Well said....my point exactly. Fortunately buying power seldom was a factor for us recently. Not because it was unlimited, just because there were less irresistable positions. So trading lightly allowed longer holds on winners. When I used to hold 40 or so positions, in all honesty my p&l was my best alert to when to focus on a position that was deteriorating. Now holding a handful..say 8-10 positions, usually less, it is easier to see and "feel" when to exit a particular trade. Boredom should NEVER be a factor. I have seen so many traders get impatient because they were ready to have lunch, play golf, or just want to stop concentrating. But it's a job! Those reasons (excuses) were for babies! Someone here said that trading is "the hardest way to make easy money"..a great statement. Unfortunately it attracts a lot of immature "traders". Stay focused. It is a real job.
stock trading: monthly return
- Thread starter Nemsy
- Start date
floor traders and specialists have been known to be profitable 90% of all months but every once in a blue moon they lose six figure sums within seconds due to their massive leverage.
if you are trading w/ 30 to 50 times you will have the same profile. live by the sword, die by the sword.
p.s. exiting a trade from boredom means there is no defined plan or no commitment to stick to it, which is same thing. no plan = no chance. this seems obvious
p.p.s. i've always been kind of curious, how do prop firms keep from getting burned when people blow up? If you only put in 5K and then get smacked for a 25K loss on a big leverage trade that goes bad, what do they do if you walk? I would imagine this happens all the time, the biz model of prop firms- bankroll lots of guys so they can play with dynamite on our credit- just does not make sense to me
if you are trading w/ 30 to 50 times you will have the same profile. live by the sword, die by the sword.
p.s. exiting a trade from boredom means there is no defined plan or no commitment to stick to it, which is same thing. no plan = no chance. this seems obvious
p.p.s. i've always been kind of curious, how do prop firms keep from getting burned when people blow up? If you only put in 5K and then get smacked for a 25K loss on a big leverage trade that goes bad, what do they do if you walk? I would imagine this happens all the time, the biz model of prop firms- bankroll lots of guys so they can play with dynamite on our credit- just does not make sense to me
Darkhorse....i agree with what you say here. I agree with pretty much everything you have said that I have read on this site. So assuming that you are as well informed as I believe, then this comment is meant for those less informed.
What you say about trading 30-50 times (leverage) is certainly valid. What most people DO NOT understand, is that the guys on the floor are not trading based on any multiple of their capital. They are trading based on the RISK to their capital as calculated by the exchanges on a real time basis. Simply put, if XYZ stock is trading at $100, and the exchange deems that the standard deviation for that stock on that day is $1, then their capital requirement is just $1. Does this mean they are getting 100x leverage? I suppose you could think of it that way, but it isn't expressed that way. It is a $1 (per share) haircut on their capital. If they do a conversion, since there is no risk, there is no haircut. If they short an option (naked) their requirement is whatever the exchange considers the risk for that day. Now the clearing firm may (and usually does) have more stringent requirements, but the methods are the same. They may say that they want $1.50 where the exchange wants $1. Or whatever amount. It depends on the clearing companies perception of the responsibility and track record of the trader, market maker, floor broker....whoever we are talking about. After all....it is the clearing firm that can get stuck in the middle. They too need to "know the customer".
As far as specialists.....I admit to knowing practically nothing about what their requirement are other than to be direct descendants of Charles Manson or Attilla the Hun
on some things i am informed and on other things i make educated guesses (and try to make clear they are guesses when doing so).
The clearing houses and exchanges definitely set the margins for their own benefit. There is a careful balance to be maintained: Set the margins too high and customers don't give you enough action. Set the margins too low and you have to eat the losses on too many blowups where the customer walked. Ironically this is similar to bookies setting the point spreads on major sporting events. You want to walk the line between drawing in a lot of gamblers and not putting yourself at risk w/skewed payouts.
But to me the bottom line nitty gritty is this: risk is risk regardless of whether I am technically getting X leverage or X plus Y leverage or some inverted lending standard etc. etc.. The operative question is this:
"how much money can I- I personally- lose here if things go really bad?"
All the other stuff seems to be secondary technicalities in comparison to that question.
The clearing houses and exchanges definitely set the margins for their own benefit. There is a careful balance to be maintained: Set the margins too high and customers don't give you enough action. Set the margins too low and you have to eat the losses on too many blowups where the customer walked. Ironically this is similar to bookies setting the point spreads on major sporting events. You want to walk the line between drawing in a lot of gamblers and not putting yourself at risk w/skewed payouts.
But to me the bottom line nitty gritty is this: risk is risk regardless of whether I am technically getting X leverage or X plus Y leverage or some inverted lending standard etc. etc.. The operative question is this:
"how much money can I- I personally- lose here if things go really bad?"
All the other stuff seems to be secondary technicalities in comparison to that question.
Darkhorse...
Just trying to explain that on the floor, the rules are different. As I said, most people don't understand the constraints of the floor traders. We get "margin"...they get "haircut". We pay commisions. They pay membership fees. They get more "leverage" because they are assumed to be pros. We want but don't usually get that kind of leverage because we are ASSUMED to be amatuers. (usually a safe assumption).
Listen to a Bob Pisani for example, and it is very clear how ignorant even "experts" can be.
Just trying to explain that on the floor, the rules are different. As I said, most people don't understand the constraints of the floor traders. We get "margin"...they get "haircut". We pay commisions. They pay membership fees. They get more "leverage" because they are assumed to be pros. We want but don't usually get that kind of leverage because we are ASSUMED to be amatuers. (usually a safe assumption).
Listen to a Bob Pisani for example, and it is very clear how ignorant even "experts" can be.
i understand, more clarity is better than less. i'm sure a lot of folks are appreciative of pulling back the veil a little bit to get a better picture of how the floor really works
i totally agree w/ you on uninformed experts. they are the main reason why so many members of the professional trading community are viewed as wizards or demons or jackals or some cross of all three
i often go on anti-ignorance crusades myself and usually end up feeling like Don Quixote
i totally agree w/ you on uninformed experts. they are the main reason why so many members of the professional trading community are viewed as wizards or demons or jackals or some cross of all three
i often go on anti-ignorance crusades myself and usually end up feeling like Don Quixote
My prop firm gave me that deal only because I had trade blotters to back up the fact that I was experienced and pretty consistent. I could never lose 25K (or even 10K) because I don't take that type of risk and the stocks I trade are very liquid (Nasdaq). My average share size is around 2000. To lose 10K, I would have to be watching my stock tank 5 straight points (which would take a long time) with my hands up my ass. Management would be on my back before I could cause real damage anyway.
Come to think of it, I COULD lose 25K if the stock I was trading was halted and gapped down 10 pts. when it reopened. Knock on wood this never happens to me!
The business model for my prop firm works like this:
1. Recruit traders and have them ante up money to have access to alot of buying power. Then keep them on a short leash to determine if they are competent traders or not. Risk Management's job is to make sure no one blows out more than their initial deposit and thus loses the firm's money.
2. The traders that lose their deposit go out on the streets or ante up more cash. The traders that prove their mettle and earn the prop firm's trust continue to make money for themselves and the prop firm through commissions and a share of profits (I give 25% of my net profit to the firm).
It's a good deal for me because I'm risking very little of my own money for access to alot of buying power and a 75% share of profits. Believe me, it's alot less stressful trading someone else's money. It's a good deal for the firm because I can make consistent money for them and train other traders in my patient scalping, low risk technique. Then I'd be eligible for overrides on successful traders that I train.
It's not a bad system as long as you can recruit quality traders and have a strong Risk Management system in place.
<i>The traders that lose their deposit go out on the streets or ante up more cash.</i>
Out of curiosity, if a trader "loses" his $5K ante in commissions, but is still gross positive, do they keep the trader? Case by case maybe? From a firm perspective, it would seem that any traders who are gross positive are making money for the firm, even if they blow through their capital contributions in commissions.
Out of curiosity, if a trader "loses" his $5K ante in commissions, but is still gross positive, do they keep the trader? Case by case maybe? From a firm perspective, it would seem that any traders who are gross positive are making money for the firm, even if they blow through their capital contributions in commissions.