Overnight leverage

Quote from Maverick74:

Don,

I think you need to be more clear or perhaps the original poster needs to be more clear on his question. I believe the poster is referring to position leverage. Not pair trading. If he was long 1000 shares of GOOG outright, how much of that could he hold overnight? You are throwing out numbers but those numbers deal specifically with one strategy. It's misleading to think I could join Bright tomorrow and buy 5 million dollars worth of AAPL stock with 10k in my account. You are not saying this correct?
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Hi Mav, always good to chat with you. We have traders with all sorts of strategies, and some like to keep "naked" positons, and many use 10 or even 30 to 1. They will incur an overnight "haircut" charge of 1% (but they're usually pretty happy to pay that to be able to keep their positions).

The "numbers" don't deal with any one strategy, I was just using the best "working" strategy (currently) as an example.

And, yes, the buying of $5million with $10K might not fit into my risk parameters....but, 5,000 shares of virtually any price stock (single stock), and perhaps 10,000 shares aggregate is our first basic parameter for new traders (until we get to know them a bit). 10,000 x $50. = half million or so, with standard $20K or so.

No "airport trades" LOL - and I don't think any serious traders would want to be part of firm that was that stupid, LOL again.

The $10K "beta test" is just to bridge the gap between the "cyber trader" and the full time Series 7 trader.... and by the number of applicants so far, it's being pretty well received.

(BTW, still short a few thousand GM puts (jan '07, $5, $7.50 and a few $10's, so do me a favor and keep GM in business for another 9 months, LOL).

Have a good weekend,

Don
 
Quote from Don Bright:

Hi Mav, always good to chat with you. We have traders with all sorts of strategies, and some like to keep "naked" positions, and many use 10 or even 30 to 1. They will incur an overnight "haircut" charge of 1% (but they're usually pretty happy to pay that to be able to keep their positions).

The "numbers" don't deal with any one strategy, I was just using the best "working" strategy (currently) as an example.

And, yes, the buying of $5million with $10K might not fit into my risk parameters....but, 5,000 shares of virtually any price stock (single stock), and perhaps 10,000 shares aggregate is our first basic parameter for new traders (until we get to know them a bit). 10,000 x $50. = half million or so, with standard $20K or so.

No "airport trades" LOL - and I don't think any serious traders would want to be part of firm that was that stupid, LOL again.

The $10K "beta test" is just to bridge the gap between the "cyber trader" and the full time Series 7 trader.... and by the number of applicants so far, it's being pretty well received.

(BTW, still short a few thousand GM puts (jan '07, $5, $7.50 and a few $10's, so do me a favor and keep GM in business for another 9 months, LOL).

Have a good weekend,

Don
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Woah, wait a minute here. You let guys have 30 to 1 leverage on outright stock? How do you stay in business? What you are saying is, if a stock gaps down 3% (which is nothing), that trader will wipe out his account. And if the stock gaps down 50%, he could take the whole firm with him. This doesn't sound right Don. You guys can't be taking that much risk. No way. That is insane. I would never be able to sleep at night if I had capital a firm that did this.

And then you guys charge 1% daily for capital usage? Did I read that correctly? That's 365% annualized? Is that even legal? Jesus man. I pay 9% annual for capital over haircut and I thought that was high. Seriously, how do these guys make money. Think about it Don. Collectively, on a 100k account lets say, they are paying 365k a year in interest if they were to hold one position for a year. They would need to quadruple their money just to pay the interest cost. I'm obviously missing something here. I'll let you explain.
 
Quote from Maverick74:

Woah, wait a minute here. You let guys have 30 to 1 leverage on outright stock? How do you stay in business? What you are saying is, if a stock gaps down 3% (which is nothing), that trader will wipe out his account. And if the stock gaps down 50%, he could take the whole firm with him. This doesn't sound right Don. You guys can't be taking that much risk. No way. That is insane. I would never be able to sleep at night if I had capital a firm that did this.

And then you guys charge 1% daily for capital usage? Did I read that correctly? That's 365% annualized? Is that even legal? Jesus man. I pay 9% annual for capital over haircut and I thought that was high. Seriously, how do these guys make money. Think about it Don. Collectively, on a 100k account lets say, they are paying 365k a year in interest if they were to hold one position for a year. They would need to quadruple their money just to pay the interest cost. I'm obviously missing something here. I'll let you explain.
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Whoa, Mav, hang on a second here, LOL. First off the 1% is per month (12% annual is not so bad, but allows us to take some risk "with" our traders)....sure, "stuff happens" - but, again, our traders are pretty serious, not a bunch of cowboys taking shots with our money. And, no one is going to lose even a $100 million, so our firm is much safer than any (any) of the others out there. (said with all humility) Remember, this is our family's money, not OPM or shareholders money, and we "like" our money, and hope our traders "like" theirs.

Hedged positions haircut (since you sort of asked).
0-6 times equity = Zero
6-12 times = 2% per YEAR
12-18 times = 4% per year
18-30 times = 6% per year, over 30 times we make special arrangements.

Remember, we've been doing this since 1978, and probably understand risk better than anyone on the planet, and don't go "willy nilly" letting people take shots...we treat our traders as professionals with respect, and expect them to do the same with us.

I'm in the office for a few more minutes, call me if you like (I'm heading out for a poker tournament in about 15 minutes). 702.739.1393

Don
 
PS...nice thought about the 1% per day, but I think my regulators might frown on that, ROFL.

"Edit" - "Legal department" - hmmm, have to get me one of them things...no need, nothing out of the ordinary...we learned a long time ago that if you shoot straight with people, tell the truth, you won't get caught doing the wrong things....(not "perfect" but my brother and I try really hard).

Don:D
 
Quote from Don Bright:

Whoa, Mav, hang on a second here, LOL. First off the 1% is per month (12% annual is not so bad, but allows us to take some risk "with" our traders)....sure, "stuff happens" - but, again, our traders are pretty serious, not a bunch of cowboys taking shots with our money. And, no one is going to lose even a $100 million, so our firm is much safer than any (any) of the others out there. (said with all humility) Remember, this is our family's money, not OPM or shareholders money, and we "like" our money, and hope our traders "like" theirs.

Hedged positions haircut (since you sort of asked).
0-6 times equity = Zero
6-12 times = 2% per YEAR
12-18 times = 4% per year
18-30 times = 6% per year, over 30 times we make special arrangements.

Remember, we've been doing this since 1978, and probably understand risk better than anyone on the planet, and don't go "willy nilly" letting people take shots...we treat our traders as professionals with respect, and expect them to do the same with us.

I'm in the office for a few more minutes, call me if you like (I'm heading out for a poker tournament in about 15 minutes). 702.739.1393

Don
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Don, I don't want to get in the way of your poker. LOL.

But you know as well as I do, it's not a function of taking shots. Price gaps cannot be predicted period. Any stock can gap. Sure, GOOG is more likely to gap then say GE. But over my years of trading I have seen some very lage blue chip stocks gap 50% or more overnight. You have no way of protecting your members from such an event if it were to happen. Stocks gap everyday.

Thanks for clearing up the 1%. You didn't say monthly, you said overnight. Still, that 12% is a little high. And I guess it goes higher based on your scale there.

I see it peaks at 18% a year. Not sure how these guys are making money paying almost credit card rates. I understand they have a lot of upside, but they also have a ton of downside plus the interest cost.

Don, I know a lot of firms in this business, and you are the only firm I have heard of that would even think of letting a trader hold an outright stock position with greater then 6 to 1 or 15% of the notional value. I mean think about it Don. It's no different then be short naked puts. You are letting a trader sell naked puts to the tune of 30 times the value of their account and you can sleep at night? Hedge funds that are notorious for selling naked puts in indices, not stocks, blow up very frequently, and usually they are not margined to the hilt to that extent. They might have 10% to 20% of their account exposed. Not 3000%! LOL. Don, it comes down to simple math. Saying you understand risk does not change the probabilities or the chance of ruin. It simply means you have already written your press release in advance for when the time comes and you have to issue a statement.

Don, since you and your brother were both members of the CBOE, you had to know about the number of guys that were escorted off the floor after blowing up being short puts. And these guys had only 6 to 1 exposure at most. Thirty to one is astronomical. I have talked to everyone in this business and nobody is anywhere near that.
 
Quote from Don Bright:

...
We also have a "beta test" for non-licensed traders with $10K minimum who can get 10 or 15:1 capital usage. We're testing with 25 traders (40 on applicant list so far, but I'm trying to give some preference to ET'ers). Same safety and security of Bright Trading, of course.
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Don
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I'm interested. Calling Monday.

nitro
 
so with 10k down with bright what will i be charged to keep 500k overnight everynight?what will the fee be per month to keep 50-1 overnight constantly?
 
Quote from Maverick74:

Don, I don't want to get in the way of your poker. LOL.

But you know as well as I do, it's not a function of taking shots. Price gaps cannot be predicted period. Any stock can gap. Sure, GOOG is more likely to gap then say GE. But over my years of trading I have seen some very lage blue chip stocks gap 50% or more overnight. You have no way of protecting your members from such an event if it were to happen. Stocks gap everyday.

Thanks for clearing up the 1%. You didn't say monthly, you said overnight. Still, that 12% is a little high. And I guess it goes higher based on your scale there.

I see it peaks at 18% a year. Not sure how these guys are making money paying almost credit card rates. I understand they have a lot of upside, but they also have a ton of downside plus the interest cost.

Don, I know a lot of firms in this business, and you are the only firm I have heard of that would even think of letting a trader hold an outright stock position with greater then 6 to 1 or 15% of the notional value. I mean think about it Don. It's no different then be short naked puts. You are letting a trader sell naked puts to the tune of 30 times the value of their account and you can sleep at night? Hedge funds that are notorious for selling naked puts in indices, not stocks, blow up very frequently, and usually they are not margined to the hilt to that extent. They might have 10% to 20% of their account exposed. Not 3000%! LOL. Don, it comes down to simple math. Saying you understand risk does not change the probabilities or the chance of ruin. It simply means you have already written your press release in advance for when the time comes and you have to issue a statement.

Don, since you and your brother were both members of the CBOE, you had to know about the number of guys that were escorted off the floor after blowing up being short puts. And these guys had only 6 to 1 exposure at most. Thirty to one is astronomical. I have talked to everyone in this business and nobody is anywhere near that.
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(Still smiling)...."are we reading the same post?" Where do you see 18% anywhere? (Maybe it's here, and I'm going senile, who knows, LOL...but, 12% is Max for the most risky "naked" positions. The 30 times and above are for hedged positions. Our traders don't sell naked puts period.

We've been doing this for 28 years, and I do appreciate your interest and concern, but without going into financial details or specifics, we have no concerns about our risk control. 10,000 shares down $30 wouldn't make a hiccup, and even if 100 guys had the same position, we wouldn't be happy, but no where near "critical mass"....

We expect our traders, who have signed agreements, to stick to the rules in place, which protect the firm from "airport trades" - and we feel very comfortable with the rest of the possibilities. Even with 500 traders, we have never even had a question from Goldman about any risk whatsoever, and, again, since it's our money, we are pretty careful with it.

All the best,

Don
 
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