T
T-Mex
Imagine you're a decently paid professional ($120k) working 45 hours and you have a side business ($30k) which takes another 10 hours. The job might go away over the next business cycle and your living expenses are $30k. Assume you've got $35k cash and the rest of your net worth is tied up in illiquid investments (3-5 years).
Ten years ago you traded $10k into $150k+ before there was significant automation in futures markets - so you know you can execute in the heat of battle and handle drawdowns. You have now built a strategy which makes around $7 gross per contract traded, retail fees cut that in half. Strategy is manual execution supported by some models. Products are mostly correlated equity index futures - exploiting high correlation microstructure relationships and the occasional bigger trade at times of dislocation/panic. Crude, gold, G8 FX and some bonds included for economic events. Trades outrights, no spreads, no carrying overnight.
Two problems:
(1) fee structure;
(2) capitalization.
With $35k I'd trade a 3 lot across the 8-10 products monitored, roughly 15 times per day which would work out around $130/day net of retail fees. There is no question about doing this alongside a full time job as would need to be at the screens 12-14 hours per day to capture the signals and sometimes overnight when there is major geopolitical news. Missing just a few of the bigger movers would hurt performance. So with $35k deposited you'd make $2,600/month on average. That's before any fixed costs e.g. order entry software, data feed, etc.
To give up a decent income to do this I think you should be expecting to make 2x the prior income to offset the risks involved. This needs to take into account any split with a firm or investor. So let's say $20k/month is the minimum to make this worth running. Figures above imply a capital of $270k if it was 100% my money and higher to account for any investor split.
Obviously a high percentage of profits is being lost to high clearing and exchange fees, ideal would be to trade through a firm with a membership.
I'm prepared to put up some first loss/skin in the game money for sure, but not going to eat the opportunity cost of going full time to make $3k/month in the blind hope that somebody backs me down the line. My qualifications aren't in STEM from a target university, the strategy is manual and probably can't be fully automated, and I'm not a talented programmer - so Jane St, Jump, Gelber, etc wouldn't be a good fit. Also the deal needs to be fully remote with at most the first few months on site. (tax if it gets up to scale)
Setting up my own entity and raising investment directly seems out of the question unless I want to try and raise several million - legal fees, regulatory/compliance paperwork, getting an exchange membership etc is too much hassle. Call it $50k and weeks of work if I somehow got by on a shoestring budget. Finding investors without prior performance would be hard. Not sure if this strategy is going to bring in more than $6-800k/year when capacity limits are hit - I have some estimates but not the mathematics and data science background to validate whether this could scale before making a serious commitment to a larger raise.
If I could take $250k/year from this, post split, for the next 5 years (the strategy is fairly stable over time) then it would be worth going full time. Below this it doesn't seem to make financial sense.
Do I:
1) look for a trading company to back this; or
2) try to set up as a CTA and take 1-2 high net worth backers; or
3) borrow $200k and try to grow organically from there; or
4) don't trade - edge isn't good enough
For borrowing, saving another $15k before going full time, would be on beans and rice for the first year and would have to call it a day at a $50k drawdown. Starting with 30 lots to make $1,500/day or so that doesn't leave a lot of room but is just manageable based on historical data.
I don't like #2 because I don't want to take investments from non-traders and have that affect my personal relationships. Finding backing outside my circle would be almost impossible for a new CTA. I'm wanting to know whether there are trading firms who would back this, assuming the performance was consistent and in line with expectations. #3 I'm not keen on mostly because I find full time trading tedious and only want to do it if it makes financial sense - taking on even more leverage makes it less attractive, opportunity cost is a huge factor given that the 'skills' used in trading are non-transferable, nothing of longer term value is being created, sedentary for long hours, repetitive, etc.
I know what to expect when running it and would run it with my own money for a few hundred trades to prove the concept but only if there were an offer at the end of this due to opportunity cost.
Surely there must be some people here with relevant experience?
Several years ago it would have been possible to grow organically at 30-40%+ per month but I'm not seeing those opportunities any more. Thanks.
Ten years ago you traded $10k into $150k+ before there was significant automation in futures markets - so you know you can execute in the heat of battle and handle drawdowns. You have now built a strategy which makes around $7 gross per contract traded, retail fees cut that in half. Strategy is manual execution supported by some models. Products are mostly correlated equity index futures - exploiting high correlation microstructure relationships and the occasional bigger trade at times of dislocation/panic. Crude, gold, G8 FX and some bonds included for economic events. Trades outrights, no spreads, no carrying overnight.
Two problems:
(1) fee structure;
(2) capitalization.
With $35k I'd trade a 3 lot across the 8-10 products monitored, roughly 15 times per day which would work out around $130/day net of retail fees. There is no question about doing this alongside a full time job as would need to be at the screens 12-14 hours per day to capture the signals and sometimes overnight when there is major geopolitical news. Missing just a few of the bigger movers would hurt performance. So with $35k deposited you'd make $2,600/month on average. That's before any fixed costs e.g. order entry software, data feed, etc.
To give up a decent income to do this I think you should be expecting to make 2x the prior income to offset the risks involved. This needs to take into account any split with a firm or investor. So let's say $20k/month is the minimum to make this worth running. Figures above imply a capital of $270k if it was 100% my money and higher to account for any investor split.
Obviously a high percentage of profits is being lost to high clearing and exchange fees, ideal would be to trade through a firm with a membership.
I'm prepared to put up some first loss/skin in the game money for sure, but not going to eat the opportunity cost of going full time to make $3k/month in the blind hope that somebody backs me down the line. My qualifications aren't in STEM from a target university, the strategy is manual and probably can't be fully automated, and I'm not a talented programmer - so Jane St, Jump, Gelber, etc wouldn't be a good fit. Also the deal needs to be fully remote with at most the first few months on site. (tax if it gets up to scale)
Setting up my own entity and raising investment directly seems out of the question unless I want to try and raise several million - legal fees, regulatory/compliance paperwork, getting an exchange membership etc is too much hassle. Call it $50k and weeks of work if I somehow got by on a shoestring budget. Finding investors without prior performance would be hard. Not sure if this strategy is going to bring in more than $6-800k/year when capacity limits are hit - I have some estimates but not the mathematics and data science background to validate whether this could scale before making a serious commitment to a larger raise.
If I could take $250k/year from this, post split, for the next 5 years (the strategy is fairly stable over time) then it would be worth going full time. Below this it doesn't seem to make financial sense.
Do I:
1) look for a trading company to back this; or
2) try to set up as a CTA and take 1-2 high net worth backers; or
3) borrow $200k and try to grow organically from there; or
4) don't trade - edge isn't good enough
For borrowing, saving another $15k before going full time, would be on beans and rice for the first year and would have to call it a day at a $50k drawdown. Starting with 30 lots to make $1,500/day or so that doesn't leave a lot of room but is just manageable based on historical data.
I don't like #2 because I don't want to take investments from non-traders and have that affect my personal relationships. Finding backing outside my circle would be almost impossible for a new CTA. I'm wanting to know whether there are trading firms who would back this, assuming the performance was consistent and in line with expectations. #3 I'm not keen on mostly because I find full time trading tedious and only want to do it if it makes financial sense - taking on even more leverage makes it less attractive, opportunity cost is a huge factor given that the 'skills' used in trading are non-transferable, nothing of longer term value is being created, sedentary for long hours, repetitive, etc.
I know what to expect when running it and would run it with my own money for a few hundred trades to prove the concept but only if there were an offer at the end of this due to opportunity cost.
Surely there must be some people here with relevant experience?
Several years ago it would have been possible to grow organically at 30-40%+ per month but I'm not seeing those opportunities any more. Thanks.
