Hypothetical question

Crispy

Crispy

Let’s say I could offer this to you -

A position on a proprietary trading desk in NYC. True Prop, not retail type plop your contribution down, get levered up. But I provide all capital, you get a very competitive base salary(75k-100k) to pay the bills and 20% of net production end of year bonus. You start with 2mm in your book and built out to 10mm as you prove yourself real time. You trade equities, futures and options on them. Strategy and time frame irrelevant. You just need to produce, how you get there is up to you. Risk is in place, all data, Bloomberg terminals and technology.

The question -

How many traders who would be interested in such a deal could actually provide a minimum of three years verifiable track record?
 
Quote from Crispy:

Let’s say I could offer this to you -

A position on a proprietary trading desk in NYC. True Prop, not retail type plop your contribution down, get levered up. But I provide all capital, you get a very competitive base salary(75k-100k) to pay the bills and 20% of net production end of year bonus. You start with 2mm in your book and built out to 10mm as you prove yourself real time. You trade equities, futures and options on them. Strategy and time frame irrelevant. You just need to produce, how you get there is up to you. Risk is in place, all data, Bloomberg terminals and technology.

The question -

How many traders who would be interested in such a deal could actually provide a minimum of three years verifiable track record?
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You failed to mention what would be considered acceptable gains. Also, three years track record will eliminate most of your best prospects.
 
Quote from Cache Landing:

You failed to mention what would be considered acceptable gains. Also, three years track record will eliminate most of your best prospects.
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A safe assumption would be 50-100bps a month min to stay on board. This would not be considering size of your book and volatility, VaR ..etc

The track record would need to precede current bull market trends unless it had minimal correlation to a long only portfolio. Then I would be open to shorter...but no less than 2 years. But I hear you 100%.
 
Quote from Crispy:

A safe assumption would be 50-100bps a month min to stay on board. This would not be considering size of your book and volatility, VaR ..etc

The track record would need to precede current bull market trends unless the trackrecord had minimal correlation to a long only portfolio. Then I would be open to shorter...but no less than 2 years. But I hear you 100%.
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If 100 bps a month means what i think it does ( basis points ) its a walk in the park.
 
Quote from Spiker:

If 100 bps a month means what i think it does ( basis points ) its a walk in the park.
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Yes Sir or Maam, 100 basis points.

Sorry for short hand.
 
Quote from Crispy:

Let’s say I could offer this to you -

A position on a proprietary trading desk in NYC. True Prop, not retail type plop your contribution down, get levered up. But I provide all capital, you get a very competitive base salary(75k-100k) to pay the bills and 20% of net production end of year bonus. You start with 2mm in your book and built out to 10mm as you prove yourself real time. You trade equities, futures and options on them. Strategy and time frame irrelevant. You just need to produce, how you get there is up to you. Risk is in place, all data, Bloomberg terminals and technology.

The question -

How many traders who would be interested in such a deal could actually provide a minimum of three years verifiable track record?
More...

0.
 
There is just one problem in my mind. Your goal is to find the very best and put them to work for you. The very best will only need your offer during the first couple successful years of their career. The best will get >100% annual returns, but once they can provide you with a three year track record, they don't really need you anymore.

Example:

I scrape together $20K and trade it for three years while working a swing shift job so that I don't ever make a withdrawal. After three years I'm already making more than the salary you are proposing.

You up the ante by allowing me to trade $2MM but only allow me to keep 20% of year-end net. This might give me an extra $200K for the year as a bonus, which is a nice incentive, but I'm now trading for a living so I consume a good portion of that in living expense. I re-invest as much as possible, and under every scenario my gains on personal capital far outweigh the bonus you give me at year end.

This effect is only magnified by greater success on the part of the trader. The better I do, the less I need you.

I guess my point is that your hypothetical only attracts the mediocre performers and those who can just keep up with the market. If that is all you want, just go into long-term value investing and keep the 20% bonus you would've given me. Over the long run you're gonna average about 75bp each month and keep all your $.
 
Quote from Cache Landing:

There is just one problem in my mind. Your goal is to find the very best and put them to work for you. The very best will only need your offer during the first couple successful years of their career. The best will get >100% annual returns, but once they can provide you with a three year track record, they don't really need you anymore.

Example:

I scrape together $20K and trade it for three years while working a swing shift job so that I don't ever make a withdrawal. After three years I'm already making more than the salary you are proposing.

You up the ante by allowing me to trade $2MM but only allow me to keep 20% of year-end net. This might give me an extra $200K for the year as a bonus, which is a nice incentive, but I'm now trading for a living so I consume a good portion of that in living expense. I re-invest as much as possible, and under every scenario my gains on personal capital far outweigh the bonus you give me at year end.

This effect is only magnified by greater success on the part of the trader. The better I do, the less I need you.

I guess my point is that your hypothetical only attracts the mediocre performers and those who can just keep up with the market. If that is all you want, just go into long-term value investing and keep the 20% bonus you would've given me. Over the long run you're gonna average about 75bp each month and keep all your $.
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I agree with much if what you said, but tend to disagree on the mediocre performers. Someone who can make 1% a month with minimal correlation to a long only portfolio is gold to many institutions.

Your at 10mm in your book - you clock 1.2mm min - you have taken home 340k - with much bigger upside if your good. I am assuming mins in everything. With zero personal capital at risk. Time under employment is your only risk really.

Are your thoughts the same if your book is 10mm to trade plus the salary which never goes away plus benefits? What % of production would entice you to stay?


Thanks so much for your reply
 
Quote from Crispy:

Are your thoughts the same if your book is 10mm to trade plus the salary which never goes away plus benefits? What % of production would entice you to stay?

Thanks so much for your reply
More...

I prob have a more specific & helpful answer for you, but don't like to talk specifics or returns on a public thread. Unfortunately, you don't allow PMs, so I'll continue to speak rhetorically.

Certainly, the larger book makes a difference, but I think you are getting the point. The better the trader, the larger the required incentives. The salary is only enticing to the mediocre performers after the first year. Obviously, nobody is going to tell you to keep your $100K base. Cash is cash, and a trader wants as much as he can get, but the base isn't the main driver to the top performers, only to the mediocre.

Poor performers don't care about the base because you're gonna fire them anyway when they under-perform. The top guys (or guy because you'll likely only find one) isn't worried about losing money and knows the bonus will dwarf the base. His driver is large bonus to reinvest using the same strat. Thus, the mediocre are the only ones who care about the base as they won't make a large enough bonus to pay the bills, but they will make you enough to keep them around.
 
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