Thoughts on the future of prop trading?

T

Term

I've been trading for only about 6 years now. In 2009 it marked the beginning of a washout of traders from the industry that has continued through 2010.

I am not one saying 'daytrading is dead'. I have made good money, and have seen lots of other people make great money in 09 and 10. But in general, it seems like the majority are struggling. I personally think the washout will continue through 2011 but am curious about what the 'general concensus' is from people at other firms (larger than say 50 traders), whom have been trading for say 5+ years. I also imagine we get some cosolidation on the industry level in the form of firms closing & mergings.

So what are your thoughts Don & Maverick & others?

I was shocked to see 2 days into 2011 that there has been no "P&L 2011" thread in the Journals.. only find out that no one has posted in the 2010 for several weeks. Sign of the times?
 
Quote from Term:

I was shocked to see 2 days into 2011 that there has been no "P&L 2011" thread in the Journals.. only find out that no one has posted in the 2010 for several weeks. Sign of the times?
More...

Yeah I made the same observation. My floor is getting pretty empty and most traders are working out of a hole. For me I think the money is always there however you have to work hard to get it and hard to hold on to it.

I think another interesting observation is that since 2009 retail investors have been pulling $$ out of US equities in a big way and really haven't put it back in. Retail investors are the "easy money" in the market and I'm sure that's why a lot of prop traders are struggling.

In terms of the industry, just like the traders themselves, there will be a flush out. They are a bit more resilient as many make $$ if the trader is flat for the month from commissions etc.

The good thing is if you can stick it out till the flush is over then you will be in for a good ride... if I'm honest I don't see it happening soon but I'm ever the optimist
 
They said daytrading was dead in 2000 when retail daytraders went bust with the Nasdaq, then again in late 02 into 03, again in mid 07 with rebates, and finally when credit was pulled around the start of 09 and cumulating in the HFT environment of 09-10.

I have noticed swifttrade isn't swifttrade anymore, it's now orbixa, it appears the franchise has been sold and rebranded. The industry much like the game IMO is the same, just new rules with new players.
 
Quote from Term:

I've been trading for only about 6 years now. In 2009 it marked the beginning of a washout of traders from the industry that has continued through 2010.

I am not one saying 'daytrading is dead'. I have made good money, and have seen lots of other people make great money in 09 and 10. But in general, it seems like the majority are struggling. I personally think the washout will continue through 2011 but am curious about what the 'general concensus' is from people at other firms (larger than say 50 traders), whom have been trading for say 5+ years. I also imagine we get some cosolidation on the industry level in the form of firms closing & mergings.

So what are your thoughts Don & Maverick & others?

I was shocked to see 2 days into 2011 that there has been no "P&L 2011" thread in the Journals.. only find out that no one has posted in the 2010 for several weeks. Sign of the times?
More...

I see enormous opportunity in the 2 to 5 day swing periods. Intra-day has a lot of noise. You know there was a great video of Mark Fisher of MBF a few months back and he talked about where he saw the opportunity going forward and he talked about trading unconventional spreads. Not stat correlation bullshit (sorry Don), but just trading strength and weakness but staying dollar neutral. And holding over long time periods. Just make sure you trade with a flexible firm.
 
Quote from PropTraderMTL:

Yeah I made the same observation. My floor is getting pretty empty and most traders are working out of a hole. For me I think the money is always there however you have to work hard to get it and hard to hold on to it.

I think another interesting observation is that since 2009 retail investors have been pulling $$ out of US equities in a big way and really haven't put it back in. Retail investors are the "easy money" in the market and I'm sure that's why a lot of prop traders are struggling.

In terms of the industry, just like the traders themselves, there will be a flush out. They are a bit more resilient as many make $$ if the trader is flat for the month from commissions etc.

The good thing is if you can stick it out till the flush is over then you will be in for a good ride... if I'm honest I don't see it happening soon but I'm ever the optimist
More...

Believe me, retail investors have pulled MUCHO DINEROS out of the markets since 2009! No question! I'm seeing the $$$ going into alternatives by the more sophistocated, and cash/CD's by the mom and pops...

And I agree, if one can stick it out, the ride could be a nice one!
 
Quote from Maverick74:

I see enormous opportunity in the 2 to 5 day swing periods. Intra-day has a lot of noise. You know there was a great video of Mark Fisher of MBF a few months back and he talked about where he saw the opportunity going forward and he talked about trading unconventional spreads. Not stat correlation bullshit (sorry Don), but just trading strength and weakness but staying dollar neutral. And holding over long time periods. Just make sure you trade with a flexible firm.
More...

I do too, and I agree most of the BS strategies that a lot of firms employed have seemingly dried up (either through technological changes, regulatory changes, or just arbed out). There will be a few guys out there still grinding away at it (lescor), who do well.

I see a lot of traders hanging on but as their savings dwindle, I don't see it being sustainable.... with no light at the end of the tunnel. Adapt or die has always been a traders motto.

Regarding the individual investors - yes there used to be some dumb money floating around but it was more in the way of dumb hedge funds. They are out of the game now or have fixed their stupidity. I don't think anyone can really give a crap about grandma doing her 50 or 3000 shares here or there.
 
solid example is schonfeld trading, they let so many traders go in the recent last year. Steven Schonfeld explained the game has changed for traders.

but one positive note is commissions are getting cheaper, better ECNs to route orders too.

I feel to make it currently (just personal thought) one needs to hold traders much longer. Scalping for pennies is dead, the HFT bots will flush you right out of the trade.
 
Quote from cactus_trader:

solid example is schonfeld trading, they let so many traders go in the recent last year. Steven Schonfeld explained the game has changed for traders.

but one positive note is commissions are getting cheaper, better ECNs to route orders too.

I feel to make it currently (just personal thought) one needs to hold traders much longer. Scalping for pennies is dead, the HFT bots will flush you right out of the trade.
More...

Good analysis, I fully agree. Daytrading can be profitable if and when you spot the move EARLY and ride it, however profits are often limited as a trader may be forced to stop out while "sweating pennies" trying to make a buck.

Although I do daytrade equities, I prefer trading the 3 to 5 day swing cycles, as they often prevail even with the HFT bots creating all the intraday "noise" in a stock.

Perhaps the new exam requirement for CBSX firms may also become a barrier to entry for some who did not want to join a FINRA firm due to having to take the Series 7.

Here's what's in store for the CBSX members...

"CBOE is developing an alternative to the Series 7 examination that is specifically tailored toward individual TPHs and associated persons of TPHs that are engaged in proprietary trading. CBOE has represented that within six months of the date of this Order it will have completed the development of this qualification examination and will file the examination with the commission. All individual TPHs and individual associated persons must take and pass the new examination, as applicable, no later than August 12, 2011."

The above is an excerpt from the latest SEC regulatory circular, full .pdf link below:

http://www.sec.gov/rules/sro/cboe/2010/34-63314.pdf
 
Quote from Term:

I agree most of the BS strategies that a lot of firms employed have seemingly dried up (either through technological changes, regulatory changes, or just arbed out).
More...
Like speculating interest rates day in and day out or rebate trading or scalping.

Quote from Term:

I see a lot of traders hanging on but as their savings dwindle, I don't see it being sustainable.... with no light at the end of the tunnel. Adapt or die has always been a traders motto.
More...
When you see the most profitable traders go, is it them adapting? Or the firm?

Quote from Maverick74:

I see enormous opportunity in the 2 to 5 day swing periods.
More...
Sounds like the prop model developed in the 90s (sticking with the risk one can observe, that is intraday risk) is drying out.
 
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