hedge fund trader vs. daytrader

[Don Bright]

Quote from mktmkr:

would you eleborate
thnx

I'll dive in for a second. Lescor is a perfect example of "using" capital vs. "abusing" capital. He takes part in strategies that are lower risk, higher reward, but capital intensive (opening only strategy for example)....to simply buy or sell shares in larger quantities is not what is meant by using liverage. Of course, traders can and will grow into using more shares in most strategies by default when they prove profitable.

Another example, even in the most basic terms is, comes about when you're trading well...perhaps long 4,000 shares of IBM, and you see a great buy signal in XRX, but don't have enough capital to buy XRX without selling IBM (which may be working well for you at the moment)....but, if you can simply buy XRX without fear of violating your margin requirements, then you can capitalize on both opportunities.

Lescor?

Don

 

[lescor]

Quote from mktmkr:

would you eleborate
thnx

Think of it this way. Say you have $100,000 of capital to work with. Maybe you're a daytrader with a strategy that ties up $2-300,000 during the day. That lets you put on a few 2 or 3,000 share positions of a typical big cap stock and still be within the 4:1 reg-T margin limits. You play a tight game and keep the losses pretty manageable, maybe a couple thousand on a bad day. So far retail daytrading is working fine for you.

But what if you put 20,000 in a prop account and used your 20-1 leverage to trade exactly the same way? Same position size and risk you are taking now, except you've freed up $80,000 that you can do something else with. Maybe earn interest income, buy real estate, invest in a business, etc. Either way it's cash that's working for you and producing something that you didn't have before.

You could also continue to trade your regular style, but apply it to more stocks. Or diversify into other strategies without diverting anything away from what's already working. Instead of basing decisions on how much margin you have, you base it on risk only. You don't have to exit a trade that's working because you found a better one but are out of margin. You don't have to pass up valid trade setups because you don't have the buying power.

It's all about using your available capital in the most efficient manner.

 

[Rearden Metal]

Quote from flybynight:

Traded at worldco, made over $50K net in about 16 months of trading using no more than $100K in average daily capital. Worst month was down $2K net. Very consistent. 81% positive trading days. Not interested in putting up my own capital (I need it to pay my monthly living expenses since there is no salary coming in), and from what I hear there are reputable firms that don't require me to put up thousands in capital. Any thoughts on what my next move should be? thanks

Quote from flybynight:

Time frame of my track record was Aug 2001 to Nov 2002. And I tend to trade from the long side, so in a sideways to down market I'd say it wasn't the vix that caused me to do well on a percentage return basis. I also traded at first ny in 1995-96 with similar 40% returns on a little larger capital (made about $180K gross on average daily capital of $250K over like 18 months). The First NY net number is not reflective of my talent due to god-awful $25 ticket charges and 3 cents a share roundtrip commish. AND they took 50% of my net. If you recalc my total tix charges and commish at current rates, my net would have been about 140K which is still very respectable..

If you can prove all that, I'd probably back you myself. You'd start very small, and get raised according to your performance. Profit split would be similar to Schonfeld's prop deal.

Thing is, you really don't need a backer at all if you can just put up low 5-figures yourself, at 30-1 leverage.

 

[Maverick74]

Quote from flybynight:

I guess you didn't read my original post, about having a base salary to live on. You CAN'T trade for rent money - that's a professional/psychological disaster. So, since I need my savings to guarantee that my rent gets paid every month, you'll put up the capital. In exchange, you'll get a trader with experience and a record of making nearly 40% annually on his (small amount of) money. Not some kid out of school thinking he's gonna be rich in 6 months. I'm sure there are established traders out there looking to bring in someone with a very high probability of success, rather than wasting month after month on a revolving door succession of wannabees.

You are looking for backing and your trading edge is what, candlesticks? Come on man, the game has gotten a lot tougher since WLDC. There are very few edges in this game and candlesticks ain't one of them. Very few guys are getting backed these days and the ones that are either A, have a quantifiable edge, or B, have a solid track record and are willing to put their OWN money in the pot as well. Not trying to be rude, just straightforward.

 

[illiquid]

So is there really any point in having "prop" futures firms, beyond providing capital to those who are relatively "tapped out"/BK etc?

 

[Maverick74]

Quote from illiquid:

So is there really any point in having "prop" futures firms, beyond providing capital to those who are relatively "tapped out"/BK etc?

Yes, prop futures firms do serve a purpose. Not so much for the day trading directional guy, although it does help to have unlimited leverage intra-day. The real advantage is on the overnights. Being able to get cross margin treatment on huge spreads you may have on. Being able to trade options against your futures with a small haircut. Or how about this, being able to trade longer term positions and still be able to trade intra-day.

See here is the rub for a lot of guys. They want to swing trade or hold longer term positions. But that uses up all their capital. So they cannot trade intra-day.

When you trade prop, you can have longer term positions and still trade all you want intra-day therefore having the best of both worlds.

So yes, there still are many advantages to trading prop futures.

 

[jack hershey]

Quote from flybynight:

last traded in 2002, correct. although the order execution process has changed for sure, technicals/candlestick patterns/behavioral psychology of institutions has been and always will be the same. I don't scalp bid-to-offer to make a few pennies. I find a sector and/or a few stocks that are working, and go with it.

See if you can get on board for the beta for SnapSheets; your skill level and the improvements that are available could let you use your person capital and you might make what you did in the past annually, in a quarter.

Working alone is your best bet. Put that stuff in T bills and use the T bills as margin.

By compounding the new performance you will be getting (modernizing your stuff), you will be way ahead in a couple of quarters. But you better stick with the sector stuff for a year or so.