Quote from Maverick74:
Ask Don about the 20k short naked puts he has in GM. Then get back to me on the risk.
I think a better question is why do you keep trying to harrass the guy?
Overnight leverage
- Thread starter zenith
- Start date
I think a better question is why do you keep trying to harrass the guy?
Don and I go way back. It's not harassment.
Ah okay.
Well i think we should change the thread name to Bashing don
hehehe
Well if bright want to give 30.1 overnight leverage
they are taking that kind of risk and not giving any one who might blow it. ) i hope they know what they are doing )
Don say with full confidence that he know the risk has been in business for 30+ years
If a trader is not comfortable with the kind of leverage he get he can look somewhere else
But a firm who with $25K give you million in buying power is not bad as long as a person is a good trader and know trading and on the other side it can be hell if some one does not know how to trade.
Don the only negative thing have seen is your rate,s they are very high comparing to the industry
hehehe
Well if bright want to give 30.1 overnight leverage
they are taking that kind of risk and not giving any one who might blow it. ) i hope they know what they are doing )
Don say with full confidence that he know the risk has been in business for 30+ years
If a trader is not comfortable with the kind of leverage he get he can look somewhere else
But a firm who with $25K give you million in buying power is not bad as long as a person is a good trader and know trading and on the other side it can be hell if some one does not know how to trade.
Don the only negative thing have seen is your rate,s they are very high comparing to the industry
Quote from RedManPlus:
Bright is very well capitalized.
Let's say Bright has $30 million and their traders come up with ZERO.
Naked common stock gets a 15% haircut... hence the 6.67 leverage figure.
However, the Net Capital Rule is applied to the total holdings of the Firm...
So ALL the holdings of, say, 400 traders are viewed as one Portfolio.
Now an exact 50/50 long/short position of common is haircut ** only on one side **...
So if entire firm is 50/50 long/short... haircut 7.5% = leverage goes to 13.3333
But many securities such as convertibles, bond type stuff, etc take smaller haircut... perhaps 5% hedged.
Let's assume one third of Portfolio is lower haircut... 2/3 of haircut for common.
So now Bright's entire Portfolio requires as little as a 6.5% haircut.
Meaning under NASD Bright can legally leverage $30 million about 15 times...
Assuming their Clearing Firm or Bank will lend them $450,000,000.
It all depends on keeping the total positions of all traders 50/50 long short.
Then they dole out this leverage in such a way as to ** maximize profits **.
They don't even need the trader's capital to do this... but that is Bright.
Any smart market pro can do this... but it takes 10-20-30 years to build such an enterprise.
rm+
Your inventing some fuzzy math there bub, you can't get 15:1 just because you have 50/50 long to short.
Don even admits that Bright (Bob) only has $10million of firm capital in it. That really isn't more than others like Echo and Generic. The way Bright gives out so much overnight leverage is through the use of options against large concentrated positions the firm holds. The options limit the risk on the large position the firm has in that particular stock and therefore lowers the amount of capital they need to actually have to carry that position. It is all done with smoke and mirrors and inventive financing. Not that there is anny thing wrong with it or anything for traders to worry about. But Don doesn't tell people that's how they do it and tries to play it off as Bright having huge amounts of capital, which isn't true. Bright isn't anymore well capitalized than other firms, however they do alow much more buying power to traders. Which I feel is a huge risk.
A month ago a Bright trader put on positions that were 700:1 of his deposit before their risk manager caught it. Any firm that doesn't have parameters to prevent this and only reacts after the fact is dangerous in my opinion. Just the facts.
No clearing firm worth its salt would give margin relief to a firm just because it is 50/50 long short unless they are somewhat fungible like Via/Via.b. Cre is right, they get margin relief by probably using some of the haircut charge traders pay to buy OTM to protect against 3 sigma moves on a big position like GE/HON. They are smart and for the sake of the Brights Class B not arrogant enough to blind themselves to the fact that no amount of mkt knowlege can insulate even a great trader against overnight gaps.
Gabby,
I will bet you a beer that Don doesn't spend one penny of his money on OTM puts to protect other people's positions. Don is too tight for that.
Not a penny of Britght's money is Don's, if it wasn't for his brother's success he would probably be on welfare. Don has nothing to do with trading or risk management at Bright, he just does marketing for them, ie. going on chatrooms and forums to try and spin a reputation for Bright. Don isn't intelligent enough, and his brother is smart enough not to put an incompetent person in charge of something important.
They don't use the options to protect the traders' money, they use them to lower the firms net capital requirements.
