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Starting a Hedge Fund
- Thread starter ktm
- Start date
HTrader, et. al.
I've traded fx for some time (15+ yrs now, yikes!) and maybe I can give you a bit of perspective about what goes on in this market.
Profit Centers:
Spread Capture - certainly the engine that drives any large trading operation. One moneycenter bank controls about 12% of the entire market's volume daily. Some institutions are pure capture desks, thereby 'limiting' risk to the bank. Some operate as an agency desk where clients accept an add-on 'fee' for execution of an order, others make a price and cover the resulting position in the interbank market. How and when the position is covered is determined by management - some will allow a senior trader to hold large positions for their entire trading day, while others insist on rapid closing out. A large desk will probably earn >75% of gross income from this activity (across spot, fwd and derivative trading).
Proprietary Trading - This center has the greatest variance in p/l and activity across banks. Some don't allow it, others actively encourage prop trading. No bank approaches the size and scope of the large global macro funds, however. (For that matter, the large global macro funds pretty much don't take those sorts of positions anymore either and most have ceased to be.) There are global desks taking macro positions, but the majority of them use derivatives rather than spot and fwds.
Cheers
I've traded fx for some time (15+ yrs now, yikes!) and maybe I can give you a bit of perspective about what goes on in this market.
Profit Centers:
Spread Capture - certainly the engine that drives any large trading operation. One moneycenter bank controls about 12% of the entire market's volume daily. Some institutions are pure capture desks, thereby 'limiting' risk to the bank. Some operate as an agency desk where clients accept an add-on 'fee' for execution of an order, others make a price and cover the resulting position in the interbank market. How and when the position is covered is determined by management - some will allow a senior trader to hold large positions for their entire trading day, while others insist on rapid closing out. A large desk will probably earn >75% of gross income from this activity (across spot, fwd and derivative trading).
Proprietary Trading - This center has the greatest variance in p/l and activity across banks. Some don't allow it, others actively encourage prop trading. No bank approaches the size and scope of the large global macro funds, however. (For that matter, the large global macro funds pretty much don't take those sorts of positions anymore either and most have ceased to be.) There are global desks taking macro positions, but the majority of them use derivatives rather than spot and fwds.
Cheers
dvegadvol,
I think you made a valid point. The big money in FX is sophiscated trading (arbitrage) or trading against customer orders. Very few sophisticated trading operations would take a huge unhedged bet on a FX daytrade , unless they had a very
good idea of where the market is headed. I'm not a FX trader,
but I think this is common sense in any professional trading operation. If a bank had to take on a huge bet to postion a customer,I'm sure they would try to limit the banks exposure.
I'm sure there is money to be made in FX trading for the sophisticated trader. Just like options, the big money is made by
the bigger players with sophisticated trading tools(software),
large capital, access to multiple markets and the ability to arbitrage(lay off) a trade in a competing market. The daytrader
does not have the tools,sophistication or capital a bank or hedge
fund has. That is why I suggest that for daytrading, most traders
would do better in a regulated,centralized market environment that we have in the US. You can trade IBM on the NYSE and several ECN's, get a "real" Bid-Ask spread and get filled on 1 to
10,000 shares of stock in seconds.
Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net
I think you made a valid point. The big money in FX is sophiscated trading (arbitrage) or trading against customer orders. Very few sophisticated trading operations would take a huge unhedged bet on a FX daytrade , unless they had a very
good idea of where the market is headed. I'm not a FX trader,
but I think this is common sense in any professional trading operation. If a bank had to take on a huge bet to postion a customer,I'm sure they would try to limit the banks exposure.
I'm sure there is money to be made in FX trading for the sophisticated trader. Just like options, the big money is made by
the bigger players with sophisticated trading tools(software),
large capital, access to multiple markets and the ability to arbitrage(lay off) a trade in a competing market. The daytrader
does not have the tools,sophistication or capital a bank or hedge
fund has. That is why I suggest that for daytrading, most traders
would do better in a regulated,centralized market environment that we have in the US. You can trade IBM on the NYSE and several ECN's, get a "real" Bid-Ask spread and get filled on 1 to
10,000 shares of stock in seconds.
Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net
And to put it another way:
Institution does 12% of the biz / day in forex
$1,000,000,000,000 / day in transaction
Makes 1/5 pip profit (in eur/usd $0.00002) average on trades
+$2,400,000 / day in p/l just on spread capture.
Gives you a little wiggle room when taking proprietary positions, don't ya think?
Cheers
Institution does 12% of the biz / day in forex
$1,000,000,000,000 / day in transaction
Makes 1/5 pip profit (in eur/usd $0.00002) average on trades
+$2,400,000 / day in p/l just on spread capture.
Gives you a little wiggle room when taking proprietary positions, don't ya think?
Cheers
I have not been a member of this service for many years, but I wanted to check in to get some info on putting together a Hedge Fund. While the thread started off fine, I had to chuckle when I saw the posings from Don Bright.
A little background: I was with Bright Trading way back and have since moved on and trade with another firm. I have been very successful over the years. My point being is that nothing has changed at Bright Trading apparently, it is either the Bright Way or No Way. The arrogance is comical.
If one wishes to start a hedge fund like myself, I would argue with Don Bright that not only can I continue to do my intra-day trading as well as my position trades, but also collect a managemet fee and a share of the funds profits. I am capable of multi-tasking. I do it currently I just do not do it in the formalized structure of a hedge fund.
Unless I am incredibly stupid, how can complementing what you are already doing be viewed as bad? Oh I almost forgot...cause it is not the Bright Way.
I look forward to seeing more posts that actually deal with the question at hand, starting a hedge fund.
A little background: I was with Bright Trading way back and have since moved on and trade with another firm. I have been very successful over the years. My point being is that nothing has changed at Bright Trading apparently, it is either the Bright Way or No Way. The arrogance is comical.
If one wishes to start a hedge fund like myself, I would argue with Don Bright that not only can I continue to do my intra-day trading as well as my position trades, but also collect a managemet fee and a share of the funds profits. I am capable of multi-tasking. I do it currently I just do not do it in the formalized structure of a hedge fund.
Unless I am incredibly stupid, how can complementing what you are already doing be viewed as bad? Oh I almost forgot...cause it is not the Bright Way.
I look forward to seeing more posts that actually deal with the question at hand, starting a hedge fund.
agreed tm67, I guess if we were to use Don's logic, a person like Lewis Borsellino is a horrible trader since he also manages money. (Remember, horrible traders manage money since they cannot make money on their own). Imagine the nerve of Lewis Borsellino not consulting with Don Bright before he pursued his professional goals.
I know that I was considering pursuing a career as a pediatrician before Don Bright pointed out just how foolish that was and convinced me to become a prop trader.
This whole board loses credibility when it is turned into an infomercial.
I know that I was considering pursuing a career as a pediatrician before Don Bright pointed out just how foolish that was and convinced me to become a prop trader.
This whole board loses credibility when it is turned into an infomercial.
Don and Gene,
If you can trade succesfully on the stock
market, why you should not be able to trade
succesfully on the Forex market ???
You have spreads to overcome in both markets,
there is enough movement in both.
One is not better than the other.
Just depends what you like to trade.
Some people prefer stocks, other's futures
other's options....
When you have a big account size, then it gets
more difficult to get in and out at the best
bid or offer. WHen you buy, your offer price
will increase and when you sell your bid
price will decrease causing a decrease in %
return.
If you can trade succesfully on the stock
market, why you should not be able to trade
succesfully on the Forex market ???
You have spreads to overcome in both markets,
there is enough movement in both.
One is not better than the other.
Just depends what you like to trade.
Some people prefer stocks, other's futures
other's options....
When you have a big account size, then it gets
more difficult to get in and out at the best
bid or offer. WHen you buy, your offer price
will increase and when you sell your bid
price will decrease causing a decrease in %
return.
so back to the question of starting a hf. get a good sec lawyer. great auditor, (read not anderson). and a decent broker. all this could vary in price but like i said in my previous message, starting a biz cost money. why start a hf. it seems there are people on this board who have been approached by friends or family who would like them to trade their accts. the only legal way i know of doing this is setting up a llc which is the foundation of what a hf is. im not saying this is absolute, i am not a lawyer or hf manager, but this would seem to make sense to me. as far as going to a prop firm, can you trade fut ,commodities, currency , bonds, invest in money mkt securities,ssfs,. if not, if you can only trade equity long/short, that would be a reason not to go to a prop firm. if youre a great daytrader maybe a prop firm is in your best interest. im still looking at it, and would appreciate any posts on the subject. also, do any of the realtick brokers offer access to the cbot, and all contracts on the cme not just the mini. thanks
I can only speak for myself, but I have no problems with anyone opening up a hedge fund or trading other products if the trader
understands what they are trading and the risks associated with
that product. Sure professional traders at Banks & Hedge funds can make a very good living trading FX, futures and other products. These traders have access to capital, information, order
flow, software & systems that the small trader at home does not.
Even these sophisticated traders sometimes lose big. If you trade Financial Futures, FX or any other product from your home or office be aware of the risks of trading these products, some of which may be very volatile or have no "centralized" marketplace.
As I said in an earlier post, running a hedge fund is not just like trading, it is also running a business with potental liabilities, costs
and government regulation. If you are a very good trader and have access to alot of capital, you may want to think about starting a hedge fund. Be aware that most new hedge funds will
probably not be around after five years. There are several hundred hedge funds in New York alone , so you have alot of competition. I don't want to discourage anyone from opening a hedge fund, just be aware of the risks and rewards.
I will be at the online expo in NYC tomorrow as will Don Bright (Bright Trading) and Jeff Dewitt(Echo Trade). I look forward to seeing many of you there. Have a good holiday tomorrow!
Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net
understands what they are trading and the risks associated with
that product. Sure professional traders at Banks & Hedge funds can make a very good living trading FX, futures and other products. These traders have access to capital, information, order
flow, software & systems that the small trader at home does not.
Even these sophisticated traders sometimes lose big. If you trade Financial Futures, FX or any other product from your home or office be aware of the risks of trading these products, some of which may be very volatile or have no "centralized" marketplace.
As I said in an earlier post, running a hedge fund is not just like trading, it is also running a business with potental liabilities, costs
and government regulation. If you are a very good trader and have access to alot of capital, you may want to think about starting a hedge fund. Be aware that most new hedge funds will
probably not be around after five years. There are several hundred hedge funds in New York alone , so you have alot of competition. I don't want to discourage anyone from opening a hedge fund, just be aware of the risks and rewards.
I will be at the online expo in NYC tomorrow as will Don Bright (Bright Trading) and Jeff Dewitt(Echo Trade). I look forward to seeing many of you there. Have a good holiday tomorrow!
Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net