Because they can make far more from the hedge funds than they could trading their own money. In bad years they make their 2% from fees, and in good years they make 2% + 20% of profits. CALPERS, the California Pension system, pulled their money out of all hedge funds when they discovered that over the years, 73% of all profits on their investments had gone to the hedge funds.
Curb your enthusiasm.
- Thread starter qlai
- Start date
Because they can make far more from the hedge funds than they could trading their own money. In bad years they make their 2% from fees, and in good years they make 2% + 20% of profits. CALPERS, the California Pension system, pulled their money out of all hedge funds when they discovered that over the years, 73% of all profits on their investments had gone to the hedge funds.
Here are some points for you to consider.
- Stocks and thus stock index futures have an upward bias.
- Intra-day strategies can trade in the direction of the Daily or Weekly trend.
- A strategy at a lower time frame (i.e. 30 min) can decrease the time in the market, thus more efficiently allocating capital.
The author doesn't disagree with you in the least, but points out that the ability to scale those returns *really* impinges on an 8-to-10 figure fund to make use of it, whereas family offices (or individuals) running into $millions can have a good time with it. (That wasn't the only thought, for sure -- but is arguably the most salient.)
The well-founded, long-examined basis for market participants is that no individual actor has size sufficient to affect the (∞-many) other actors. But for us as traders {including 'micro-hedges'}, no matter how liquid a trading market, it does not come close to "∞-many" right? So, what size?
Is it 1%? If the ES trades <2million contracts a day, 1% is just 20k contracts. So as not to get caught in any non-RTH volume trap, we restrict it to 6.5 hours of RTH. Recognizing the first and last 30 minutes as double-volume segments, let's call it 7.5 hours. $20k/7.5 hours is 3000 ES contracts an hour == assuming a $7000 margin, that's $21mil. of margin.
$21mil of margin. The author is referencing funds going to hundreds of millions to 10s of billions of dollars -- roughly 10x-1000x times bigger. Which turns you from being a market-follower, to being the market, yourself. "The trend is [no longer] your friend" -- the trend is YOU.
And there's no escape.
Sure, but how do you build a strategy around it? So let's say I find that in an up-trend an over-sized bullish candle has 60% of follow through on the next day (not actual findings). Let's say I enter at the open, where is my stop? What if it gaped up, does it change things? I used higher time frame for the reason to enter, but must use intra-day time frame to manager my risk/targets.
The problem with intra-day is that you have a large time decay ... the later you enter the trade, the less chance it will work in your favor. The quicker you take profits the better. Which gets you into high turnover trading (momentum, scalping, reversion, hft, etc) and all the issues that comes with it. I'm not saying it can't be done, but I think it's much harder to develop robust intra-day strategy unless it's based on some tangible edge (like hfts have). Developing multiple robust uncorrelated intra-day starategies ... stuff of legends
Valid considerations. The bottom line is there are multiple ways to trade the market. Each has pros and cons. I have my reasons for trading intra-day futures and am at a point now (no "day job") where I can properly focus on this style of trading.Sure, but how do you build a strategy around it? So let's say I find that in an up-trend an over-sized bullish candle has 60% of follow through on the next day (not actual findings). Let's say I enter at the open, where is my stop? What if it gaped up, does it change things? I used higher time frame for the reason to enter, but must use intra-day time frame to manager my risk/targets.
The problem with intra-day is that you have a large time decay ... the later you enter the trade, the less chance it will work in your favor. The quicker you take profits the better. Which gets you into high turnover trading (momentum, scalping, reversion, hft, etc) and all the issues that comes with it. I'm not saying it can't be done, but I think it's much harder to develop robust intra-day strategy unless it's based on some tangible edge (like hfts have). Developing multiple robust uncorrelated intra-day starategies ... stuff of legends
LOL don't listen to some guy on quora listen to some guy on ET instead.
Here is a simple math problem for you. A quant trader joining the likes of Tower Research will be taking home from 20 to 35% of his PnL after costs, depending on his Sharpe Ratio. Usually the lower threshold for a team is 5 million in output capacity. An junior PM at a reputable quant multi-manager shop probably takes home 15-20%, but he starts at 200mm of capital (roughly translating into 2 million in VaR). So if a "not so good to start with" dude has an OK year, he takes home $500k. On a good year he would take home a buck or more easily.
How long would it take a talented master of the universe such as yourself to arrive at that level of income, even if you are running 3SR at 50% per year?
The author only refers to large scale portfolio. for 10K it's not relevant. Upscale is not only a problem in trading, it's one of the core problems in physics. The author is simply systematically eliminating competition by discouraging. Nice writing though.