haircut charge

Discussion in 'Prop Firms' started by yip1997, Mar 27, 2007.

  1. What is the normal interest charge over haircut? Some said it is 200 bps over broker rate, but Bright charges only 2% a year!
  2. To be clear:

    Hedged positions, within 20% long vs. short $$.

    6 times your equity = Zero haircut.
    6-12 times = 2% per year
    12-18= 4%
    18-30 = 6%

    So, if you go up to 30 times, it averages about 3.6% per year or so.

  3. Maverick74


    Don are you saying I could trade a risk free reversal and make free money? Borrow a million at 2% and earn 5% on the reversal and make a free 30k a month. Your short interest pays close to 5% right? Your lending me money at 2%? If I can put the reversal on for even, that's free money. Something is not right here.

    Edit: Actually I would do the conversion for even and if I only have to pay you 2% to hold it I should be able to get enough credit on it to do it for a credit. The credit is priced off of the 5% carry, not 2%. That means there is something to exploit here either way.
  4. Don,

    Mav is right. I can't imagine someone will borrow you money at below Fed rate.

    What is the catch?
  5. u cant put them positions at BT. Options are a no-no ...unless u have a huge ass acct at BT, your 5 -10 conditions that must be satisfied until u get option priveleges.
  6. Well this is an easy one .... I am sure someone ( or even everyone ) will try and want to BORROW at below Fed Rates .... the question is who is going to LEND it to them :D
  7. Haircut, by definition, is a risk fee. Goldman may charge you 6.50% on $$ used (if needed), and they pay you 5% on your short stock, so you have a 1.5% differential (not bad compared to a lot of places).

    We allow 6 times with no haircut as mentioned.

    That might make a difference in Mav's calculations.

    We have people who pay $2,000-$10,000 in h/c (happily) when they're making $15,000 - $75,000 per month.

    We just had a guy bring over $700K so he can use $15 million, and boy is he ever using it, LOL. Making good money so far.

  8. To correct: All traders may buy up to 25% of their account of options. Traders can have conversions, as Mav said. Traders can have One-to-One long short option positions.

    Just like to keep things "real".

    All the best,

  9. Maverick74


    Don, are you saying there is not a free interest rate arb here? The conversion prices in a 5% carry. There should be 300 bp of free money here. In fact, it's a pseudo interest rate swap. You are swapping a fixed 2% for a floating 5% from Goldman. Where am I wrong here?
  10. Don is lending you at 2%. Did you see it? j/k.

    I want to borrow at that rate, but I don't know the catch. There must be a lot of fine prints in the contract that is not disclosed yet.
    #10     Mar 27, 2007