...and hopefully not the "brown thumb"
The Real Cost of being a Proprietary Equity Trader
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thanks for your comments and participation...
glad to know you made millions, uh, thousands.....
hey,
good conclusions but simply put, most of those coming into the business as proprietary traders had ever reason to realistically work towards and expect the same outcome you so proudly recite...
one trader I personally worked with was a very successful Equity Options Spread Trader and he bought into the hype and came over as an Equity Prop Trader and lost most of his stake, only to have others have to bail him out. He is now very profitable now that he's returned to option trading....
Getting a commission rate of $.00.15 per share, well less than one quarter of one cent (had to spell that one out, as most confuse the zeroes) certainly changes so much of the trading equation that its almost exciting just to consider. Simply put, one could almost make a living on a $.01 move.
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yeah, the industry has changed in the financial equation basis of the offerings and a number of firms no longer exist, and perhaps should have never even been formed in the first place; that was an excellent reference you made....
the focus of the change needs to be in the result set part of the equation.....
In the major leagues, the reasons that they change Team Captains or Head Coach(s) is to (in the words of Vince Lombardi, I think) fix the things that are wrong. Improvement comes from that more so than adding some new nuisance.
Imagine the profitability that these remaining firms would have if just 25% of their customers (newly minted or returning Series 7 traders) were sufficiently successful and the collective amount of commissions and stock volumes they would be doing. Now just imagine that at 40%; then at 65%; then at 85%? Wow the air is getting quite rarified now, isn't it?
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Oh, one more thing, from a mathematical analysis, the net impact of x over y times 3 divided by 5 would not change the net impact or influence in the markets not one percent. Simply put the markets would not change not one iota should vastly more retail or proprietary traders start earning their expected $250,000.00 annual salaries or profits from the markets through trading. Not one iota!
Bright Brothers remains the foremost outstanding firm in addressing these concerns and realities that Prop Traders face, hands down!,
Just a note of thanks!!
Don
Just a note of thanks!!
Don
I think somewhere in one of the posts I claimed IN MY OPINION and I think for most but not all traders. That leaves the other side open that for a few traders it is all gravy. I have traded both ways and for me way better fit is not scalping for tic. By the way I have mostly been talking about from the futures perspective. I know traders trading from 50-400 lots who scalped successfully for years but have started to come to the same conclusion as the market particiapants have changed with all of the automation. Then there are the few that I know that don't know why all people are not scalping. People can make money both ways but I THINK as shown by me and prop futures firms with 50-90 traders that for long term success scalping will not be the way to success for most (but not all) of the traders. However if you are in a substained roaring bull or bear market then that is a different story.
It is entirely possible for someone to have 4-5 approaches taking advantage of market anamolies that all basically stop working at the same time. If you find a good one you can make a lot of money with it while it lasts. In my view the window of opportunity where a strategy works for new market anamolies like this is becoming smaller and smaller though. It is my belief that there are ways to trade the markets that are universal and will always be around. Having traded both ways I would rather focus my attention on those strategies because at least they are universal and are not prone to disappearing. I guess everyone needs to figure out themselves where they want to focus their attention.
re:
thanks for your comments and participation...
glad to know you made millions, uh, thousands.....
Yes, I love my new life as a thousandair.... Now I can super size my value meals at McDonalds! And shopping at wal-mart has never been better.
On a serious note, I was only using myself as an example.. An average trader with consistent profits that would "skew" the results of anyone researching the success rate at prop. firms.....
and there are alot of people like me.
Prop. firms offer great leverage, low commissions, some training (better than retail operations), support, and like minds.
Trading prop. is not for everyone but it works for me.
thanks for your comments and participation...
glad to know you made millions, uh, thousands.....
Yes, I love my new life as a thousandair.... Now I can super size my value meals at McDonalds! And shopping at wal-mart has never been better.
On a serious note, I was only using myself as an example.. An average trader with consistent profits that would "skew" the results of anyone researching the success rate at prop. firms.....
and there are alot of people like me.
Prop. firms offer great leverage, low commissions, some training (better than retail operations), support, and like minds.
Trading prop. is not for everyone but it works for me.
this thread requests that other prop traders contribute their experiences and true costs, both those monetized through soft dollar reimbursements and those not acknowledged by their firms...
many of these costs have to to with the "knowledge" factor and subscriptions to other support services....
many of these costs also have to do with the direct support structure associated with keeping one in trading mode, either through training, travel, classes, books, memberships, etc.
it would be nice to hear from others too...
many of these costs have to to with the "knowledge" factor and subscriptions to other support services....
many of these costs also have to do with the direct support structure associated with keeping one in trading mode, either through training, travel, classes, books, memberships, etc.
it would be nice to hear from others too...
copied from www.sfomag.com article October 2005 issue
DAY TRADING: IS TIME RUNNING OUT?
by: Philip Gotthelf
OK, weâve all heard about the day trader who shot his broker for lack of performance. However, this is not exactly a challenge of day trading as much as it may be the theme for a television drama. The question for the new age of market volatility is whether day trading really provides the returns commensurate with the thrills â depending upon oneâs definition of thrill. If you believe in the efficient market theory and agree that a growing number of investors have access to the analysis and execution platforms for this exacting investment practice, you may conclude that the clock has been ticking and time may be running out.
Thanks to the Information Age, most investors understand the concept of day tradingâto capture profits from small intraday price movements in everything from stocks and bonds to commodities. But before computerized trading platforms, the physical effort and time required to day trade prevented most individuals from doing it in the first place. Requirements to write an order ticket, time-stamp it, call it to the trading desk, have it wired to the floor, get an execution and receive the fill frequently consumed the very moments when the best profit opportunities came and went. This is not to say day trading was not done, but it was a trading specialty limited to the âdownstairs crowd,â or the floor traders. Needless to say, mechanized trading processes have revolutionized day-trading culture and spurred growth in the number of day traders.
Still, a computer cannot erase every set of pitfalls a day trader faces. In fact, the historical inadequacies associated with order processing parallel todayâs drawbacks. Despite lightening-fast trading platforms and electronic markets, one must still physically enter the order. An exception to this rule might be the fully automated trading system that permits a computer model to execute and monitor day trades as well as spot them. Such programs are rare even as computers and software models become more sophisticated.
More common is the workstation that the day trader attends to himself, where he selects trades based on a technical computer model, intuition or both. Once identified, the strategist must enter the trade, monitor progress and execute an exit. Of course, there are multiple ways to do this.
Day-Trading Methodologies
At first glance, day trading can appear to be relatively simple, particularly if the decision model is not too complex. Common methods include ratio-to-open, swing trading, five-minute bar charts or some other time increment, random market simulation and momentum riding. Letâs take a brief look at each one of these methods.
The ratio-to-open approach presumes a market will move a certain distance in either direction from the open. This is a truism, of course, because prices inevitably move up or down from the open; the key is to statistically determine the size and probability of the move. Ratio traders usually use historical data to create statistical profiles of price behavior called âhistograms.â These data representations provide special statistical measurements that give the probability of each move in accordance with its distance in much the same way a statistical model can predict the chance of a poker hand turning up as a royal flush.
Using the histogram, ratio traders enter buy or sell orders at the open with a predetermined exit based on the ratio from the open that yields the highest statistically determined payout. Often a risk-aversion model is added on top of this decision process to manage money. Using the two synergistic techniques, the trader hopes to capture consistent random price movements that are statistically determinable.
DAY TRADING: IS TIME RUNNING OUT?
by: Philip Gotthelf
OK, weâve all heard about the day trader who shot his broker for lack of performance. However, this is not exactly a challenge of day trading as much as it may be the theme for a television drama. The question for the new age of market volatility is whether day trading really provides the returns commensurate with the thrills â depending upon oneâs definition of thrill. If you believe in the efficient market theory and agree that a growing number of investors have access to the analysis and execution platforms for this exacting investment practice, you may conclude that the clock has been ticking and time may be running out.
Thanks to the Information Age, most investors understand the concept of day tradingâto capture profits from small intraday price movements in everything from stocks and bonds to commodities. But before computerized trading platforms, the physical effort and time required to day trade prevented most individuals from doing it in the first place. Requirements to write an order ticket, time-stamp it, call it to the trading desk, have it wired to the floor, get an execution and receive the fill frequently consumed the very moments when the best profit opportunities came and went. This is not to say day trading was not done, but it was a trading specialty limited to the âdownstairs crowd,â or the floor traders. Needless to say, mechanized trading processes have revolutionized day-trading culture and spurred growth in the number of day traders.
Still, a computer cannot erase every set of pitfalls a day trader faces. In fact, the historical inadequacies associated with order processing parallel todayâs drawbacks. Despite lightening-fast trading platforms and electronic markets, one must still physically enter the order. An exception to this rule might be the fully automated trading system that permits a computer model to execute and monitor day trades as well as spot them. Such programs are rare even as computers and software models become more sophisticated.
More common is the workstation that the day trader attends to himself, where he selects trades based on a technical computer model, intuition or both. Once identified, the strategist must enter the trade, monitor progress and execute an exit. Of course, there are multiple ways to do this.
Day-Trading Methodologies
At first glance, day trading can appear to be relatively simple, particularly if the decision model is not too complex. Common methods include ratio-to-open, swing trading, five-minute bar charts or some other time increment, random market simulation and momentum riding. Letâs take a brief look at each one of these methods.
The ratio-to-open approach presumes a market will move a certain distance in either direction from the open. This is a truism, of course, because prices inevitably move up or down from the open; the key is to statistically determine the size and probability of the move. Ratio traders usually use historical data to create statistical profiles of price behavior called âhistograms.â These data representations provide special statistical measurements that give the probability of each move in accordance with its distance in much the same way a statistical model can predict the chance of a poker hand turning up as a royal flush.
Using the histogram, ratio traders enter buy or sell orders at the open with a predetermined exit based on the ratio from the open that yields the highest statistically determined payout. Often a risk-aversion model is added on top of this decision process to manage money. Using the two synergistic techniques, the trader hopes to capture consistent random price movements that are statistically determinable.
For 15 years, my brother and I have been preaching that day-trading (or any type of short term trading) should be left to well trained professionals...and we even debated the issue with some chief regulators...the retail firms "should" not encourage fast paced trading by their customers.
From our articles page: http://www.stocktrading.com/GoodEvil.shtml
All the best,
Don
From our articles page: http://www.stocktrading.com/GoodEvil.shtml
All the best,
Don
Thanks for the contribution Don,
((again, further proof why the atmosphere at the Brights is better than other places...))
continuing the current Octover 2005 article.... (there's a limit of characters on each post to being under 10,000 words, so I had to break up the article into pieces)....
continuing article
Swing trading has become increasingly popular and involves identifying swing points that usually are based on a momentum-exhaustion theory. Although swing trading has been defined as an approach lying between day trading and trend trading, the original theories behind swing trading dealt with momentum measurements. The basic premise is that all market movements of âprofitable durationâ have five basic phases. The first phase is the ignition that starts the move. Ignition is identified by a consecutive change in price direction. This is followed by acceleration; as the name implies, the price move increases speed over time. The next phase is deceleration as the price move loses speed. Deceleration is followed by consolidation where the price action stalls. Finally, the market reverses.
The five phases of a swing cycle should not be confused with wave theories that presume markets move in five waves. Think of the swing as having stages from start to finish that are all in the same direction, whereas waves cycle up and down in varying amplitudes. Having made that distinction, the swing trader seeks to identify a move in progress and its phase. Once locked onto the progress point, the trader anticipates a reversal that is, hopefully, the ignition of an opposite move. If the phase is successfully identified, the trader holds the position until consolidation that usually signals an exit.
Minute-by-minute bar charts use the same logic as daily, weekly and monthly bar charts. The only difference is the time interval. Using a five-minute bar chart, the day trader tries to recognize and act on typical formations that include breakouts and reversals, support, resistance, flags and pennants, or even head-and-shoulders patterns. This approach requires careful and constant monitoring. Many successful day chartists claim their practice is as mentally stressful and draining as a championship chess match. Lunch is unheard of! Before attempting minute-by-minute charting, ask yourself, âDo I have the intestinal fortitude and mental stamina to participate?â
Random market simulation establishes statistical models based on random number simulation. Names like âMonte Carlo simulationâ and âgaming theoryâ commonly are used to identify the more popular random market simulations. In some respects, random market simulation is similar to the ratio-to-open method. Frequently the same statistical models are implemented. The major difference is that the ratio-to-open trader usually has a single trade established from the open. Once the ratio is achieved, the trader packs up and waits for the next dayâs open. The random market simulator uses the statistical model to calculate probabilities for moves after the initial opening movements have occurred. In other words, the probability model is continuous throughout the day.
As the name implies, momentum riding attempts to ride daily price momentum in an identified direction. Common tools for momentum riding include moving averages, stochastic values, relative strength indexes and trendlines. For day trading, of course, time increments can be as small as a minute or as long as an hour. The theory behind momentum day trading is that a price in motion will remain in motion unless acted upon by some outside force. In the day traderâs world, the outside force is often an inside trader who acts in an unforeseen way!
((again, further proof why the atmosphere at the Brights is better than other places...))
continuing the current Octover 2005 article.... (there's a limit of characters on each post to being under 10,000 words, so I had to break up the article into pieces)....
continuing article
Swing trading has become increasingly popular and involves identifying swing points that usually are based on a momentum-exhaustion theory. Although swing trading has been defined as an approach lying between day trading and trend trading, the original theories behind swing trading dealt with momentum measurements. The basic premise is that all market movements of âprofitable durationâ have five basic phases. The first phase is the ignition that starts the move. Ignition is identified by a consecutive change in price direction. This is followed by acceleration; as the name implies, the price move increases speed over time. The next phase is deceleration as the price move loses speed. Deceleration is followed by consolidation where the price action stalls. Finally, the market reverses.
The five phases of a swing cycle should not be confused with wave theories that presume markets move in five waves. Think of the swing as having stages from start to finish that are all in the same direction, whereas waves cycle up and down in varying amplitudes. Having made that distinction, the swing trader seeks to identify a move in progress and its phase. Once locked onto the progress point, the trader anticipates a reversal that is, hopefully, the ignition of an opposite move. If the phase is successfully identified, the trader holds the position until consolidation that usually signals an exit.
Minute-by-minute bar charts use the same logic as daily, weekly and monthly bar charts. The only difference is the time interval. Using a five-minute bar chart, the day trader tries to recognize and act on typical formations that include breakouts and reversals, support, resistance, flags and pennants, or even head-and-shoulders patterns. This approach requires careful and constant monitoring. Many successful day chartists claim their practice is as mentally stressful and draining as a championship chess match. Lunch is unheard of! Before attempting minute-by-minute charting, ask yourself, âDo I have the intestinal fortitude and mental stamina to participate?â
Random market simulation establishes statistical models based on random number simulation. Names like âMonte Carlo simulationâ and âgaming theoryâ commonly are used to identify the more popular random market simulations. In some respects, random market simulation is similar to the ratio-to-open method. Frequently the same statistical models are implemented. The major difference is that the ratio-to-open trader usually has a single trade established from the open. Once the ratio is achieved, the trader packs up and waits for the next dayâs open. The random market simulator uses the statistical model to calculate probabilities for moves after the initial opening movements have occurred. In other words, the probability model is continuous throughout the day.
As the name implies, momentum riding attempts to ride daily price momentum in an identified direction. Common tools for momentum riding include moving averages, stochastic values, relative strength indexes and trendlines. For day trading, of course, time increments can be as small as a minute or as long as an hour. The theory behind momentum day trading is that a price in motion will remain in motion unless acted upon by some outside force. In the day traderâs world, the outside force is often an inside trader who acts in an unforeseen way!