Just a point of curiosity. Some traders have posted that Harbor blew up recently. I am curious as to the when and why. Was it after that article in Worth?? Hmmmmmmm. Thanks. As always this is a great site.
They had the combination of 10-1 leverage + bad risk management. The rumor is a few traders held large positions overnight and blew the firm out with a $12mil loss. Since it was an "pro firm" you know where the money is coming from.
The story I heard was a trader got short heavily in RMBS during the bull market about 6000 shares and held overnight as it went against him for about 7 or 8 days. At the exact same time he got long a stock at 18 and as it started to go down he would buy another 100,000 shares each days so he soon was long about 800,000 shares when it was about 8 bucks. NO PROFESSIONAL FIRM would ever allow a position like that and especially overnight. In fact daytrading.net split off from Harbour Securities because some of the traders saw how management was handling risk. The SEC has now required a million just to open a firm and the clearing firms require over 1.5 million. Rtharp
robert, "NO PROFESSIONAL FIRM would ever allow a position like that and especially overnight. In fact Daytrading.net split off from Harbour Securities because some of the traders saw how management was handling risk." Futures Firms also go out of business - you know why ? because of greed for commissions. Many FCM's in Chicago had extended themselves into European trading and had "traders" trade the bund in Germany or trade stuff in London. So it can happen in any business. Thinking that now they are better managed or it's more regulations, is silly. Firms will always go out becuse of greed and stupidity. With leverage it can and will happen again. Now I am not saying that it will happen to Eccho. I am saying it can. Just watch them when they start trading futures(I am told they will) and get a big customer in Europe. ... or in Asia :eek:
I heard that it was the owner of the firm that may have caused the firm to go down. The main point is that you need KNOW how much money the firm has!! Otherwise, you may come in one day with nothing. There are only a few solid places where the owners have depoisted several million dollars to avoid messes like harbor. Before you trade at any firm, do your homework and don't get scammed.
It wasn't the owner of the firm that did it, but the story goes that the owner of the firm encouraged everyone to trade larger and take more risk. One of the traders then put on the massive 600,000 share (or whatever it was, something like that) position that went completely against him. By the way, to answer the question of the first post, I believe it was almost 3 years ago now. If anyone knows whatever happened to the guys that used to run the place, I would be curious to know where they are now, if they are completely out of the business or if they trade anywhere? The lesson we all learned is that the most important questions to ask a professional firm is: A-Do they encourage or discourage risk? B-What risk management controls do they have in place? The biggest problem with Harbor was that their software let the trade happen in the first place. If that same trader would have been at a firm that had hard-locks on the software, his orders would have been rejected before they hit the exchange, and the word Harbor would not have the infamous story attached to it. From what I have heard, they were one of the firms that could not monitor risk "real-time", that was the biggest change that the rest of the firms made after their debacle. As all traders who have been with these pro firms since that time can attest, the industry has come a long way since then.
The biggest debilitating threat to a prop shop is position exposure. I know of no 10-1 or 20-1 firm currently in existance that does no closely monitor risk intraday and pre-overnight. Although, I will say that some firms monitor better than others. In fact, I have seen people lose $30,000+ in one day with only $30,000 or so in their accounts. Allowing that to happen to a trader seems inexcusable to me but fortunately the firm I'm referring to has "10 million" in capital to pad trader losses--so this type of thing isn't that big of an issue they say.
Steve it isn't an issue for the firm short term but long term it would work better for them to keep as many traders as possible. ___________________________________________________________________________________________________ I keep hearing how much money is at the firm is how to protect yourself. That isn't true. It's how much risk and how they control it. I never want to hear words I've heard from other traders at other professional firms. "Well it's gone against me...what should I do...??" And the manager at the firm answers" "Buy more it's a spread it can only go against you so much." There were quite a few hedge funds that were doing risk arbitrage back in the 70's with quite a few over had 100 million that are no longer in business. It is about controling risk not how much money. If that was the case of about how much than we must conclude that none of the firms are safe. It's about Risk control. I've read posts here that have talked about other firms allowing as many open positions as the trader wants...??? Are you kidding me? What if There was an announcement of war?? Greenspan announced a rate cut of massive size? What if.....? I am always prepared for the worse? My trading firm better be doing the same thing. You have to have limits on the risk. ________________________________________________________________________________________________ Food for thought. The electricty companies here in Californina about 2 years ago had a profit of almost a billion (I might be underestimating I can't remember) The CEO was one of the top 3 executives paid in California. They work with huge #'s though and when a lot more money went out than in they soon are declaring bankruptcy. Yes they had a massive profit and huge capital reserves but it means nothing if they have huges losses. It will mean nothing of how much a firm has if they have huge losses that are more than the firm has. More traders can easily mean more losses. IT IS ALL ABOUT RISK CONTROL. rtharp
You never know when you will need a hand. Today's competitors are tomorrows partners, especially when the overall bigger picture of the "industry" vs. "the company" is looked at. Simply put, its far better that there be a negotiated truce or resolution to one's firm than allowing the regulators to come in and impose their industry controls, and expecting (waiting upon) SIPC or the other Insurance policies to reimburse LLC members and customer accounts. I would like to know the link to that Worth article on Harbor Securities, or know the article/publish date. Recently, a number of the members stated that OnSite Trading packaged and shipped their customer and LLC accounts over to AB Watley. Whether the actual details of exhaustion, bad markets, fewer newbies vs. washed-out accounts or whatever were the reasons; a reasonable resolution to protect the customer accounts was reached instead of the SIPC or other Insurance mechanisms was used. I applaud them for their professionalism and smooth resolution to what no doubt was a tremendous blow to their ego and efforts to establish a world class operation. Just imagine the same feeling that the trader with the $30k loss in his $30k account felt when he came in, riding the emotional self congradulatory wave of "I just know I'm right", only to see his account position register FULL RED. Imagine that on the scale of over $100m in accounts, all registering FULL RED. Risk Mgmt is not only to be held accountable on the FIRM level, and the Sub-Account level, but also on the individual account level (irrespective of whether these accounts are joint, LLC, individual, corporate or whatever). I am in specific reference to usage of Stop-Limit orders, Stop orders, Buy-Stop orders and Trailing Stop orders. Whether we are discussing NYSE, ASE or NASDAQ equities, usage of these 4 protective orders or some combination of them accomplish the same objective we've been discussing, namely RISK MANAGEMENT. I know, that I've seen some pretty broad sholdered traders and firms make laudatory claims that "Stops are for public accounts, Professionals don't use them". In these markets, with the whipsaws, driving without seatbelts, harnesses and airbags on sliding ice conditions is fool hardy. Trading without some means of backside protection is also fool hardy. There are a number of discussion threads that lambast IB for their improper execution of risk-managing orders. I applaud IB, CyberX2 and whomever provides their actual end-customer, the trader, with these 4 esential vehicles. Those firms and software packages that don't should continue to take due notice that they are losing their most valuable asset, namely the end-customer/trader. There are threads that lambast Spear Leads Kellog for their Redi+ software's inability to implement some form of NASD risk managing order procedures. There are threads that boldly go where no successful trader ever wants to remember, namely uncontrolled losing positions. Recall today and yesterday's DowJones action where we saw more whipsaws on that DJI average, than a can of spam would see in the blender. But I'll simply restate that RM (risk management) needs to occur in and at all levels of the trade, and trades entry process, both on the individual level and at the firm level.