Hi guys, I actually had a question about the individual trader or even prop trader compared to a trader working at Goldman sach or Deutsche bank. I am not taking about money vise comparison. I am concerned about information wise comparison. Do these traders from Goldman sach have any information/news/teaching method advantage over indiviudal trader? if they do, then it is relatively useless for us traders, because they have a huge info advantage over us. Information is power...they can react to the market so much better
Not all institutional traders have an advantage over others. Only those who have access and see client order flows. They also have access to more sophisticated macro and fundamental analysis. However, neither of these should intimidate non-institutional traders. They are in general more bold, versatile and sharper than those who completely dependent on their institutional clients.
The "trader" at Goldman, etc a broad term, b/c many are salesman who wine and dine clients and simply handle order flow, and really dont trade it, just execute orders the same way a monkey could.. The REAL traders are quants, PHD's etc who are usaing alogrithms, but they arent wasting their time with quantities most fo us traders would be trading.. They are moving huge amounts, so their strats arent as short term I believe... In other words, the "day trader" strat is much smaller doesnt conflict directly with what they do.
a) Flow traders gets their edge from their big clients and market making bid-ask spread. Most flow traders also use levels and charts to make market. b) Successful Institutional Prop Traders thrive on the solid connection with their brokers who see the flow and can hint them occasionally to get more prop flow. c) Most of Quants are not traders. They are nerds helping the traders to identify mispricing and mean reversion opportunities. There are also statistical arbitrage Quants who build high-frequency blockboxes to take advantage of order book temporal imbalances. Some of them build strategies for index arbitrage using panel regression technique. The later may require trading 100 of securities within seconds and flipping them in short time. Bottom line, the solo traders should not care about what the institutional guys do, but rather develop a set-up to read price action and direction of the major order flow currently in control of the market. There are many articles in quantitative trading and stat arb strategies if one was interested. But, I think our time is better spent focusing on improving our own methodologies. There are more number of ways than the number of traders to find trading opportunities.
I could be wrong, but this the "old" model of doing things.. Since more and more markets are electronic, "flow" is often disguised.. In other words, the picture isnt as clear anymore.. The "buyside" (hedge funds, mutual funds, pensions, etc) find it cheaper to get a guaranteed VWAP, or automate trading into a cheap black box.. Much cheaper than paying a broker to do it. Which is why alot of firm traders have lost/are losing their jobs. They offer little to no value anymore. And market makers (from an equity standpoint) for all intents and purposes dont exist anymore. exactly.
Thanks for the update guys. But I mean fundamental news on certain companies, or economic indicators, etc...can these trader acquire such news faster or more efficently then we do and also I know a lot of traders need computer skills...is that for making better indicators? and if they do...is that an advantage?
I think there have been some decent points made here, but I want to elaborate on some things: 1. Like others said, the access to customer 'paper' or order flow (by "customer" I mean hedge funds, finance savvy wealthy individuals, major prop firms, etc.) is highly valuable. Down on the trading floor we see the big client-backed firms like the bulge brackets and Susquehanna making deeper and tighter markets for their own clients, as a result of both the commissions they receive (even if the market maker isn't the one who benefits, the firm does), and the information. You sounded like you weren't so much wondering how that plays a role, but IT DOES, hugely. 2. As some refuted, there are definitely simply 'prop' traders at the big institutions, and the money is not all being moved by 'black box' esque trading. Read 'Goldman Sachs: The Culture of Success' and you will learn a lot about bulge bracket prop trading. 3. With respect to the access to information, I would agree with those who said that 'anyone can get Bloomberg' and the like; I do not believe that major banks get their key information/headlines any faster than a quality small firm with access to top-notch news-subscriptions such as Bloom, Reuters, etc. One thing I'd say sets any institution (including a Susquehanna, and the top hedge funds such as SAC, Fortris, Citadel, Renaissance, Tudor, etc.) is their extensive research departments. Now, I'm not saying that Merrill tips off their traders to upcoming analyst upgrades, downgrades, etc.--on the contrary, I'd say the banks are subjected to more compliance than anyone, and they tow the line fairly well when there are no shades of gray--such as the case of insider information. But the banks produce TONS of in-house proprietary research that they share with only their closest and best clients (like those monstrous hedge funds). I read in a newspaper article some time ago that one SAC trader called the Goldman analyst for Take Two (TTWO, of which SAC at least was a minority shareholder) 24 times in a single day. Finally, what you have to remember about the major institutions is they have the best of everything. Take Citadel for example. They are beating EVERYONE in the listed options business. I was just talking with one of my friends about it, and he was perplexed at how they could pick pocket even OTHER market makers, who should be part of the pick pocketers. My hypothesis is that Citadel has the top programmers, enabled with the fastest hardware, to make the best software, for the most prized traders, who have access to some of the most world-class research, and are able to trade with the least latency. It's just like the NY Yankees. They pay their players the most, which makes them the best, which makes them more money, which makes them able to pay more players more (I am NOT a Yankees fan though, LOL). So does the prop guy stand a chance? Yes. The good news is, we have a lot more freedom than the institutional trader. I've heard stories where one trader is forced to make a LOSING trade or a trade without edge, for the firm to offset risk from another trader's position. I've also heard Susquehanna stories that a Chicago market maker will get a call from their Philly headquarters that a client has a 1000 lot to order, and for him to do at all. Most market makers would ask for only a sliver of such a block order, but the culture of accommodating the client, even at the risk of an individual trader's book, is highly embedded. So be cheery that you can come in when you want, wear blue jeans, and use YOUR OWN ideas to drive profits; you're hand is not forced. Hope this helps to answer some of your questions. dr_sean
Doing trading to have high performance doesn't require special news information nor designing special and better indicators. By accident, I found I was simulating being an insider trader. The SEC informed my broker and me as a consequence of their brokerage account monitoring intitiative. This accidental kind of event was looked at by the SEC as a sort of profiling event result. In the sense of timing, I was taking positions (position trading) before significant price rises in stocks. One simple factor was that I was trading several accounts simultaneously and the accounts were not small, relatively speaking. In terms of your interests, news and computer analysis techniques, I was using neither and the SEC was using computer analysis techniques since they had the right to do that. Naturally, I requested that my brokers lawyers provide the SEC computer programs to me since they, apparently, were comparing my accounts against the market movement. the brokerage lawyers were very insistent on not bringing up the request. The SEC did ultimately learn that they were mistaken that I was acting on a kind of information that is considered illegal. What I do is legal and just looks like "insider trading" to people who profile insider trading timing. Your quest is in two areas that never interested me since I do trading ahead of both of these techniques. Today, since additional data is available, what I do has been made into an ATS approach, but, again, it is not indicator oriented strickly speaking. Institutional trading does not make much money as time passes. Policies of the organizations so far mentioned in this thread preclude making money at a high money velocity. Because of their size they do make some money on the huge capital that they have. What I was mistakenly cited for was doing turns in 6 to 8 days (today it's faster) for half of the run (where I use a filter of 20% minumum run). Anyone can do it manually as a retail trader. I am an amateur by NFA and other definitions. I did not seek to have a "insider trader" profile; it just turns out that way. Now trading is electronic but long ago it ws done by phone, etc. At that time, brokerage houses found what I did to be very suspicious especially after I was cited. With electronic trading, I believe I am now beneath the radar. you will find that what makes news is known before the news is reported as more or less a near term historical record of "what has happened". News, with regard to indexes, is the same. It is the most fun trading of all and money is made at very high velocities by the simple fact that those who use limit orders get a royal screwing and those who take the other side of these people who take high risk trades make tons of money at a high velocity. You can look up "cascading" and draw the connection to "news". At one time (telephone era) it was possible to catch three cascades on the DJXX contracts on FOMC announcements where each cascade was up to 300 points on the DJXX contract. This would happen in a little over an hour total time. What I tried to do was suggest to you how to look at what the market offers and how what you need to know is available to you (retail and amateur) as leading indicators of price and "news". I recognize this stuff may have no interest for you.