Proprietary Trading vs. CTA

Quote from bone:

I've placed several clients here locally in Chicago. Spread traders and black box guys seem to dominate - I know of very few pure scalpers these days. Ten years ago they were all scalpers and the spread traders were a minority. IMO it just got harder and harder to hold a big scalp position with all the market turbulence. There was a time in the late 90's and early 2000's where there was just enough latency where manual scalpers using a good execution platform like X-Trader could do really well. These days you need to either have blinding speed and automated rules-based position management (the black box crowd) or you need some staying power and a better-behaved market to trade (the spread guys).

Most of the guys that I know that made the real FU money had some sort of unique quasi spread arbitrage going. Black box spread trading seems to be the ticket these days. That's why Harris Brumfield (Trading Technologies) bought Tick-it late last year.

http://www.tickit.com/

Agreed.
If you're not spreading and at least semi automated you're full of sh*t.
If you start talking about technical analysis, candle sticks, NASA type math models, blah blah blah, you're full of sh*t.
If You think the last words to The Star Spangled Banner are "Gentlemen, start your engines."
 
Quote from the1:

If you decided to jump ship I don't think they could stop you from trading your own account from home. The biggest thing they don't want you doing is sharing trade secrets with the competition. I would do the same thing if I ran a Prop Shop.

A buddy of mine was trading Prop about a year or so ago and the firm closed down and he had no problem hooking up with another firm. I suppose that is because the original firm closed its doors and wasn't interested in enforcing the non-compete clause. The firm was profitable. The owner was up there in years and just wanted out of the business so he shut his doors.

In terms of trade secrets, they definitely have a point there. Thanks again for your input here.
 
Quote from rosy2:

I am in chicago. I didn't mean that you ever put money up but you get paid out quarterly. So if one day before end of quarter you have 100 in your account and then the last day you lose 100 your account will go down

Thanks...OK, that makes sense. You'll only get paid if you reach a new equity high for that quarter.
 
Quote from rosy2:

Agreed.
If you're not spreading and at least semi automated you're full of sh*t.

I have clients paying retail commissions with accounts they started with $25K who are making more money spread trading than they every did in the past scalping ES or CL or 6E or whatever. It just seems insane to try to make a go of it scalping with technical indicators - the market turbulence just makes it impossible to stay with a trade long enough or conversely get out of a stinker fast enough. There was a time that it worked, but now it is clearly harder than ever. Even paying retail commissions I have some clients returning 10 % per month NET with max monthly drawdowns averaging 2 % - Jan through June 2011. Sharpe Ratios are ridiculous - like 8.0 annualized.
 
Quote from bone:

I have clients paying retail commissions with accounts they started with $25K who are making more money spread trading than they every did in the past scalping ES or CL or 6E or whatever. It just seems insane to try to make a go of it scalping with technical indicators - the market turbulence just makes it impossible to stay with a trade long enough or conversely get out of a stinker fast enough. There was a time that it worked, but now it is clearly harder than ever. Even paying retail commissions I have some clients returning 10 % per month NET with max monthly drawdowns averaging 2 % - Jan through June 2011. Sharpe Ratios are ridiculous - like 8.0 annualized.

I actually worked at an institution that traded spreads. Their drawdowns were very very low and it is still low. However, returns started shrinking. I am assuming that there more big players in that arena these days. But for retail, it might actually still be a safe trading alternative then the outrights bone stated.

bone, may I ask what is the typical holding period, couple of days to weeks?
 
Quote from chinook:

bone, may I ask what is the typical holding period, couple of days to weeks?

Holding timeframes are entirely dictated by the trading range and volatility of the spread. For a Nymex RBOB Crack it could be 3 minutes or 30 minutes. For a Eurodollar calendar spread it could be 17 days. Futures spreads are very cheap to capitalize - for example, the overnight margin on a Dec11-Dec12 Eurodollar spread is $560. You are typically going to get from a 65 up to a 95% SPAN performance bong margin CREDIT from the exchange.

We have about 400 or so spread combinations ranging from mild to wild in every market sector, so clients have a tremendous amount of flexibility in terms of what kind of risk they choose to take on. You are certainly not beholden to the behavior of any singular market and that is a strength. Choose your own playground, so to speak. Be as selective as you care to be.
 
Quote from bone:

Holding timeframes are entirely dictated by the trading range and volatility of the spread. For a Nymex RBOB Crack it could be 3 minutes or 30 minutes. For a Eurodollar calendar spread it could be 17 days. Futures spreads are very cheap to capitalize - for example, the overnight margin on a Dec11-Dec12 Eurodollar spread is $560. You are typically going to get from a 65 up to a 95% SPAN performance bong margin CREDIT from the exchange.

We have about 400 or so spread combinations ranging from mild to wild in every market sector, so clients have a tremendous amount of flexibility in terms of what kind of risk they choose to take on. You are certainly not beholden to the behavior of any singular market and that is a strength. Choose your own playground, so to speak. Be as selective as you care to be.

I haven't looked into spreads for bunch of years now. But indeed, they have tremendous ability to build a diversified portfolio around them. Most of the components will have little to none correlation between them...

For retail, which platforms give you the native spreads from CME group? Couple of years ago, we were able to trade the native spreads using prime brokers but at that time I don't think any retail platform had the capability... One had to trade the both legs separately.
 
Most of my more retail-oriented clients lease either CTS T4 or TT on a per-trade basis; it is a smoking hot deal and really brings the cost way down.

The exchange-supported implied spreads have revolutionized the art. Supports electronic limit orders and stops, eliminates leg risk completely.
 
Bone, have you ever looked up the definition of the word professor,

http://en.wikipedia.org/wiki/Professor

Countries on the European mainland, such as France, Germany, Spain, Italy, The Netherlands and the Scandinavian countries, usage of professor as a legal title is limited much the same way as the Commonwealth countries, i.e. reserved for someone who holds a chair. But in the United States, while "Professor" as a proper noun (with a capital "P") generally implies a title, the common noun "professor" in the US describes anyone teaching at college (i.e. university) levels, regardless of rank

Do you teach at a university? Do you have a Phd? If not then why do you go around calling your Professor.

Very impressive sharpe ratios: I'm glad you finally started to mention what you were offering. What's the catch? Is the catch that maybe the spreads you model are prone to spectacular and unpredictable blow up? Sorta like selling naked puts...

You claim to be profitable for the past 17 years. Do you know that 60k growing at a compounded rate of less then 50% grows to 50 million over 17 years. You claim to just be making a living, I'd say 50 million dollars is more then just scraping by. Even at 60k, at a 40% growth rate you get a 16 million dollar account. Of course, you are in the know with all the prop firms and have access to massive capital. Hmm...

I like how some vendors, i.e Rob Hoffman tells his win ratio without telling his profit factor. Likewise, you told how many years you were profitable without sharing the critical evidence of your return. Hmm..
 
Quote from bone:

Most of my more retail-oriented clients lease either CTS T4 or TT on a per-trade basis; it is a smoking hot deal and really brings the cost way down.

The exchange-supported implied spreads have revolutionized the art. Supports electronic limit orders and stops, eliminates leg risk completely.

bone, could you please give an example of an active NYMEX exchange-supported implied spread where I can see the market depth?
 
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