This is one way a trader can adapt to the changes in the market. I see this has happened to a lot of prop futures firms. There are a lot of prop futures firms that want their traders to scalp for ticks but now that time frame is dominated by automated firms for both directional and spread trades. For some reason many of these firms keep trying to bang their head into the closed door waiting for it to "get good" again and the door to open back up. Without the automation I don't see how these firms will compete going forward fighting it out in the scalping time frames. I am assuming this goes for stocks too. For MOST having a mouse in your hand and being fast on the keyboard is no longer enough to scalp your way to millions. However if you can move out your time frame you are playing a game you can actually compete in because your execution is not as critical in determining if you make or lose money. If you are trading a roaring bull market or roaring bear market then this goes out the window somewhat. I also think this differs for those who trade inefficiencies and those that are trading market direction. Looking for small inefficencies to take advantage of for small pennies or ticks forces you to constantly hunt for small edges as they keep going away (at a more rapid rate all the time as most can be easily automated at some point). IF you learn how to trade market direction then you can trade any market. You just have to be flexible enough to change markets to ones that are actually moving.
The Real Cost of being a Proprietary Equity Trader
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This is one way a trader can adapt to the changes in the market. I see this has happened to a lot of prop futures firms. There are a lot of prop futures firms that want their traders to scalp for ticks but now that time frame is dominated by automated firms for both directional and spread trades. For some reason many of these firms keep trying to bang their head into the closed door waiting for it to "get good" again and the door to open back up. Without the automation I don't see how these firms will compete going forward fighting it out in the scalping time frames. I am assuming this goes for stocks too. For MOST having a mouse in your hand and being fast on the keyboard is no longer enough to scalp your way to millions. However if you can move out your time frame you are playing a game you can actually compete in because your execution is not as critical in determining if you make or lose money. If you are trading a roaring bull market or roaring bear market then this goes out the window somewhat. I also think this differs for those who trade inefficiencies and those that are trading market direction. Looking for small inefficencies to take advantage of for small pennies or ticks forces you to constantly hunt for small edges as they keep going away (at a more rapid rate all the time as most can be easily automated at some point). IF you learn how to trade market direction then you can trade any market. You just have to be flexible enough to change markets to ones that are actually moving.
thanks for the positive, substantive comments, its good to see that this thread has found its stride...
you brought out the essence of what I was getting at, and yes, this especially applies to stocks, but as you accurately mentioned has happened to so many futures prop shops too...
guys, this discussion is way larger than just one popular firm or regional power house...
by sheer coincidence SFO Magazine October 2005, page .18 has a similar article on this subject
where do you work GS? or is it a secret?
Determining whether to trade fulltime either with a firm or without, instead of working, is a serious decision. Even though firms market this business in a certain way, it is the traders responsibility to do a thorough analysis of their situation to determine whether this career is right for them.
Just like in a individual trade, it comes down to risk/reward. How much do you want to risk, what is your upside and over what time period. If the person being offered the position doesn't do this analysis, well, it's there problem when some of the risks associated with this career actually materialize. What kind of person actually goes into this without doing a proper analysis.
Oh, actually, seeing how people seem to have problems trading, a lot may come down to them failing to look at the risks. They are ignorant to them, just like they are ignorant to the risks of their individual trades. It doesn't surprise me at all.
Hey a lot of people stretch to buy a new car or new house, they jump for whatever is supposed to make them happy in the shortest amount of time. Only later do they realize that there are all these other expenses that go along with these purchases (insurance, mantenance, taxes, fuel, etc.). So is it the salespersons fault for selling the porshe or the million dollar house or the actual person that went looking for such things and signed on the the dotted line.
Hey, but the salesperson made it look so good, right? That is their job. It is the buyers responsibilty to make sure they can handle all that is involved with the purchase. The salesperson maybe ethicly motivated to pre-qualify the individual, but that can only go so far, as the individual who really wants the car or house may fabricate their backround.
Just like in a individual trade, it comes down to risk/reward. How much do you want to risk, what is your upside and over what time period. If the person being offered the position doesn't do this analysis, well, it's there problem when some of the risks associated with this career actually materialize. What kind of person actually goes into this without doing a proper analysis.
Oh, actually, seeing how people seem to have problems trading, a lot may come down to them failing to look at the risks. They are ignorant to them, just like they are ignorant to the risks of their individual trades. It doesn't surprise me at all.
Hey a lot of people stretch to buy a new car or new house, they jump for whatever is supposed to make them happy in the shortest amount of time. Only later do they realize that there are all these other expenses that go along with these purchases (insurance, mantenance, taxes, fuel, etc.). So is it the salespersons fault for selling the porshe or the million dollar house or the actual person that went looking for such things and signed on the the dotted line.
Hey, but the salesperson made it look so good, right? That is their job. It is the buyers responsibilty to make sure they can handle all that is involved with the purchase. The salesperson maybe ethicly motivated to pre-qualify the individual, but that can only go so far, as the individual who really wants the car or house may fabricate their backround.
I'm still slightly drunk from last night, but let me try to formulate an argument here.
There's a lot of crap going around about "sophisticated trading programs" that seem to be these godly pieces of code that are incapable of losing.
The simple fact of the matter is, only very simple arbs (read: fungible shit, mostly) can be automated with any degree of safety. The trickier trades (mergers, special situations, etc.) require an understanding of the situation - any program trying to spread trade here will get murdered eventually. The liquidity providing opportunities (provided one knows when one should do so) will only increase with NYSE going more and more electronic.
It boils down to finding an edge which is not practical to automate.
There's a lot of crap going around about "sophisticated trading programs" that seem to be these godly pieces of code that are incapable of losing.
The simple fact of the matter is, only very simple arbs (read: fungible shit, mostly) can be automated with any degree of safety. The trickier trades (mergers, special situations, etc.) require an understanding of the situation - any program trying to spread trade here will get murdered eventually. The liquidity providing opportunities (provided one knows when one should do so) will only increase with NYSE going more and more electronic.
It boils down to finding an edge which is not practical to automate.
hey, thanks for contributing...hope you're succeeding and have a profitable niche...
I don't agree with most of your conclusions though....
Proprietary means you become a partner in the firm, usually on a Class B level devoid of managerial responsibilities and financial support of the firm.
Becoming proprietary means you're being brought in from the cold or outside and being given access to the advertised methods that are supposed to make one successful in this endeavor, as a trader. Most of the facts you were in reference to checking beforehand are not available until one has undertaken the endeavor.
There remains a substantial amount of misrepresentation, but not on the part of the mostly innocent respondents but on the part of those offering these positions, where capital contributions are required.
When one agrees to go un-salaried for 6 months to 18 months to obtain one's license as a broker (series 7, 55, 63, etc.) and then learn and hopefully become profitable in trading, that represents a significant undertaking and as advertised should be mostly all that's required of the applicant / respondent.
So, the buyers responsibility is met based upon what was advertised by said firms, so there's no misrepresentation on the part of the new trader / broker.
Too many traders fail at this business based on the business model that's offered by these firms whether they post $5,000 in their accounts or $50,000. Too many lose these monies and (through opportunity cost) lose their otherwise normal or previous salaried equivalent COLA (cost of living adjustments, read previous salaries). Too many new traders are told and talked to by these firms without their being able to make it attainable, even daily $100 positive earnings, even using $50,000 accounts or leveraged buy-power of $50,000 accounts. Mind you, that's after these accounts are tagged with all those previously mentioned expenses, fees, fees upon fees and surcharges on those fees.
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So, where the misrepresentation occurs is certainly not on the part of the person or new traders who have given so much to attain so little.
The problem lies in these firms not making sure that more than 50% of their new recruits or existing recruits attain a living wage whilest they improve; or even 10% or even 3% of these new recruits or existing recruits.
Remember, becoming proprietary in your trade status means you're supposed to be on the same side of the firm, not a stooge or monied account waiting to be relieved of their funds.
Oh, did I mention to add to that list of expected fees, $4 check fees? Ughhhh!!!!!!
very well said,
I took the perspective, from the point of view that simply knowing that these automated trading programs are participating in the active decision making roles where traders used to tread has changed the game.
It really doesn't matter who funds these programs and whether they are profitable or consistently profitable or temporarily profitable. What matters is their collective participation in the trades cycle and their effect upon the essential assumptions surrounding tape reading and trades one plans to make based on interpretation of recent tape action.
These programs are more proliffic than one realizes, and they include:
1) smart order routing
2) excel spreadsheet auto analysis and auto trades execution
3) more sophistacated black box programs in use at larger firms
4) other lesser known, lesser publisized programmatic methods of trading
Its a different world....