ROI - Top ETs vs. SAC traders / Golman Sachs prop vs. Bright prop

[digdeep]

Quote from Morton's:

With all due respect, this is kind of meaningless.

A Bright prop trader - or any other individual prop trader (at Assent, Echo, JC, Avatar, Trillium, etc.) may take his or her 25k account and pump out an average of $800/day.

Maybe the trader trades 2000 shares at a time and makes 20 cents and loses 10 cents, back and forth until he nets $800 after costs.

So that is like a 700 to 800% return on the 25K.

At the institutional/hedge fund level - the trader is likely to be responsible for returns on millions. I am not familiar with the inner workings of SAC - but I would imagine that a $5 mln line of credit would be pretty low for one of their traders. That said - if that trader's goal is to earn 8 times his credit line (or even 50% rtn on his credit line) - he ain't going to get there by using the same approach as an individual prop trader. They are not going to bother with trying to make $2.5 mln or more the same way.

The main issue - IMO - is that he would have to be in and out using 25k shares at a clip. The number of stocks that can consistently accommodate this type of trading without mad slippage drops significantly.

So at some point account size / capital is a key variable that can't be ignored or factored out of the equation.

Would you say skill level aside - that capital managed is the biggest difference between the top traders on both sides of the equation?

On some level - a good trader is a good trader? Right? A good trader should be able to scale up or down, and adapt his/her strategy with increased size. Steve Cohen was forced to do it at some point - was he not? He started to take longer-time frame setups because his shorter-term setups ran into the liquidity restraints.

A basic assumption I am making when asking this question is that both hedge fund traders and retail/small prop traders are trying to build their account size... not simply crank out the same P/L year in and year out.

 

[zentrader]

Digdeep - about $5-7m. I've started trading my strategy on forex which will increase my capacity significantly, but I expect my risk-adjusted returns to be not quite as good, though still very respectable.

Quantplus - I probably miscalculated Sharpe, my equity curve is very smooth. I've only kept detailed records of $ PnL, so it is hard to accurately convert to % figures.

 

[digdeep]

Quote from zentrader:

Digdeep - about $5-7m. I've started trading my strategy on forex which will increase my capacity significantly, but I expect my risk-adjusted returns to be not quite as good, though still very respectable.

Quantplus - I probably miscalculated Sharpe, my equity curve is very smooth. I've only kept detailed records of $ PnL, so it is hard to accurately convert to % figures.

thanks for sharing... best of luck increasing your capacity.

and the topic has been brought up a couple times now - as capacity/capital traded increases, return expectations generally decrease.

I realize that it requires different strategies and an entirely different mentality to trade $50M then it does 50K. I didn't intend to ignore this fact in my post - so if people feel that account size/capital is the key difference between the large hedge fund/Wall Street traders and the off-street retail and prop traders, then feel free to point that out.

I'm still interested in the difference in quality and skill between both groups of traders. If capital traded as well as %return need to be considered - then I'd be curious about people's opinions regarding both factors and how they come into play when trying to make this comparison.