Chicago Futures Trader Charged with Causing $13 Million in Losses from Fraudulent Trading Scheme

newwurldmn said:
Typically paid (and fired) on marked to market.
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Having MUCH experience with Chicago and to some extent NYC proprietary futures trading firms, I can say in terms of my own personal observations that I have never seen a trader get paid out anything close to his or her full share on MtoM, but I sure as hell have seen traders get instantly fired and escorted out of a building on MtoM. (I was enlisted by management to sort through and liquidate a few of these burning shit piles on occasion). It's part of the business.

I have seen some traders, myself included, get very healthy draws based upon protracted performance and positive equity. Every firm that I was ever at had pretty tight risk controls and sharp Risk Managers. Most did not like options trading unless there was a large element of market making or delta neutral spread arbitrage involved. Again, my own observations - YMMV.
 
but if they are paid on a paper profita and eventual it is a loss! it does not make sense
since payment is real realized performance based is it not?
 
bone said:
Having MUCH experience with Chicago and to some extent NYC proprietary futures trading firms, I can say in terms of my own personal observations that I have never seen a trader get paid out anything close to his or her full share on MtoM, but I sure as hell have seen traders get instantly fired and escorted out of a building on MtoM. (I was enlisted by management to sort through and liquidate a few of these burning shit piles on occasion). It's part of the business.

I have seen some traders, myself included, get very healthy draws based upon protracted performance and positive equity. Every firm that I was ever at had pretty tight risk controls and sharp Risk Managers. Most did not like options trading unless there was a large element of market making or delta neutral spread arbitrage involved. Again, my own observations - YMMV.
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How do they account for the fact that you will constantly have realized and unrealized pnl as you are recycle risk? I was always paid on year end pnl regardless of what was realized or unrealized.
 
newwurldmn said:
How do they account for the fact that you will constantly have realized and unrealized pnl as you are recycle risk? I was always paid on year end pnl regardless of what was realized or unrealized.
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You were a lucky man, then. Every firm I was ever with only paid out my FULL SPLIT SHARE on realized (closed) positions.
 
bone said:
You were a lucky man, then. Every firm I was ever with only paid out my FULL SPLIT SHARE on realized (closed) positions.
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I worked for a bank - and there was no real concept of realized pnl. If you were running a vol book, you were always buying and selling options to maintain a certain risk profile. Only when you left the firm would your book pnl be fully realized.
 
newwurldmn said:
How would a guy in my example get paid when he's constantly moving his risk around?
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Well, a registered CME/ICE prop firm (futures and swaps) is going to give you a legitimate 50% of your net trading profits. My own contract specified $12M daily margin with $2M MaxDD. I had a contract that called for me to be paid a ratio'ed draw on unrealized profits. You need to understand that a firm like DRW or Ronin for example have a different business model than a bank desk. Various times I ran a desk and paid employees and expenses out of my own draw. I could also buy into a greater payout with the option of getting out of prop and into a HF by putting up my own $$.
 
bone said:
Well, a registered CME/ICE prop firm (futures and swaps) is going to give you a legitimate 50% of your net trading profits. My own contract specified $12M daily margin with $2M MaxDD. I had a contract that called for me to be paid a ratio'ed draw on unrealized profits. You need to understand that a firm like DRW or Ronin for example have a different business model than a bank desk. Various times I ran a desk and paid employees and expenses out of my own draw. I could also buy into a greater payout with the option of getting out of prop and into a HF by putting up my own $$.
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The ronin vol guys had to fully shut down their book to get paid?
 
newwurldmn said:
The ronin vol guys had to fully shut down their book to get paid?
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No contractually there's an agreed upon formula. Same with DRW. Trader and firm agrees to hold some equity in reserve to account for DD typically - that's my experience, YMMV.

One DRW energy swaps options book trader I spoke to had to take a partnership interest in lieu of a portion of his discretionary payout.

Ronin and DRW have alot more $$ and pay out differently than many other prop futures firms.

Hey, no bank desk is going to pay out 45-50% of your profits so yeah there's some mutual risk accommodation. It's fair all things considered.
 
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