Chicago Futures Trader Charged with Causing $13 Million in Losses from Fraudulent Trading Scheme

Discussion in 'Financial Futures' started by ajacobson, Jan 23, 2018.

  1. bone

    bone ET Sponsor

    Having MUCH experience with Chicago and to some extent NYC proprietary futures trading firms, I can say in terms of my own personal observations that I have never seen a trader get paid out anything close to his or her full share on MtoM, but I sure as hell have seen traders get instantly fired and escorted out of a building on MtoM. (I was enlisted by management to sort through and liquidate a few of these burning shit piles on occasion). It's part of the business.

    I have seen some traders, myself included, get very healthy draws based upon protracted performance and positive equity. Every firm that I was ever at had pretty tight risk controls and sharp Risk Managers. Most did not like options trading unless there was a large element of market making or delta neutral spread arbitrage involved. Again, my own observations - YMMV.
     
    #21     Jan 30, 2018
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  2. traderjo

    traderjo

    but if they are paid on a paper profita and eventual it is a loss! it does not make sense
    since payment is real realized performance based is it not?
     
    #22     Jan 30, 2018
  3. newwurldmn

    newwurldmn

    How do they account for the fact that you will constantly have realized and unrealized pnl as you are recycle risk? I was always paid on year end pnl regardless of what was realized or unrealized.
     
    #23     Jan 30, 2018
  4. bone

    bone ET Sponsor

    You were a lucky man, then. Every firm I was ever with only paid out my FULL SPLIT SHARE on realized (closed) positions.
     
    #24     Jan 30, 2018
  5. newwurldmn

    newwurldmn

    I worked for a bank - and there was no real concept of realized pnl. If you were running a vol book, you were always buying and selling options to maintain a certain risk profile. Only when you left the firm would your book pnl be fully realized.
     
    #25     Jan 30, 2018
  6. bone

    bone ET Sponsor

    Yeah that explains everything.
     
    #26     Jan 30, 2018
  7. newwurldmn

    newwurldmn

    How would a guy in my example get paid when he's constantly moving his risk around?
     
    #27     Jan 30, 2018
  8. bone

    bone ET Sponsor

    Well, a registered CME/ICE prop firm (futures and swaps) is going to give you a legitimate 50% of your net trading profits. My own contract specified $12M daily margin with $2M MaxDD. I had a contract that called for me to be paid a ratio'ed draw on unrealized profits. You need to understand that a firm like DRW or Ronin for example have a different business model than a bank desk. Various times I ran a desk and paid employees and expenses out of my own draw. I could also buy into a greater payout with the option of getting out of prop and into a HF by putting up my own $$.
     
    #28     Jan 30, 2018
  9. newwurldmn

    newwurldmn

    The ronin vol guys had to fully shut down their book to get paid?
     
    #29     Jan 30, 2018
  10. bone

    bone ET Sponsor

    No contractually there's an agreed upon formula. Same with DRW. Trader and firm agrees to hold some equity in reserve to account for DD typically - that's my experience, YMMV.

    One DRW energy swaps options book trader I spoke to had to take a partnership interest in lieu of a portion of his discretionary payout.

    Ronin and DRW have alot more $$ and pay out differently than many other prop futures firms.

    Hey, no bank desk is going to pay out 45-50% of your profits so yeah there's some mutual risk accommodation. It's fair all things considered.
     
    Last edited: Jan 30, 2018
    #30     Jan 30, 2018