haircut charge

Quote from Don Bright:

Haircut, by definition, is a risk fee. Goldman may charge you 6.50% on $$ used (if needed), and they pay you 5% on your short stock, so you have a 1.5% differential (not bad compared to a lot of places).

We allow 6 times with no haircut as mentioned.

That might make a difference in Mav's calculations.

We have people who pay $2,000-$10,000 in h/c (happily) when they're making $15,000 - $75,000 per month.

We just had a guy bring over $700K so he can use $15 million, and boy is he ever using it, LOL. Making good money so far.

Don
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Don,

Don't quote other guy. I am happy to borrow your money at 2% rate. Can you demonstrate your way of calculation?

I am afraid that we might have different meaning in haircut charge. Vtrader is charging way too high if you both are talking about the same thing.
 
Quote from Maverick74:

Don, are you saying there is not a free interest rate arb here? The conversion prices in a 5% carry. There should be 300 bp of free money here. In fact, it's a pseudo interest rate swap. You are swapping a fixed 2% for a floating 5% from Goldman. Where am I wrong here?
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I don't know, maybe you're not wrong, shall I send you a U-4 package? What if you were long real ITM calls and short the underying? How would that work out?

Maybe I'll have to try that, buy 10 deeps, short 1,000 shares of $100 stock, collect interest on $100k= $5,000...with no haircut if the account had $20,000 in it. We have to pay dividends, if applicable, hmmm? Thanks for the tip.

Now if I short the puts as well, that gives me some money to pay for the calls with, then I have a reversal (reverse conversion), and could do at the money strikes, hmmm? Could be free money?

Haircut is risk fee, added to whatever Goldman charges/pays on debit/credit balances of cash.

You have the facts Mav, let me know what you come up with. I'm getting too old to figure this stuff out.

Don
 
Quote from yip1997:

Don,

Don't quote other guy. I am happy to borrow your money at 2% rate. Can you demonstrate your way of calculation?

I am afraid that we might have different meaning in haircut charge. Vtrader is charging way too high if you both are talking about the same thing.
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Yip, we charge exactly what everyone else in the industry charges, if not less. Don is making an error somewhere otherwise I'm launching a hedge fund tomorrow through Bright!!!! :)
 
the catch is don is charging 2 times the street rate for high vol traders. he'll sit here till he's blue in the face denying there's .001-.002 per share rates out there for high vol guys but he's wrong. so if you can charge guys .004-.006 a share and make 100-200% returns on commission overides wouldn't you loan your money out at 2% on pairs that are basically as risk free as you can get? don since you dislose so much about bright such as you have 200 million plus of you and your brothers money in the company why not disclose what brights total revenues are per year? please disclose what bright makes per year in commission overides?there's no free lunch out there so if brights giving the big leverage they're making it up big somewere else.
 
I think that's your answer Mav -- "haircut" here is being defined as the amount in addition to Goldman's floating rate rather than an absolute 2%. No free money.

From Don:

"Haircut is risk fee, added to whatever Goldman charges/pays on debit/credit balances of cash. "
 
Quote from Don Bright:

I don't know, maybe you're not wrong, shall I send you a U-4 package? What if you were long real ITM calls and short the underlying? How would that work out?

Maybe I'll have to try that, buy 10 deeps, short 1,000 shares of $100 stock, collect interest on $100k= $5,000...with no haircut if the account had $20,000 in it. We have to pay dividends, if applicable, hmmm? Thanks for the tip.

Now if I short the puts as well, that gives me some money to pay for the calls with, then I have a reversal (reverse conversion), and could do at the money strikes, hmmm? Could be free money?

You have the facts Mav, let me know what you come up with. I'm getting too old to figure this stuff out.

Don
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Let's remove dividends from the equation for the moment for simplicity's sake.

Conversions are usually put on a for a credit. And that credit is offset by the carry on your long stock. The two should exactly equal each other not accounting for the bid/ask spread.

The reversal is the opposite. You put on a reversal for a debit and then earn the interest on the short stock which should equal the debit you paid minus the bid/offer spread.

So if I can do a conversion for a debit and pay only 2% on my long stock, then I will have excess credit available as free money.
 
Quote from MYDemaray:

I think that's your answer Mav -- "haircut" here is being defined as the amount in addition to Goldman's floating rate rather than an absolute 2%. No free money.
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Yes, that is what I think too but he is not saying that. We charge anywhere from 300bp to 400 bp over fed funds for risk capital and that is very very fair. Considering the risk free rate is 5.25% and this is far from risk free. But he is saying they only charge 2% period. That can't be right. Our federal government would be borrowing from Bright Trading!!!!!
 
I added this quote from Don to my prior post in which he basically says what you and I suspect:

Haircut is risk fee, added to whatever Goldman charges/pays on debit/credit balances of cash.
 
Quote from Maverick74:

Yes, that is what I think too but he is not saying that. We charge anywhere from 300bp to 400 bp over fed funds for risk capital and that is very very fair. Considering the risk free rate is 5.25% and this is far from risk free. But he is saying they only charge 2% period. That can't be right. Our federal government would be borrowing from Bright Trading!!!!!
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Right -- CNBC and WSJ would be fretting over the "Bright carry trade" :)
 
Quote from Maverick74:

Let's remove dividends from the equation for the moment for simplicity's sake.

Conversions are usually put on a for a credit. And that credit is offset by the carry on your long stock. The two should exactly equal each other not accounting for the bid/ask spread.

The reversal is the opposite. You put on a reversal for a debit and then earn the interest on the short stock which should equal the debit you paid minus the bid/offer spread.

So if I can do a conversion for a debit and pay only 2% on my long stock, then I will have excess credit available as free money.
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GS debit interest = 6.50 (approx), and credit interest paid = 4.75 - 5% depending on whether the credit is cash or short stock sales.

So you have another 1.5% or so differential - still get 6 times your equity with no haircut.

As floor traders, we loooooved doing reversals, especially back when we could get 15% on the short stock interest (1980's of course).

As interest rates (carry costs) change, opportunities do pop up.

As I said, you have all the facts...shall I send a registration packet to your home or to Vtrader? LOL.

Don :cool:
 
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