on ET really believe that. But ask anyone in this business. No one will agree with you. I'm sorry. And if you don't have the self confidence to pitch your uncle, why the hell would a stranger give money to you. That's the other problem here. Today most allocators want their traders to have real skin in the game. They don't want to give 1 million to a guy who is sitting on a 10k account. Talk about a free call option. I'm sorry man, the business simply does not work the way you think it does.

Good points. Here is my rebuttal.

Consider following:
Lets say an HNI wants to invest 1 million dollars. He won't invest with one retail piker based on his RAPA score. He will do the allocation to top 20 RAPA guys, so that he gets a diversified return on his capital. So, he is infact shooting for 50-70% but is not exposed to one guy's performance. This addresses your other point as well of allocator wanting traders to have real skin in the game - since the allocator is just allocating his 50k to a retail piker who has 10k of his money, so ratio of allocationwn capital is 5:1 instead of 100:1. Makes sense?

 

[rwk]

Quote from Maverick74:
I'm sorry, I simply cannot agree to this. I don't know any HNI that would ever allocate capital to a small retail piker who is "shooting" for 50% to 70% returns. The world does not work that way. I know guys on ET really believe that. But ask anyone in this business. No one will agree with you. I'm sorry. And if you don't have the self confidence to pitch your uncle, why the hell would a stranger give money to you. That's the other problem here. Today most allocators want their traders to have real skin in the game. They don't want to give 1 million to a guy who is sitting on a 10k account. Talk about a free call option. I'm sorry man, the business simply does not work the way you think it does.

One of the issues we don't know about is what kind of performance RAPA is targeting. The calculation of RAPA score is propietary and confidential.

By way of clarification, it is my understanding that Maverick74 is a principal with a Chicago area prop firm. Correct?

I am a retail trader currently, though I was registered as a CTA about 15 years ago. What that experience taught me is that I am the world's most incompetant salesman. I think what Mav fails to realize is how hard it is for a beginning trader to get recognized, especially a slightly autistic geek with poor interpersonal skills. Actually, I think it is hard for both sides to get together.

In any kind of screening process, there are two basic kinds of mistakes possible, call them A and B errors. The A error is when you let a bad widget slip through, and a B error is when you reject a perfectly good widget. Hiring managers, asset allocators, and anybody with money to spend tend to focus on avoiding A errors and seldom even consider the B errors. That's why good workers can't get hired, good traders can't get allocations, and good products don't sell. And this is an area where the RAPA model could offer potential.

It is my impression that a 20% average return puts the trader in rare company. Much more than that, and the investor gets spooked by the [potential] risk. Taking 20% as a goal, it's clear that a trader would need well over USD1 million to support a trading business. One problem from my viewpoint, is that I believe I would need to be registered as soon as I accept the first allocation. There are exemptions for smaller allocations, but they disallow any advertising, and I believe having my name and performance published would constitute advertising. Based on my past experience, I would not be interested in going to that effort and expense for small allocation that may or may not have anything behind it.

In my case, there are other issues I consider as well. My trading is heavily computerized, and changing to another broker to get an allocation is not a trivial exercise. It's also not really clear how well my present methods will scale to USD1.5 million and beyond, assuming that level of allocation even materializes. I am also not keen to discuss my methods in much detail, so for now I am not sure I will upload my performance. And if I do, I am not sure I would accept a $100k allocation.

 

[marketsurfer]

What's the difference between these guys and covestor type operations other than the term " hedge fund" being used and a nebulus scoring model? I don't understand the appeal or niche they are trying to fill. surf

 

[Maverick74]

Quote from marketsurfer:

What's the difference between these guys and covestor type operations other than the term " hedge fund" being used and a nebulus scoring model? I don't understand the appeal or niche they are trying to fill. surf

Surf, excellent point. I totally forget about covester. Covester has allocated over a billion dollars! You don't have to reveal your strategy. And they have a way for you to get subscription fees if you choose not to register.

Let me go over the differences. As of now, I don't believe covester allows futures, only stock and options. Covester only charges management fees. It's an RIA model. You can choose how high your fees are and you split them 50/50 with covester. Covester does all the admin, all the back office, all the marketing. And I believe with covester you can use any broker.

It's a slightly different model. But they do have a few managers who are managing into the 100's of millions so they HAVE delivered. Again, both RAPA and Covester have their pros and cons. Each will appeal to different people. Covester has been around a while and their model has been polished extensively.

 

[Chuck Krug]

I don't know why everyone is jumping to all sorts of conclusions.
If you get to manage their account, it's just another account to manage. Like most guys I know who are only some years into managing money (as opposed to decades) and are not backed by GS, they manage various accounts from: their own, friends and family, private customers, advisors, small funds, etc.
1% and 10% is not bad. If you have your own fund, you have to pay for your sales people and overhead. This costs a lot of money. Independant sales advisors will charge an arm and a leg:2% upfront and 0.5% yearly retrocessions are normal and of course will weigh more heavily during a drawdown.

In my opinion this is not a bad deal but by all means, no one has to take it.

 

[rwk]

Quote from Chuck Krug:
I don't know why everyone is jumping to all sorts of conclusions.

That's the ET way. About 4 years ago, a fellow named Doug Allen showed up wanting to fund traders. ETers were absolutely brutal with him. I never did find out whether he was legit.

 

[Pekelo]

Quote from Maverick74:

I was trying to help out my friend Pekelo .....On a few other threads most of ET seemed abhorred at the idea of giving away 40% of their profits. This is 90%.

Thanks for the help. Well, I am looking at the models (Patak, Rapa) from both sides, the trader's and the backer's. In a good partnership everybody is happy with the arrangement. In this model to complicate things, there are actually 3 sides, the introductory firm is the 3rd.

First, I am not even sure the 3rd party is needed. There are already websites with talents on it (covestor, C2, hell even ET), so a backer could just contact traders there. Or advertise the capital on ET and other message boards. I am not against the existence of the 3rd party, but I don't find it necessary, and they obviously cut into the profits. I can understand if a guy with capital doesn't want to do the homework and trusts a firm to do it for him, but either way, the positive outcome (profits) is not guaranteed.

That said, I think Patak's offer is too generous for the trader* and shortchanges the backer, and Rapa is the opposite*. Giving only 10% of the profits to the trader is way too low, specially when the backing amount is rather low. AFAIK, bigger the amount traded, the more risk the backer is taking thus his share should increase with it. Generally, I would say the profit share for the trader should be in the 30-60% range, again sligthly decreasing when the amount increased. The trader still would make more money on the bigger account... Now Rapa can say, they are helping the talent to be discovered, but if the trader is eventually and truly discovered, I assume he would negotiate better terms...

*Why would a backer give up 80% of the profits at Patak and why would a trader who is already trading his own money would be happy with only 10% at Rapa?

 

[Chuck Krug]

pekelo: futures are a different animal.
look at all the shops offering $300 margins. You can fund a lot of 5 contract futures traders with 100k.