haircut charge

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

  1. Maverick74


    Two to one? That is what Reg T is. I thought Don was charging 2% interest on risk capital? You are saying it's 12%?
    #51     Mar 28, 2007
  2. We're comparing apples to oranges here. The 2% is for holding hedged positions, Total Long and Short within 20%. (They are pretty liberal on the types of positions, as long as the total long and short $ is within 20%, you'll pay the 2%)

    If you are holding a straight directional play, 2:1 is what you get free. After that, you pay 12% for capital.
    #52     Mar 28, 2007
  3. Maverick74


    I think 12% is very steep. Also, you realize that maybe 2% of the trading community are pair traders. So how many people are really going to take advantage of the long/short pair hedge? Don't get me wrong, it's not a bad deal specifically for the guy that is only trading pairs, but for the other 98% of the trading community, it's not applicable to them.
    #53     Mar 28, 2007

  4. If I'm wrong, I'm sure Don will correct me. One point, you have lots of flexibility in structuring your positions. You can be long Gold, and Oil, short Retail and Financials and still fall within their hedging guidlines.
    #54     Mar 29, 2007
  5. OK, the very (very) few "directional" types might pay 1% per month for "naked" positions. Those that keep naked positions are obviously pretty sure that they are making good money on directional swings (to be honest, very few make money with overnight direction) - and if holding 5,000 vs. 1,000 shares makes you 5 times as much, I guess it might be worth that rate for a couple of days or a week.

    Mav says 2% of traders engage in pairs strategies, quite likely true. Most "traders" don't have access to the capital to engage in most workable strategies.

    I can say that more like 30-40% of our people engage in pairs trading, and most do very well.

    Just like the opening only strategy, very few "can" even engage in this technique, but again, most of our traders 'can" so they "do."

    All the best,

    #55     Mar 29, 2007
  6. 2% total interest charge for hedged position!? It is very good. I believe Mav charges a fixed haircut charge for hedged or unhedged position, and the charge is in between 2% and 12%. So it is something like interest rate swap?

    Don, thanks for your info. Now we can compare your cost with Mav's, and see which one is better for our own strategies.
    #56     Mar 29, 2007
  7. Maverick74


    If you are going to pair trade, Bright is definitely the place to be. For all other trading, we offer more leverage for more products and we have better rates on money. I'm sure there are plenty of other firms out there similar to ours, so when I say my firm, I'm not trying to single out my firm. But Don is the man in pairtradingville. He seems to have cornered the market there. Kudos to them.
    #57     Mar 29, 2007
  8. You offer more leverage? With all due respect, I would be very skeptical about that. I have been with several firms over the years, and Bright is the only one that really allows a trader the BP they need when they need it.

    This capital charge really shouldn't be an issue. You have lots of options. Just requires one to be more creative in their approach to the market.

    As I've said, one can construct the portfolio to take advantage of the reduced capital charges by making some sector plays on stocks that traditionally move in opposite directions.

    Or, If one wants to get long, they can get long the Higher beta stocks, short the Spy and theoretically get long as much as they want to. Or do just the opposite if you have a short bias.

    If you want to play the EOY trades, then you just use SPY to offset positions, get the reduced capital charges, and make the difference in spread.

    Also....don't forget getting paid for short stock. You do get paid 4% or so.

    In the end, you have lots of options and that 1% per month is not a deal breaker IMO. Be sure to consider all of your options before making a decision.
    #58     Mar 29, 2007
  9. Well said. Trading is about effective use of capital via innovation. You are the very few who understands it. You probably are or will be among the top 5% traders in Bright.
    #59     Mar 29, 2007
  10. i am famliar with a unique non-JBO leverage product with a reputable bank which allows for naked long @ fed funds + 3% 10:1 leverage overnight, 40:1 intraday. Anyone interested, PM me. Hedged with short pair, the spread is 3.5%. total: 3.5% financing for hedged, 8.25% for naked ov. 0% additional risk haircut.

    #60     Mar 29, 2007