It's pretty rare that they keep everything for a whole month. Each trader/group calculates all this within their business plan. Some may pay $3,000- $5,000, but don't care if they are making 4 or 5 times that amount. Cost of carry is a natural cost of doing business, and because we can allow them the use of the money (where some firms can't/won't/ or don't) they tend to be more comfortable. Most tend to slow down at around 30:1 (which is about 3.5% per year, plus a 1.75% interest differential). If they feel the "need" to hold more, then they have the option (with permission and a plan, of course). All the best, Don
You said "Our traders, in general, use well over a $million with $20K or so of their own money" which is at least 50:1 leverage. And on many other posts on other threads you have said that your traders deposit $15k to use over $1million. And that you don't think a trader can make a living trading if they are using less than a $million. Now you are backing away from that and saying they only use 30:1 on $20k deposit which is only $600k, or half of the more than $1million you say your traders need to use in order to make a living? If a trader uses 50:1 like you have said, I have to imagine the haircut you charge would increase above the 30:1 rate? So under the previously stated situation the trader with a $20k deposit would be paying more than $10k a month just in interest? What would the haircut be at for your example of 50:1?
Our traders "use" maybe $3 or $4 million doing opening only orders and intraday trading at times. I also said "tend to slow down" at around 30:1, some do, some like to carry more for a day or two at times. If someone chooses to carry over 30:1 then their haircut rate does go up for that time period. Our traders are pretty smart, and even though they "can" use the money when necessary, they only do so with a plan (for the most part, LOL). They are all aware of the costs of doing business, and make their trading decisions accordingly. Sometimes it's not even the multiple factor or ratio, it's simply the amount their trading plan calls for. For example, we have people "using" $25 million overnight with perhaps $500K - $700K or so in their accounts. Our traders have access to the capital when they want it, that's all I'm saying. All the best, Don
Although you so generously told us more about what Bright does do or offer, you didn't answer any of my questions? "If a trader uses 50:1 like you have said, I have to imagine the haircut you charge would increase above the 30:1 rate? So under the previously stated situation the trader with a $20k deposit would be paying more than $10k a month just in interest? What would the haircut be at for your example of 50:1?"
I've posted haircut rates before, but here goes....again, simply an optional cost of doing business vs. not having that option. Hedged (within 20% long vs. short $$). 6 times equity = no haircut 6-12 times = 2% per year 12-18 times = 4% per year 18-30 times = 6% per year. Above 30 times, or for naked balance 1% per month (this is obviously why traders "tend to slow down at 30 to 1). And, if you think about it, the guy who starts with $20k, and is doing well, will likely keep more $$ in the account, collecting interest to reduce or eliminate these fees. I never suggest that a brand new trader with only $20K go over 30 to 1...as in any business, one should grow into all this with eyes wide open. Don
for what it is worth i have never had a problem with capital usage or buying power ever since i began trading... i get as much buying power as i need due to the fact i have a reason and a plan for its use... in any business...and trading is a business...a plan clearly discussed with your bankers or in our case our clearing firms...will result in a situation where a trader is given what they need to be successful... all this whining about 20 to 1 or 50 to 1 is insane... people...grow up and learn that communication and a relationship are keys to being in charge of your own destiny... if you can't discuss your trading style or describe your objectives then who in their right mind would extend you credit... get a mitt and get in the game kids...communicate...don't whine and post on trading sites...grow up...
So these Bright traders who deposit $20k and use over a $miilion to engage in pairs and risk arb. strategies will pay about $15k a month in interest and commissions? And if a trader's P&L is flat at the end of the month he is pretty much done trading at Bright because his account went from $20k to $5k(below the $15k needed to trade at bright) after he paid $15k to Bright in interest and commissions? Now I understand why a $5k deposit isn't enough for a trader to trade at Bright.
Mr. Chiguy. All I saying is when I put $50k down I do not want to be limited to just 10:1. One HUGE benefit of Prop is good leverage. Other than commish rate what traders leverage is will be most important to him. AND WHY does trader have to negotiate constantly with Prop owner? If trader does good research,finds a potential winning position, trader should be able to move into that position without constantly negotiating for additional leverage. RETAIL trader signs contract: Know trades are X$ per trade, margin rate at this rate, borrowing amount is this much. No need to negotiate. Like Mav say maybe everyone should be offered a standard deal. Every one gets this rate per share for this volume. Everyone trader understands what you get heretics way no one is left wondering is this a good deal or bad deal. Maybe one trader is great at trading and is bad negotiator and gets bad deal. While other trader does crazy trading but is an awesome negotiator and gets great deal. Crazy trader should be out there selling instead of trading maybe.
I think I should let someone else answer this, because it makes no sense. (Chiguy? Mav? Lescor?- all the real traders, regardless where they trade). New traders don't trade zillions of shares, nor do they pay a lot of (or any in most cases) interest or haircut. I would hope that all my new traders pay enough attention to their business, their "trading business" to not do that. It's like saying that everyone with an IB account decides to blow it all in one month, which is simply ridiculous. Trading is a business, and everyone should treat it as such. Don
Good points. We try to tailor the "deals" to each trader's needs, based on their business plan, intended capital usage, overall risk, history, and yes, even loyalty plays a big part. A guy who never takes home positions vs. a guy who wants to use $20 million has different business points to address. Some are "backing" other traders, some help with mentoring, some need "hand holding" (some more than others, LOL).... Think of your trading business as simply that, a business. Every year I have to negotiate with Goldman Sachs (no easy task, no matter who you are or how much money you're generating for them)....and my brother and I try have tried very hard over the last 15 years or so, to come up with "deals" that best suit our traders (whether it's "caps" on shares or lowered pricing at lower break points, etc.). We do that negotiating in a very civil manner, sometimes we "win" sometimes we don't - but we have the option of changing firms...which has never proven to be a good idea in the long run. Mav, Chiguy, and I may disagree on some points, but we all respect each other and have no "hidden agenda" here...Mav wants his guys to make money, as do I, and Chiguy is loyal to his firm, has a good deal and a good working relationship.... I have "returnees" from most of the primary firms...we all have a pretty good idea what is going on in the industry. Both of these gentlemen would be more than welcome at Bright Trading, as I would like to think, if it ever came to pass, that I would be welcome at their organizations. I wish I had this much disclosure back when I was paying 6 cents per share (yes 6 cents) "back in the day"...LOL. All the best, Don