Direct access trading for free. Opportunity?

J

Julius

So I got this deal (I don't want to talk about where and how) where I trade equities commission free (regulatory and exchange fees still apply) in exchange for a cut of the profits. Some more details:
  • Fast manual order entry with level 2
  • Programmable interface
  • Intraday capital practically unconstrained
  • I have some acumen in programming and quant finance/machine learning
  • Access to other financial products (futures, currencies..)
Constraints:
  • Strictly intraday
  • Amount of risk (daily stoploss) very tight and dependent on consistency of results. E.g. less than 20% losing days, with losing days not much larger than winning days.
  • Programmable interface slow, no co-location. Fast enough to beat any human, slower than anything else.
Are there opportunities here for outsized profits? E.g. on SPY if I trade with resting orders most of the time, exchange plus regulatory fees can balance out to zero, net = gross.

Btw I don't think automatization is the answer, as I am too slow for simple HFT strategies/arbitrage. And slower automatic strategies are not consistent enough I believe.
 
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Sounds like a great deal as long as they have a good reputation and you have the expectation of being paid. I'm not sure how they get no clearing/execution costs unless they are self clearing with their own routes.
 
Julius said:
So I got this deal (I don't want to talk about where and how) where I trade equities commission free (regulatory and exchange fees still apply) in exchange for a cut of the profits. Some more details:
  • Fast manual order entry with level 2
  • Programmable interface
  • Intraday capital practically unconstrained
  • I have some acumen in programming and quant finance/machine learning
  • Access to other financial products (futures, currencies..)
Constraints:
  • Strictly intraday
  • Amount of risk (daily stoploss) very tight and dependent on consistency of results. E.g. less than 20% losing days, with losing days not much larger than winning days.
  • Programmable interface slow, no co-location. Fast enough to beat any human, slower than anything else.
Are there opportunities here for outsized profits? E.g. on SPY if I trade with resting orders most of the time, exchange plus regulatory fees can balance out to zero, net = gross.

Btw I don't think automatization is the answer, as I am too slow for simple HFT strategies/arbitrage. And slower automatic strategies are not consistent enough I believe.
More...

It sounds like an old school european set up.

If you can really trade profitably within these constraints i.e strictly intraday, no automation and only 4 down days in a month or a single down day per week, with virtually no drawdown, then paying comissions would be the least of your concerns.

Basically, with that risk profile you could afford any commissions rate.

This deal is made with churning and burning in mind.
 
trendmomentum said:
It sounds like an old school european set up.

If you can really trade profitably within these constraints i.e strictly intraday, no automation and only 4 down days in a month or a single down day per week, with virtually no drawdown, then paying comissions would be the least of your concerns.

Basically, with that risk profile you could afford any commissions rate.

This deal is made with churning and burning in mind.
More...

Commissions matter greatly
trendmomentum said:
It sounds like an old school european set up.

If you can really trade profitably within these constraints i.e strictly intraday, no automation and only 4 down days in a month or a single down day per week, with virtually no drawdown, then paying comissions would be the least of your concerns.

Basically, with that risk profile you could afford any commissions rate.

This deal is made with churning and burning in mind.
More...

Commissions matter, in the real world.

For some traders saving on commissions (paired with top execution and many routes) could be much of their edge- a trader who makes two cents a share before commissions, for example.

Could be a good way to learn and get experience.

Big Question:

What is the profit split?
 
Julius said:
So I got this deal (I don't want to talk about where and how) where I trade equities commission free (regulatory and exchange fees still apply) in exchange for a cut of the profits. Some more details:
  • Fast manual order entry with level 2
  • Programmable interface
  • Intraday capital practically unconstrained
  • I have some acumen in programming and quant finance/machine learning
  • Access to other financial products (futures, currencies..)
Constraints:
  • Strictly intraday
  • Amount of risk (daily stoploss) very tight and dependent on consistency of results. E.g. less than 20% losing days, with losing days not much larger than winning days.
  • Programmable interface slow, no co-location. Fast enough to beat any human, slower than anything else.
Are there opportunities here for outsized profits? E.g. on SPY if I trade with resting orders most of the time, exchange plus regulatory fees can balance out to zero, net = gross.

Btw I don't think automatization is the answer, as I am too slow for simple HFT strategies/arbitrage. And slower automatic strategies are not consistent enough I believe.
More...

So this is a prop trading outfit that you are considering? And "outsized profits", what do you mean by "outsized profits? Like $10 million everyday? $1 million everyday? $10K everyday? $1K everyday? Overall I tend to think with the proliferation of HFT, profit potential for intra-day trading has become quite limited but profit can still be made intraday with sound strategies auto or manual if intraday trading is a requirement. Whether it would be "outsized profit" is another story.
 
Regarding "outsized": What I am trying to get at is, maybe there are strategies that are marginal because of commissions, but that might actually do pretty well taking commissions out of the equation.

My first thought was obviously all kinds of (statistical) arbitrage, like baskets against ETFs and sort, but after a little bit of analysis (just eyeballing is enough) it soon became clear these plays are (of course) all heavily competed on by fast players. For example, have a look what happens when XLF (financial sector ETF) gets hit and the behaviour of JPM and similar before and after.

So maybe I should look at more simple plays? For example the ES future seems very popular among daytraders, but why not trade the SPY which is quite liquid as well, only with smaller tick size (.1 instead of .25) which is preferable to slower players as being the first in the queue is not as important and hitting the bid/offer is not as costly, still liquid enough, and which can be traded for net = gross if you add liquidity majority of times.

1 ES = 500 SPY. Take liquidity ~+$2 Add liquidity: ~-$0.50
 
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Julius said:
Regarding "outsized": What I am trying to get at is, maybe there are strategies that are marginal because of commissions, but that might actually do pretty well taking commissions out of the equation.

My first thought was obviously all kinds of (statistical) arbitrage, like baskets against ETFs and sort, but after a little bit of analysis (just eyeballing is enough) it soon became clear these plays are (of course) all heavily competed on by fast players. For example, have a look what happens when XLF (financial sector ETF) gets hit and the behaviour of JPM and similar before and after.

So maybe I should look at more simple plays? For example the ES future seems very popular among daytraders, but why not trade the SPY which is quite liquid as well, only with smaller tick size (.1 instead of .25) which is preferable to slower players as being the first in the queue is not as important and hitting the bid/offer is not as costly, still liquid enough, and which can be traded for net = gross if you add liquidity majority of times.

1 ES = 500 SPY. Take liquidity ~+$2 Add liquidity: ~-$0.50
More...

I would consider the opportunity if they remove the intraday restriction. Profit making shouldn't be confined to certain trading frequency.
 
Julius said:
I was hoping to discuss possible strategies here, not details about the deal.
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If you have not mastered a strategy, why would they back you with 100% their money.

I think when you share a deal that is unusual in the forum other will be interested.

Good luck
 
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