why trade prop when you can retail daytrade futures with same 20:1 margin
- Thread starter jammy page
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Thanks for all of the comments so far--this is very interesting.
The big potential plus for prop trading stocks that this has underscored for me so far, and it's one that I think I agree with, is that stocks may in some sense be more forgiving than futures....but I also think that this sense of forgiveness may mainly be due to the lower leverage that one typically uses with stocks as opposed to futures. With lower leverage comes more forgiveness. But here I guess we are theoretically assuming 20:1 leverage for both stocks and futures.
Still, there is a kind of "comfort factor," whether illusory or not, that I associate with stocks.
On the other hand, it is true that when trading individual stocks as opposed to an index one has the added risk of unfavorable stock-specific news.
I guess another advantage of prop trading stocks would be the ability to employ paired-trading strategies, although our resident grandaddy of paired-trading hasn't weighed-in...
The big potential plus for prop trading stocks that this has underscored for me so far, and it's one that I think I agree with, is that stocks may in some sense be more forgiving than futures....but I also think that this sense of forgiveness may mainly be due to the lower leverage that one typically uses with stocks as opposed to futures. With lower leverage comes more forgiveness. But here I guess we are theoretically assuming 20:1 leverage for both stocks and futures.
Still, there is a kind of "comfort factor," whether illusory or not, that I associate with stocks.
On the other hand, it is true that when trading individual stocks as opposed to an index one has the added risk of unfavorable stock-specific news.
I guess another advantage of prop trading stocks would be the ability to employ paired-trading strategies, although our resident grandaddy of paired-trading hasn't weighed-in...
well sometime the future dont go anywhere while in stock there is a lot od symbol you can watch
The advantage of stocks is that there is so many of them. There's 1000's of stocks listed in north america. It's much easier to find inefficiencies, good setups and lack of competition. You can also spread your risk among many trades. If you want to be leveraged 20-1, do it across 50 positions, not one.
the topic was prop Vs. self? and not futures Vs. equity!
you can do both either way.
my concern about prop is their ability to see my hands...
proper trading should be minimum margin usage and trading futures, equity and options all at the same time paired with each other though(if not instrument wise, they should at least be paired strategy wise).
you can do both either way.
my concern about prop is their ability to see my hands...
proper trading should be minimum margin usage and trading futures, equity and options all at the same time paired with each other though(if not instrument wise, they should at least be paired strategy wise).
Indeed. Much easier to read joe retail investor's mind than the ex-wallstreet Gordon Gecko's trading complicated instruments via enterprise grade TicoSat-com from their 100ft Pavel Shaposhnikov yachts (so, I'm a little dramatic)
Position trading the volatile dry bulk shipping and solar sectors has been exceptionally rewarding over the last yr. Feel like I'm competing against inferiors and I'm far from the sharpest trader on the block.
Yes, but as has been discussed on this board MANY TIMES in the past, Prop firms don't promote futures....at all. THERE'S NO MONEY IN IT FOR THEM....the retail rates have been driven to the ground....that's why. And they can't compete....and make money.
There's big bucks in equities however. With institutional rates of 20 CENTS per thousand, look at the WIDE OPEN margin at 3 DOLLARS per thousand. Many businesses would die for profit margins like that !
Mercor
I realize that the margin is what it is due to the volatility.
But that's the point, right?
In the mid to late 90's when crude oil was dead, the pit traders traded the open and then scurried off to stock shops to trade the dot.coms and the high flying tech stock names. Because that was where the action was at the time.
Sure, you could get 25 to 1 on crude oil then, but for what? It wasn't doing anything.
The real test for futures leverage is whatever the contract's $value to margin ratio is when things are HOT.
Speaking for the equity prop firms that I know of - when the implied volatility for the market (using the "SPY" for the market) was at 10.3% around April of 2007, my leverage was 20 to 1. Last January when the implied vol was almost 30%, my leverage was 20 to 1. Implied vol tripled and my leverage was unaffected.
And just for kicks, when are any of these commodities going to "settle down?" Especially oil? The "Peak Oil Crew" says it is going to $120. You have the "Peak Oil is a Myth Gang" saying $80 - maybe even $60.
I don't think you see 20 to 1 leverage in oil or the products for awhile. I would plan on 10 to 1, and be happy if the exchange allows a bit more than that.
I realize that the margin is what it is due to the volatility.
But that's the point, right?
In the mid to late 90's when crude oil was dead, the pit traders traded the open and then scurried off to stock shops to trade the dot.coms and the high flying tech stock names. Because that was where the action was at the time.
Sure, you could get 25 to 1 on crude oil then, but for what? It wasn't doing anything.
The real test for futures leverage is whatever the contract's $value to margin ratio is when things are HOT.
Speaking for the equity prop firms that I know of - when the implied volatility for the market (using the "SPY" for the market) was at 10.3% around April of 2007, my leverage was 20 to 1. Last January when the implied vol was almost 30%, my leverage was 20 to 1. Implied vol tripled and my leverage was unaffected.
And just for kicks, when are any of these commodities going to "settle down?" Especially oil? The "Peak Oil Crew" says it is going to $120. You have the "Peak Oil is a Myth Gang" saying $80 - maybe even $60.
I don't think you see 20 to 1 leverage in oil or the products for awhile. I would plan on 10 to 1, and be happy if the exchange allows a bit more than that.
That is all correct. The orginal argument was that futures are more risky and more volatile then stocks. I still say a 5% move in futures is huge yet very common in stocks, and dollar for dollar it is the same risk.......Keep in mind intraday trading is only half margin and that would double the leverage