Don, when you get some free time please redo your math and post again, or I will have to cite you for misinformation.
I copped to trading and typing, let me correct. The $5,000 would be $50,000 in this example, so the holding time frame would come into play much sooner....3 months would be about a break even... (sorry, I don't try to mislead, even though I get accused of it... but I was under Sniper Fire at the time while chasing after gun toting religious nuts in Pennsylvania, LOL). The main points still stand...we have traders who do pay a lot in haircut, not $50K per month or anything, but maybe $5K-$10K, and they don't mind when it allows them to make an additional $50K or so per month. Now, at 50% profit split, well, you see my point. And since very few simply "buy and hold" forever, active trader time frames are rarely more than a couple of months. Thanks for pointing out my error....back to the snipers now (actually GE, LOL). Don Additional edit regarding "haircut" Most are hedged, at least somewhat, long vs. short. They get 12 times equity overnight for 1% per Year, up to 30 times for about 3.75% per Year...and double equity for naked positions free.
Don- I'm confused on what a haircut is. Normally in finance, a haircut is a percentage subtracted from the par value assets used as collateral. The size of the haircut reflects the perceived risk associated with holding the assets. For example, Treasury bills (which are seen as fairly safe) might have a haircut of 1%, while for a stock option (which are seen as less safe) the haircut might be as high as 30%. What do you mean by a 1% per month haircut, and is this only charged on the net position? In other words, if someone was long $2 million and also short $2 million overnight in paired trades, would there be any haircut?
These threads will help explain. http://elitetrader.com/vb/showthread.php?s=&threadid=1865&highlight=haircut http://www.elitetrader.com/vb/showthread.php?s=&threadid=90662&highlight=interest
Haircut is basically a risk fee for excessive use of overnight capital. However, for hedged positions our traders can keep 6 times their equtiy overnight for free, and 12 times their equity for 1% per year. We try to slow guys down at around 30 times equity use overnight. Don