darkhorse, You make some good points and don't get me wrong. I am a futures trader and I will be watching carefully. I have discusssed the options versus futures issue with Howard Simons and he is of the opinion that ssf's will not impact options much, because of the different characteristics. The premium in a futures contract is a small percentage of the total value, while the time value in an options contract is large. Let's talk practicalities though. I am set up pretty well now to trade futures and daytrade stocks. To trade SSF's I will need another couple of screens at least. I'm not inclined to go to that expense when I might end up with a product with wide spreads and low volume, as toby accurately states has been the UK experience. How about charting and data feeds? What are you willing to pay for them? I can't imagine the data will be free. I can see trading ssf's off IB and watching the underlying on RealTick, but I'm not sure that will be the best approach. Thsi thing is coming fast so we better start getting ready for it.
First off, look at it from the perspective of large players, because they will be the backbone of liquidity, not individual traders. One hedge fund or institution does the volume of thousands of small fry. So screen costs are really pretty insignificant. I also think that SSF's will take a lot of business away from normal stocks. Why would you trade microsoft stock when you could trade microsoft futures at better leverage and no interest charge? SSF's have too many financial incentives for large players to ignore them, and because of their superior structure they will not just be side by side with normal stocks, they will compete directly for order flow with stocks. Regarding charting and data fees, I take the opposite stance. These guys are not stupid enough to cripple their product with fees from the outset, that would be idiotic. Volume is the holy grail for them, not some mickey mouse fifty bucks a month. The current futures exchanges only do that because they are legacy structures run by old men with a bunch of self-interested loser floor traders to support who are more interested in preserving their set up and fighting progress. SSF's will be in the hands of completely new entities, free of burdens and legacy costs. Look at it like this: when a new radio station launches, it typically plays music commercial free for at least four to six months, to build up a listener base, before it starts putting commercials in rotation. The SSF creators know that liquidity is the number one priority, period, and they are going to do everything possible to draw in players. With 4 different competitors in the game, all of them flush with megacash, this cutthroat price competition is an ironclad guarantee. They will be lean, mean, and they will have serious capital reserves on hand for the first year while they are building up volume. In otherwords, if they don't offer their data for either nothing or next to nothing, then I'll eat my keyboard. No way they are stupid enough to charge for data. Also, SSF's will be tradable from normal securities accounts. You won't even have to open a new account if you want to trade them, all you will have to do is sign some additional paperwork. Every stock trader in the land is going to have easy access to a superior product that has no margin cost, offers higher leverage and is tradable from the stock account he already has. No way they don't take off. No way.
With a hedge fund, while it is arguable that I am "borrowing" money from my investors in a sense, I am doing so at zero interest cost and zero risk of personal loss. That's a pretty good deal, and one I think you would be hard pressed to match. Your website also seems geared more towards hyperactive daytraders, which I am not. I hold my positions for hours, days or weeks, so I probably wouldn't provide the kind of turnover you are hungry for. Furthermore I have my own preferred software and I trade from my home office, so I'm not a candidate for any expensive computer programs or rental costs. So call me crazy, but I'm pretty skeptical that your firm could find a way to make money off of me. If you still think I'm worth pitching though, feel free, I'm an open minded kind of guy.
I may be misunderstood once again with this concept of "hedge funds"....and with today's new about Michael Berger skipping off with $400 million of his "investor's" money, it may be academic anyway....since there are fewer and fewer people willing to invest in such enterprises. (I am not at all saying that this is what you have in mind....I am just pointing out that it may be a bit tougher to raise $100 mil than it was a few years back). My point is always the same...if you can use $5million with only $100K of your own money, and keep all your profits, it may be a better deal for you. I am not trying to think of a way to "make money from you" - just commenting on optional business models. As I have mentioned to others on the board, I (we, most of us) would be interested in your progress....to see how your costs stack up to the $50K-$100K in expenses (so generously outlined by Gene Weissman on another thread), and I wish you all the success in the World. I really mean that....you won't be competing with our traders in any way, and we need more (well capitalized) "players" in the game...to keep the "wheels of capitalism" going strong. Good Luck, let us know how things pan out...
1) If you do not want to make money from me, then why are you interested in my business? That makes no sense. I have no problem putting profits in someone's pocket IF their goods or services are of value to me. That's capitalism. But when you suggest you are motivated by altruism that makes me even more skeptical. 2) Those costs (50-100K) are simply not accurate. I've spoken with lawyers and accountants who specialize in these areas, and that is way, way, way too high. Maybe Weissman throws in a pound of cocaine with his consultations, who knows. My suspicion is that he is like the product salesman who casts doubt on brand ABC in the hopes of getting the prospect to buy XYZ instead. Once a fund is set up (at much lower costs than Weissman implies), the administrative costs are essentially fixed: software fees and outsourced accounting fees. Incoming capital pays for itself. It's not easy raising the capital, but it's doable, especially when you already know a number of well connected heavy hitters (I do). While your deal sounds great, that's the problem- the way you present it is too good to be true. I would love to be able to borrow five mil with a hundred grand down, sure, but what could possibly be your motivation to lend it to me? If I were making good use of 5 mil I would be risking at least 50 grand per trade. If I was trading this 5 mil with only a hundred grand down, then my down payment disappears with two losses. Why in your right mind would you take the risk of me walking away and leaving you with a big deficit? The numbers just don't add up, unless you have some serious strings attached. Which, of course, you do, because you are not in business to lend out ridiculously large sums with essentially zero down payment and no profit center. But I repeat: if you think you have a proposal that could interest me, feel free to lay out the details, and lay off the high gloss because I didn't just fall off the turnip truck. If I can't see where the profit for your firm comes from, then I will assume you are trying to sneak it out the back door, because no one runs a trading business out of charity.
You asked if there were any curveballs out there?....how about this?....how well do you know the Nas 100 stocks? Do you know them inside and out? How they react to different events? Do you break them down to just one or two and play them or do you watch em all?...as regards your question, I think the more your universe of equities expands , the greater the likelihood that you will get thrown a curveball...I suggest that you select a chosen few and study them till your blue in the face...so that you know them like the back of your hand...then your less likely to get that curveball...of course if you are already aware of this type of concept...then I did not help you at all...but I hope that I have.
It seems that perhaps a bit of discussion on how the whole program works. When a trader "uses" capital, they do not necessarily "risk" capital per se'. For example, I "use" about $3 million every morning with my Opening Only order strategy, but my risk is quite minimal. We have traders who use much more than that for solid trading strategies and techniques. This is the point that I am trying to make, and I am not attempting to offer anything "too good to be true"....rather I have offered this alternative to dozens of traders who have confidence in their abilities, and are willing to risk some capital as long as they had the ability to "use" many times that amount for their trading. Again, they get to keep the profits.... Just an alternative that has been available for a long time to those who choose to participate. No confrontation, no hype, just our business model.
No offense vinigar but in my humble opinion that is a recipe for disaster. Knowing a bunch of useless fundamental pap only creates the illusion of control, it does not actually help in any significant way. If Greenspan dies or something blows up etc. etc. it will not help to know the inverse correlation of the PE ratio divided by pro forma earnings to the power of X cubed blah blah blah. Far better to let the law of averages work in my favor and study the things that are actually important, than to waste the precious minutes of my day studying analyst reports and earnings projection curves that are not worth the paper they are printed on. 98% of fundamentals are worse than useless.
I currently manage a hedge fund.....Don are you saying if I put 100k on the line you will allow me to trade 5 million? I'm talking about holding positions overnite........even if it was 4 million I think I would jump at it.Please list the conditions you would need to set this up.Remember ,I'm an overnite trader.