To prop or not to prop...

P

pandorasbox

Is there any other reason to go prop than leverage (don't need training and have my own software)?

My strategy holds positions overnight and prop firms charge a hefty financing fee. If I trade it with IB and get a loan with lower interest than the prop firm charges for overnights I don't see why I would go to a prop firm.

Am I missing something here???
 
Quote from pandorasbox:

Is there any other reason to go prop than leverage (don't need training and have my own software)?

My strategy holds positions overnight and prop firms charge a hefty financing fee. If I trade it with IB and get a loan with lower interest than the prop firm charges for overnights I don't see why I would go to a prop firm.

Am I missing something here???
More...

Not sure where you're getting your information...I would guess that you might be missing something (or talking to the wrong people). For example, we give our traders 6 times their equity for overnights (hedged) with no Haircut. If they take home 30 times their equity, they pay an average of less than 4% per year..??

But, the main reason is to be able to use a couple of $million for opening only, pairs, M&A, market making, etc. - the "Lower risk, higher reward, but capital intensive" strategies employed by big hedge funds, Lehman, GS and all...vs. simple directional trading of equities.

I don't think IB is going to loan you a $million every day for free.

FWIW,

Don

Don :confused:
 
Don,
i am a futures guy by nature working on the sell side,

i am looking at Single Stock futures abitrage with normal equities,

theese are low strategies of course but i need to be hihgly leveraaged, are you saying that fi i needed 30 million dollars to fnanace a transaction i can get 4% borrowin costs
 
Quote from Don Bright:

Not sure where you're getting your information...I would guess that you might be missing something (or talking to the wrong people). For example, we give our traders 6 times their equity for overnights (hedged) with no Haircut. If they take home 30 times their equity, they pay an average of less than 4% per year..??
Don

Don :confused:
More...

Don,

What is your haircut charge?

For example, if I have 100K capital, and I hold positions (not hedged) of 800K. There should have no charge for the first 600K, and you will charge the remaining 200K. What is the rate for that 200K?
 
Quote from yip1997:

Don,

What is your haircut charge?

For example, if I have 100K capital, and I hold positions (not hedged) of 800K. There should have no charge for the first 600K, and you will charge the remaining 200K. What is the rate for that 200K?
More...

We don't have many traders who simply trade directional (unhedged)...and, since it's more risky (obviously) naked positions are 1%/mo. over 2 to 1 of equity. Our guys don't like to gamble too much on individual stock direction. In your example, you would be able to hold a lot more shares, and if you're "right" - you make more money, even if you do pay a risk fee.

The whole point to trading prop is be able to take part in the strategies mentioned in the previous post, and other lower risk, higher reward type things.

(But, prop trading is not for everyone, I realize that)...

All the best,

Don
 
What about me?



Registered: Jan 2007
Posts: 29


02-14-07 11:04 AM

Don,
i am a futures guy by nature working on the sell side,

i am looking at Single Stock futures abitrage with normal equities,

theese are low strategies of course but i need to be hihgly leveraaged, are you saying that fi i needed 30 million dollars to fnanace a transaction i can get 4% borrowin costs
 
Quote from ballsofgold:

What about me?



Registered: Jan 2007
Posts: 29


02-14-07 11:04 AM

Don,
i am a futures guy by nature working on the sell side,

i am looking at Single Stock futures abitrage with normal equities,

theese are low strategies of course but i need to be hihgly leveraaged, are you saying that fi i needed 30 million dollars to fnanace a transaction i can get 4% borrowin costs
More...

(Sorry, missed it)...

Since our traders receive interest on short stock sales, it makes little sense to hedge with SSF's. We played that game for about 4 hours the day they opened SSF's (years ago), and by the next day, the MM's had everything at value.

Yesterday I had a gentleman come over from another firm, in need of capital usage. He flew here to discuss using $50million for "special" days (S&P adds, expirations, etc.), and we told him no problem. He asked to use 40 times his equity for hedged overnights, and we said OK.

The short stock interest thing is a good reason to trade prop as well, of course, and this man signed up right then. FWIW.

Feel free to call to chat about any of this...702.739.1393 (maybe next Monday, I have a bunch of new people in boot camp this week).

Don
 
Quote from Don Bright:

We don't have many traders who simply trade directional (unhedged)...and, since it's more risky (obviously) naked positions are 1%/mo. over 2 to 1 of equity. Our guys don't like to gamble too much on individual stock direction. In your example, you would be able to hold a lot more shares, and if you're "right" - you make more money, even if you do pay a risk fee.

The whole point to trading prop is be able to take part in the strategies mentioned in the previous post, and other lower risk, higher reward type things.

(But, prop trading is not for everyone, I realize that)...

All the best,

Don
More...

Don,

I didn't mean I trade unhedged position, I just wanted to know your haircut charge. It is very dangerous to say what is hedged, and what is not. Should we use statistical correlation as a means for perfect hedge? You might, but I don't. If I have my own way of hedging (my own system) that you might not agree, I will be faced to pay 1% a month. To be able to calculate the cost of doing business and assess his risk/reward is one of the key ingredients to be a successful trader.
 
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