Competing Objectives...Who Wins?

Discussion in 'Prop Firms' started by limitdown, Apr 23, 2003.

  1. Competing Objectives...Who wins?

    Disclaimer.. This is not an attack against any firm, business model or entity, but represents real issues that traders continue to face in pursuit of their goals

    Self interest is what drives an independent trader, especially at the leveraged shops....That's pretty much why most answer the dream to make $200k, $400k or more yearly, based on some's claims of success that can be attained through their trading methods, software platforms or the opportunities that they provide by trading through their firm.

    Pairs trading, scalping, swing trading, tape reading, dynamic hedging without stop orders and other methods are touted, flaunted, called "Snake Oil", and other various terms.

    The hard facts are almost impossible to confirm, however from a non-scientific test, namely asking who's still in the trading room from 3months ago, 6months ago, 12months ago yields dismal results. While this is a business and the branch offices of these firms offer an opportunity to magnify ones trading capital or be sponsored with capital, against a hope that one can learn, earn, repay and derive a salary, are in direct competition with the firms' objectives .

    Revenue per passenger mile is what the airlines call a paid airline seat with passenger flown one mile. Its how they correlate productivity, profitability and efficiency.

    Revenue per trader's deskchair is how the leveraged business attempts to project profitability through commission and services earnings. Hence, in order for each traders' seat to yield, say $10,000 monthly, one would have to charge $.01 per share and have that trader average above 1,000,000 shares per month. Other services would be software or desk fees of $200, $350, $400 or more per month; bullet costs for married puts; futures/options ticket charges and other service offerings.

    Traders who sit in those seats and post their grub stakes risk:
    • their principal deposits and subsequent deposits
    • commutation costs, or market data vendor costs
    • software and laptop hardware expenses
    • monthly living expenses while learning
    • slippage and market risk losses, etc.

    In order to bridge those competing objectives and create an opportunity for traders, sales pitches include
    • training classes; which usually are insufficient based on the failure rates
    • reduced fees for an initial month or two
    • initially competitive bidding on rates, fees, services and support
    • verbal boasts or verbal silence regarding success, results achieved or otherwise (there's probably a legal reason for silence on these issues)

    While no one can really be responsible for unfavorable market conditions of the last 2+ years, the sheer number of traders who've attained their licenses, taken their turn at the table and lost their chairs has produced some interesting results
    • some successful traders who remain profitable
    • some successful traders, early on, who are mildly profitable in today's markets
    • many failed traders no longer at their desks, whether remote or in-house, who no longer have their grub stakes
    • many closed or bankrupt trading operations
    • many operations no longer in the leveraged business
    • many merged operations being downsized, merged, sold or otherwise changed

    While those results seem to be all across the gambit and it reflects market realities of risk, what it also suggests is that
    • the probability of success is no longer related to just training and one's abilities based on the opportunity provided
    • market efficiencies and software advantages are not as significant as previously
    • wholesale success is not as attainable as previously
    . So where is the middle ground?

    Is it possible to:
    • find the happy compromise of individual trader's success along withthe trading firm's success?
    • consistency in meeting ones fixed costs during/after training while meeting the trading firm's minimum revenue goals?
    • trading in a manner that is profitable for the trader instead of just writing tickets while meeting the trading firm's minimum revenue goals?
    • continuing business as practiced and hoping for more new traders coming through the door?
  2. Well said!
  3. I think successful trading firms realize that they will make a ton of cash if they have a ton of successful traders. There have been many firms after the fast buck. They do not train traders. They think they made a lot of money.

    I see so many existing firms that have the opportunity to become big. Really big. They risk blowing it because they have no real vision.

    Firm's like Schonfeld , First NY, Susq, are monsters because they focus on making good traders.

    Do you want 200 guys churning to death for 3-6months at a time? Or do you want 2000 guys putting $ in the firm's pocket for the next 10 years?

    To paraphrase Jack Welsh, "I'd rather make 5% on a billion than 10% on a million."
  4. wahoo


    you mention the monsters, I am about to interview at an LLC under Schonfeld (since schonfeld is not hiring newbies until fall earliest according to what they say), u think the same attitude tracks down to the LLC? From what I understand, this LLC was bought by schonfeld about 2 years ago. Thanks!
  5. careful with those guys, their non disclosure even restricts participation on these boards, from what I've heard, and they're petty like that
  6. wahoo


    a tight lipped group, no wonder not much shows up on a search query here. thanks limitdown.
  7. Fantastic post, LS.

    One thing that keeps creeping in the back of my mind is the phrase "professionals sell hope."

    During the bubble a couple of years ago, that phrase meant that the public was buying crap IPOs from Wall Street.

    Nowadays, I keep thinking over and over again that "professionals selling hope" means selling the daytrader lifestyle, and that those "professionals" are no longer investment bankers, but rather the software vendors, data vendors, book writers, and web sites like which sell the lifestyle of being a daytrader, when the reality is that if being a trader were so profitable, most (and no Brandon, not all :D ) of these people would be trading their setups and not selling them.
  8. when you see posts from guys that boast that they trade 2 million shares a month and enjoy being a ticket writing machine you have to wonder whether those statements are true or meant to suggest that we should all want to aspire to that level.

    As if aspiring to that level of frantic high volume trading is admirable.

    Let's take that premise apart:
    • 22 trading / business days on average each month
    • avoid the 3x witch expiry thursday/friday/monday leaving you with 18 days
    • averaging 100,000 shares per day requires some effort
    • creates $1,000 minimum comm revenue per average day

    Let's stop right there. That's exactly what those statements produce commission revenue .

    No where in those discussions, especially when you press them for details do they boast about their profitability or achievement in a similar manner.

    That's the flaw in that reasoning, whose objective is being served by that trader?
  9. The FRIMS are benefitting from those type of traders. And there are many firms (LLC's, prop groups) in existence now which cater and cultivate those types of traders. There are plenty of traders in that exact situation: Writing tons of tickets producing significant commission and override profits for the firm, all the meantime, taking all the market risk themselves. Most of these traders maybe gross some profits but pay away 3/4 to commissions! Plenty of firms LOVE these traders. It's the FIRM's objective that is being served.

    bungrider, great post.
  10. Mecro


    Good post


    what is your main point?
    #10     Apr 23, 2003