Is Prop Trading equities/commodities DEAD?
- Thread starter SlyFlo
- Start date
The 'traditional' Chicago Prop Trading business model has certainly suffered a major hit, and the resulting transformation has favored automated HF technology and groups over a collection of individuals slugging it out in an arcade office setting.
In the mid to late '90's, successful pit traders and many FCMs hired individuals with a pulse and some rudimentary spreadsheet or T/A knowledge to sit at desks and generate commission income, desk charges, and the occasional trading profit. Most of these firms did not train traders. A few firms like GHC trained traders, paid them a modest draw salary, and hooked them to long term non-compete contracts. After about six months, the individual was usually cut if not profitable and replaced with another candidate. Usually, about 20% (if that) of the traders generated the true trading profit income. My first contract with David Ellis in 1998 was for two years, and sporadic training (usually voluntary from other traders and not terribly useful) and free lunch and soda was provided. Frequent company dinners and outings were great fun, and the comradery was special.
Most traders (including myself) used oscillators or volatility and range bands/channels to time markets and fade one or two sigma moves, and that worked fine until about 2005 or so. I managed to adapt with completely new technical models and a fortuitous expansion into new electronic markets outside of equities and interest rates (energy and other commodity markets) - but most traders and prop firms couldn't cut it and died away. Chicago futures Prop firms found that commission income and desk fees couldn't overcome the chronic faders getting their asses run over time and again.
The firms that remain are quite different - their remaining traders are predominantly relative value spread traders trading unique spread combinations (not your NOBs, Bobl/Bunds, ES/FTSE types) or short-lived intermarket arbitrage relationships with specialized tools, or are HF automated traders usually segregated into groups with a team leader. Many of these automated types are using Apama, Portware, Orc, and other tools that require considerable technical infrastructure to support. The problem with the highly automated strategy is to choose a firm that can support it from a technical standpoint - and for the candidate to be able to negotiate a draw salary with some sort of satisfactory profit split agreement.
So, in my opinion, prop isn't dead but the approach has certainly changed quite a bit. In the past several months I have had a few clients secure prop trading positions both here in the U.S. and in Europe. I was happy to provide a reference to employers, and to speak with firm principals on the client's behalf about the methodologies and capabilities the prospect was taught. Most of my clients are professional, full-time independent or prop traders looking for another revenue stream.
Going prop or changing prop firms will not change the markets or somehow increase a person's profitability unless the trader has a viable strategy that rings true to a potential employer. And that fact is applicable to the independent trader or the HF trader.
In the mid to late '90's, successful pit traders and many FCMs hired individuals with a pulse and some rudimentary spreadsheet or T/A knowledge to sit at desks and generate commission income, desk charges, and the occasional trading profit. Most of these firms did not train traders. A few firms like GHC trained traders, paid them a modest draw salary, and hooked them to long term non-compete contracts. After about six months, the individual was usually cut if not profitable and replaced with another candidate. Usually, about 20% (if that) of the traders generated the true trading profit income. My first contract with David Ellis in 1998 was for two years, and sporadic training (usually voluntary from other traders and not terribly useful) and free lunch and soda was provided. Frequent company dinners and outings were great fun, and the comradery was special.
Most traders (including myself) used oscillators or volatility and range bands/channels to time markets and fade one or two sigma moves, and that worked fine until about 2005 or so. I managed to adapt with completely new technical models and a fortuitous expansion into new electronic markets outside of equities and interest rates (energy and other commodity markets) - but most traders and prop firms couldn't cut it and died away. Chicago futures Prop firms found that commission income and desk fees couldn't overcome the chronic faders getting their asses run over time and again.
The firms that remain are quite different - their remaining traders are predominantly relative value spread traders trading unique spread combinations (not your NOBs, Bobl/Bunds, ES/FTSE types) or short-lived intermarket arbitrage relationships with specialized tools, or are HF automated traders usually segregated into groups with a team leader. Many of these automated types are using Apama, Portware, Orc, and other tools that require considerable technical infrastructure to support. The problem with the highly automated strategy is to choose a firm that can support it from a technical standpoint - and for the candidate to be able to negotiate a draw salary with some sort of satisfactory profit split agreement.
So, in my opinion, prop isn't dead but the approach has certainly changed quite a bit. In the past several months I have had a few clients secure prop trading positions both here in the U.S. and in Europe. I was happy to provide a reference to employers, and to speak with firm principals on the client's behalf about the methodologies and capabilities the prospect was taught. Most of my clients are professional, full-time independent or prop traders looking for another revenue stream.
Going prop or changing prop firms will not change the markets or somehow increase a person's profitability unless the trader has a viable strategy that rings true to a potential employer. And that fact is applicable to the independent trader or the HF trader.
. That day was an actual crash. Call it what you want but after what we had in 2008, what happened that day was typical for what you'd see in any other market. Funny I had the best day of my life that day. HOWEVER I wasn't scalping. I didn't want to interfere with that position. Covering my positions were a pain though but that had more to do with broker and feed issues that were felt across the board than anything else. 1 fill took 45 minutes but did that have something to do with HFTs? Idk. Correct, I made a blanket statement there. There's exceptions to what I said. Sub-pennying and dark pools are two. However, as usual it's something to adapt to and something that doesn't affect a lot of people on here because 1/2 of them aren't even daytrading. They're using it as an excuse for poor trades. But I see your point and yes I guess I'm wrong with a chunk of what I had said
Quote from athlonmank8:
Since 2008 lol? Come on. That's nothing. You're still an infant in this world. As for HFTs, I think it's hilarious. First it was MMs and now it's HFT's. There will always be something to blame bad trading on. You guys need to start blaming yourselves and quit using HFTs/MM's as an excuse.kinda funny how MMs have faded out of the picture. Take 4-5 years of your life, and devote it to learning an edge. Also get outside help because it decreases the learning curve substantially.
fyi, i've been in the business since 1994. trying to get different takes on the environment since the end of 08.
also fyi, the SEC has been hiring quant fellows that can help detect abusive quantitative practices in the markets.
there's obviously some crazy, crooked stuff going on in the hf, algo/quant world. just as electronic trading went off the floor in the mid to late 90's and there were lots of abuses, especially on the huge spreads on certain nasdaq names...undoubtedly there must be tons of fishy practices in the quant/algo world.
i can just hope they go into that world and crush some of these sob's.
there's obviously some crazy, crooked stuff going on in the hf, algo/quant world. just as electronic trading went off the floor in the mid to late 90's and there were lots of abuses, especially on the huge spreads on certain nasdaq names...undoubtedly there must be tons of fishy practices in the quant/algo world.
i can just hope they go into that world and crush some of these sob's.
well you must have taken a wrong turn somewhere. Also years mean nothing to me. Hours of screen time is a little different story. I've been at it since '97. In addition, Day 1 I learned about responsibility for my actions and that I'm not going to make it anywhere blaming my failures on silly stuff. You either have to get over it and find an edge or change your hobby. You've been at it for a long time. Maybe think about finding a mentor
FWIW, the 'blame game' is the quickest way to get bounced in an interview. The market is what the market is. Employers/Backers absolutely hate traders who refuse to take responsibility - namely, recognizing that they didn't change their strategy approach with the market conditions. If you want to stay in this business and suceed, you are going to have to re-invent yourself along the way. The first and most important part of the process is to recognize how you bullshit yourself and sabotage your trading in the process. Nobody is holding a gun to your head and telling you to buy or sell - you will be much further along the way if you can tell yourself and a potential employer that the market changed and you didn't, instead of crying about HFT and MMs.
The fact of the matter is that an independent trader can do many things to minimize or even eliminate any advantage that MMs and HFTs may have over them - the most obvious being holding periods and timeframe sampling periods for technical studies.
Listen, this is the ultimate accountability business and nobody likes crybabies. Trading attracts alot of very intelligent people and like it or not you are going to have to compete with them. Successful traders know how to optimize their risk/reward skew by taking trades that can work properly given their own personal capitalization and execution factors.
The fact of the matter is that an independent trader can do many things to minimize or even eliminate any advantage that MMs and HFTs may have over them - the most obvious being holding periods and timeframe sampling periods for technical studies.
Listen, this is the ultimate accountability business and nobody likes crybabies. Trading attracts alot of very intelligent people and like it or not you are going to have to compete with them. Successful traders know how to optimize their risk/reward skew by taking trades that can work properly given their own personal capitalization and execution factors.
I know this question was directed at me but I would like to comment.
I traded the day of the flash crash, futures not equities but my trading partner sitting next to me does trade equities.
The flash trading, HFT's were not, in total, responsible for the overall market drop. It was a perfect storm of events that brought about this event that the HFT's were a part of, just like all of us trading that day.
Many of us trading the equity futures began shorting the afternoon before the crash and continued to add to our short positions up until 1:30 pm EST the day of the crash.
Funny there were plenty enough buyers all the way to the bottom to cover all of us shorting the market. And then plenty of sellers to cover all of us buying back on the bounce.
My trading partner got bit on a single long position simply because he was arguing with what his chart was telling him. He was telling me at 2 pm EST he should get out but being the stubborn person he is . . . he stayed in.
You are partially correct about Tradeworx, yes they stopped trading but only for 8 minutes while they could evaluate what was happening.
Funny, two weeks after the crash the markets broke through the low of the day of the crash. Why, because the markets are never wrong. Sentiment will ALWAYS create the long term oscillations that should be created. The SEC is clueless.
I've been trading futures for 15 years, I am not a HF trader and I am profitable.
"Why should anyone be allowed risk free strategies that aren't available to everyone"? Because If I spend years of my life gaining an edge over these chaotic markets I will be damned if I will be forced to share that edge with everyone.