I agree very much.
thank you for this comment
Sean
Please review I welcome all advise
- Thread starter bkktrading
- Start date
I agree very much.
thank you for this comment
Sean
just an suggestion.
Even if there is edge that can be easily educated, it is really tough to train new traders in short time frame. because trading is hugely influenced by psychology.
so here is suggestion.
It is called reverse trading.
1. develop simple trading interface that has "market buy" and "market sell"
market buy is actually market sell and market sell is actually market buy.
2. let new traders trade whatever they like.
3. when they lose money they are actually making money and vice versa.
4. let traders monitor their "reverse" P&l real time.
I am actually thinking of operating this type of firm in asia soon.
Many new traders lose more money than commission. so if reversed, firm owner can make money.
Just an suggestion.
Even if there is edge that can be easily educated, it is really tough to train new traders in short time frame. because trading is hugely influenced by psychology.
so here is suggestion.
It is called reverse trading.
1. develop simple trading interface that has "market buy" and "market sell"
market buy is actually market sell and market sell is actually market buy.
2. let new traders trade whatever they like.
3. when they lose money they are actually making money and vice versa.
4. let traders monitor their "reverse" P&l real time.
I am actually thinking of operating this type of firm in asia soon.
Many new traders lose more money than commission. so if reversed, firm owner can make money.
Just an suggestion.
Look, I know this is very hard to accept but Money Management IS NOT an edge. Neither is discipline or technical analysis.
Any truly successful hedge fund manager will tell you the same thing. Any sophisticated investor will tell you the same thing. Most traders who have been around the block and made good to great money will tell you the same thing.
Experience & hard work can eventually develop into an edge because a trader has a wide base of knowledge to recognize certain patterns & setups, along with market mentality. But that takes years upon years.
At the end of the day, it's simple math. Without an edge, you'll have a 90% failure rate. With an edge, you'll have a 70% failure rate. This is why when there were easy edges to get newbies started on, the sub LLCs of the prop firms used to fund their traders. Nowdays, they require a risk deposit, there are only a few that don't.
Have you done any ROI analysis on your idea? How soon do you think you will be able to turn out a profitable trader? How long are you willing to carry unprofitable ones? How many people are you planning to hire? What's the final loss cut-off for each trader, cause you will hit it with most of them. Who is going to teach them and does that person even know how to trade profitably?
This is a business venture you're talking about, not a ideological discussion with retards like Ms. Varima-Garch. It involves Investment, Expenses, Revenues & Net Profits. Once you do the numbers, you may realize that unless you have a style of trading to teach that will have a 20-30% success rate, it's a waste of money.
that's a good model, interesting stuff !
varima
These are great questions. The reason I want to open the shop in Thailand is I will have time on my side. A high school/college grad makes between $300-500 a month at salaried job. I agree it would take a long period maybe 6-12 months to get 2-4 solid traders who seem to understand how their personality and trading style work together. Lets say over the 12 month period I train on SIM 20 guys at $100 a month at the end of 12 months I burn through $24,000 grand plus about $2,000 in monthly expenses . The total burn is $48,000.
I would only let traders live after they show they are profitable on the SIM. The daily cut off would be $100 a day. Monthly max draw down per guy of $400. If they hit $400 go back on SIM until beginning of next month.
Lets assume you are right about 90% failure. Then I get 2 guys out of this bunch to turn a profit. I am told 10-20% cut is the norm in ASIA(not including Hon Kong and Singapore where western traders are the norm)
Lets also assume I have 5 live traders a month who hit the $400 monthly loss limit. So my monthly cost is 2,000 a month salary, 2,000 a month office expense(software etc) and 2,000 a month risk capital loss. In all my monthly expense is $6,000. Yearly burn of $72,000. If I tried this model in USA the first year burn would be more like $400,000 to $500,000(20 traders times $1500 draw times 12). The burn rate is on my side in Thailand.
Now we will discuss the ROI with the 2 successful traders out of 20.
20% cut
if both traders make $50,000 which is average day of $200 profit then I end up making $8,000 for the year.
50k times 2 traders equals 100k minus 20k cut equals 80k.
50% (USA style cut)
to break even the 2 traders need to make 75k each which is 300 average profit per day.
Now I understand EDGE is important. I am of the opinion money management can be taught and discipline can be taught. EDGE for discretionary traders is understanding how your personality unites with market rhythm. The only thing a prop shop can provide is sound money management and discipline techniques.
Please keep cutting my idea up. You are helping me form a more rational and sound plan. This prop shop would take between 6-12 months to get up and running. I do not think I can turn a key and throw 20 traders in a room and money will fill my pockets.
I would need to find reliable office space. Correct business structure. Disciplined training program. etc!
Thank you again for taking the time to respond. I look forward to your next critique.
Sean
Right, I believe you, because your friend is apparently some super genius that has somehow made this simple concept work even though it has been attempted by the prop industry ever since electronic trading was available. But somehow ONLY your friend is able to overcome commissions, spreads & slippage which make this concept null.
Trader start losing big because they start holding onto losers and cutting winners short. That does not mean that doing the opposite means instant big profits. If it did, then you could run a simple system of random entries that cuts losses quick but holds out for large profits.
Key issues with your assumptions:
1) 6-12 months is highly optimistic. Especially since your training method is unproven. 6-12 months is what it took for profitable guys to appear when simple edges of Bullets & Open Book were out there. Closer to 9-12 months if it was tape reading.
2) $400 monthly loss is very low. Even trading minimum contracts/shares, that is 16 bucks a day. Not a lot of room for learning. Which also means that these guys will turn profitable very slowly.
You need to have a daily cutoff and a TOTAL cutoff. Monthly shouldn't matter, as if the guy hits the TOTAL, you might as well send him on his way and replace him with a new body.
3) You still need to research operating expenses. You need space, desks, wiring, internet connection, equipment, lighting, electrical & support staff. You're probably looking at $100k or more annual with 20 traders.
As I have said, this is not a novel concept, it is being done all over the world right now. You can even talk to US and Canadian prop firms who will give you support as long as you fund the operation on your end.
My general observation is that you're going on hopes rather than raw numbers.
Well I believe some get it some do not. Time it takes for this to happen actually is random and highly unpredictable. I think the smaller cost structure is a very important psychological edge that cannot be overlooked. When a trader is breaking even for 6 months in USA and sees that he has to make 18-30k just to get out of the red (draw1500 +desk fee1500+trading loss1500) he begins to press and loses all sense of rational thought. In Thailand my break even traders would be down $1800-$4000k (100draw+200desk fee+400trading loss) after 6 months. This is not a mountain that will keep my traders up at night.
If you use the old model from the days of huge crazy volume of 1999-2007(not including low days of 2003-2005) yes you are correct. Today is a different day needing a different model. I want to keep monthly loss limit low at $400 to keep from damaging the rational mind of the trader. Also this allows the company to retain traders for longer so the revolving door is not moving like a tornado. I would prefer to take advantage of the small draw that the trader in Thailand would receive. So lets say I train a trader for 2 months at 100 draw then he goes live month 3. He hits the $400 loss limit after trading 14 days in 3rd month. I put him on sim until 1st of 4th month. In 4th month he hits loss limit after 5 trading days. Goes on sim and month 5 he starts month in the red $2300(500 draw+ 1000 desk fee+ 800 trading loss). Month 5 he finally finds his rhythm and ends month up $1500. Lets play it from the old model. Instead of putting him back on the SIM in month 4 when he went down 400 in 5 days I lets him play the month out and he ended the month with 15 out of 20 negative days total of down 3k. Well he basically put a noose around his neck.
The example with 20 traders was just to give you the idea with a large amount of traders. I do not think starting with 20 traders is advisable when a track record has not been proven!!! I would start with 4 guys max until I proved that I could prove that I can train at least 2 consistently profitable traders. I am in agreement with you that I need to prove the model before spending huge money on space, computers, and IT staff. With four guys getting the right router will be my IT staff
With 20 guys need IT staff, big office, etc. I agree with this observation. My "hope" needs to be proven. I think you would agree that to find out if my "hope" can be made reality with 4 guys as a starting point would be much cheaper in a country like Thailand. In 6-12 months I think I could find out if this could work with 20-30k.
Also I think European futures would be a better fit because the hours are 2pm-10pm Thailand time. I would be much easier to retain traders with these hours than USA 8pm-3am Thailand time.
Look forward to your reply