hedge fund trader vs. daytrader

Discussion in 'Prop Firms' started by flybynight, Nov 2, 2006.

  1. I'll dive in for a second. Lescor is a perfect example of "using" capital vs. "abusing" capital. He takes part in strategies that are lower risk, higher reward, but capital intensive (opening only strategy for example)....to simply buy or sell shares in larger quantities is not what is meant by using liverage. Of course, traders can and will grow into using more shares in most strategies by default when they prove profitable.

    Another example, even in the most basic terms is, comes about when you're trading well...perhaps long 4,000 shares of IBM, and you see a great buy signal in XRX, but don't have enough capital to buy XRX without selling IBM (which may be working well for you at the moment)....but, if you can simply buy XRX without fear of violating your margin requirements, then you can capitalize on both opportunities.

    Lescor?

    Don
     
    #51     Nov 21, 2006
  2. lescor

    lescor

    Think of it this way. Say you have $100,000 of capital to work with. Maybe you're a daytrader with a strategy that ties up $2-300,000 during the day. That lets you put on a few 2 or 3,000 share positions of a typical big cap stock and still be within the 4:1 reg-T margin limits. You play a tight game and keep the losses pretty manageable, maybe a couple thousand on a bad day. So far retail daytrading is working fine for you.

    But what if you put 20,000 in a prop account and used your 20-1 leverage to trade exactly the same way? Same position size and risk you are taking now, except you've freed up $80,000 that you can do something else with. Maybe earn interest income, buy real estate, invest in a business, etc. Either way it's cash that's working for you and producing something that you didn't have before.

    You could also continue to trade your regular style, but apply it to more stocks. Or diversify into other strategies without diverting anything away from what's already working. Instead of basing decisions on how much margin you have, you base it on risk only. You don't have to exit a trade that's working because you found a better one but are out of margin. You don't have to pass up valid trade setups because you don't have the buying power.

    It's all about using your available capital in the most efficient manner.
     
    #52     Nov 21, 2006

  3. If you can prove all that, I'd probably back you myself. You'd start very small, and get raised according to your performance. Profit split would be similar to Schonfeld's prop deal.

    Thing is, you really don't need a backer at all if you can just put up low 5-figures yourself, at 30-1 leverage.
     
    #53     Nov 21, 2006
  4. Maverick74

    Maverick74

    You are looking for backing and your trading edge is what, candlesticks? Come on man, the game has gotten a lot tougher since WLDC. There are very few edges in this game and candlesticks ain't one of them. Very few guys are getting backed these days and the ones that are either A, have a quantifiable edge, or B, have a solid track record and are willing to put their OWN money in the pot as well. Not trying to be rude, just straightforward.
     
    #54     Nov 22, 2006
  5. So is there really any point in having "prop" futures firms, beyond providing capital to those who are relatively "tapped out"/BK etc?
     
    #55     Nov 22, 2006
  6. Maverick74

    Maverick74

    Yes, prop futures firms do serve a purpose. Not so much for the day trading directional guy, although it does help to have unlimited leverage intra-day. The real advantage is on the overnights. Being able to get cross margin treatment on huge spreads you may have on. Being able to trade options against your futures with a small haircut. Or how about this, being able to trade longer term positions and still be able to trade intra-day.

    See here is the rub for a lot of guys. They want to swing trade or hold longer term positions. But that uses up all their capital. So they cannot trade intra-day.

    When you trade prop, you can have longer term positions and still trade all you want intra-day therefore having the best of both worlds.

    So yes, there still are many advantages to trading prop futures.
     
    #56     Nov 22, 2006
  7. See if you can get on board for the beta for SnapSheets; your skill level and the improvements that are available could let you use your person capital and you might make what you did in the past annually, in a quarter.

    Working alone is your best bet. Put that stuff in T bills and use the T bills as margin.

    By compounding the new performance you will be getting (modernizing your stuff), you will be way ahead in a couple of quarters. But you better stick with the sector stuff for a year or so.
     
    #57     Nov 24, 2006