No offense, but I have to question statements like this. Why's there an issue with scalability? What are you trading where you happen to be grabbing the last contract filled at your price level? As far as legal complexities or cost of setting up a fund... if you have superior performance, then the cost of doing everything else is absolutely trivial. If you have consistently superior performance, you can pay for an army of lawyers and admins for a few hundred basis points every year.... and its mostly OPM paying for those as well.
How much do you have invested in this first main strategy? Is it already greater than $30 million? And if not, *why* not trade other people's money? You haven't given me a compelling reason. Even if all you do is raise $1 million of OPM, you are still making more money than you are currently making. And you always have the option of ejecting outside investors when you reach that level. And, why is it that all of the superior strategies just happen to not be traded by professional managers (being tracked)... while all of the professional managers (being tracked) aren't doing 30% annual consistently?
You can lose 200k just as easy as 100 share trader loses 3k. You can lose it all in one trade and learn nothing! You can lose 3k over 4months and learn a lot. You can gain just as much experience as Trader who lost 50k over four months.. ect ect (u need a risk manager and/or discipline to cut losses per day) It always depends with trading, and the great part is a lot of the best traders came from nothing. Because you learn the same lessons losing a small amount of money, over and over until you figure out how to trade, as someone else with more$$ then you Truth. You can be @ the top 1% of trading (the day traders who trade their own accounts) and make mid to high 6 figure income-to 7 figure income. It is real. Go check the charts and intraday range. It is always there. ______ Es Gold Crude $spy Stocks in play (nyse nasdaq) Trading is real, people make a living doing it. High 6 to 7 figure income is... HARD. Not everyone makes it. People think that it is easy and that is why they fail. The truth is simple.. making 7 figures doing ANYTHING is hard. Making 7 figures puts you at the top 1% of all Americans not just traders!!
I trade small cap stocks. Too many shares pushes can push the price. Even with superior performance it can take time to build up an account to the point an army of lawyers is trivial. When I reach that point the last thing I want to spend my time on is starting a new business. And I certainly wouldn't want to hire a bunch of strangers to do it for me. I trade because I prefer to do things for myself and I don't want to run a business.
Not to speak for him, but I think this question comes up often enough, he probably is already at his strategies maximum potential, because at a certain level it is relatively "easy" to borrow money either through financed over night leverage or profit sharing agreements with your prop firm, with merely 3M or less for colateral Im sure most firms would back him. So in any case, superior traders will never manage OPM until they exhaust all of their resources before managing OPM , and even then, the amount they are able to raise should be several factors more than what they can come up with alone. So even if he could raise 1M more in OPM, that would not motivate him enough to dilute his own share. Assuming you are using a 2% overhead & 20% performance fee, he would need to make roughly 5 times more for his clients just to make what he could have for himself. He would probably look for alternate avenues of funding vs just managing OPM. There are funds that have assets of 30-100 million, but what we are talking about are traders that have superior statististical edges that consistantly makes money and not merely trying to "beat the indexes" as so many mutual funds and private funds do. He greatest edge is likely his small size.
You are acting as if I said that there was a cutoff at $30MM. That is not at all what I said. I said returns start to diminish after $8MM-ish. Anyway, I'm not talking about above average performance of 50% or something. I'm talking return around 400% annual. Any joker can raise a couple million over the course of a couple years to get started. But do the math. With those kinds of returns, even some joker starting with only a couple hundred thousand would be unable to accept the capital by the time it was ready for him. You don't just decide one night to start a fund and then the next month get $10MM handed to you. Even the most aggressive individuals are going to want to see at least a years performance before handing you that kind of cash. By the time you satisfy the track record requirements and they've done their due diligence, you're already at a point where you don't really need them anymore. Why take on the headache for a measly $2MM in carry that you'd have made on your own capital within a few months anyway? Anyway, like I said. The truly superior strats are few; 1 in 1,000 maybe. Only 1 in 10,000 can meet any type of scalability requirement of over $50MM. There is no such thing as a strat that can produce >200% annual over 5 years with starting capital of over $5-10MM.
I don't really want to speak to any individual trader... I'm not questioning anyone's skill, partly because I don't consider it my role to judge anyone, but more importantly because I know nothing about what you're doing. So, let's make clear I'm not talking about Cache Landing or anyone else... but the hypothetical "superior trader" hanging out on EliteTrader. You talk about "diluting his own share" from taking investor funds... where is the dilution? Rather than filling 5 contracts, you now fill 6... if the 6th contract profits, you get a cut. If the 6th contract loses, it doesn't increase your losses. And fundamentally, why is it that the "superior traders" are always anonymous and untracked (over time)? Why aren't there ANY superior traders sufficiently motivated by greed to accept OPM? You can look at the 5-yr rankings as listed by BarclayHedge (which I can't find online... but I do have their magazine). You atlk about benefit of small scale... even for smaller funds between $1m-$10mm in assets, there are pitifully few managers achieving more than 30% in annualized returns with a Sharpe higher than 1.0. Don't get me wrong, I'm sure guys are having great years, now and then. (neke was already mentioned in this thread.) But what are the "superior traders" doing over time? What is their CAGR, max dd, and Sharpe? Why is it that only the anonymous, private superior traders are doing much better than even the best, published fund managers?
I don't get it. You started by claiming that most of the self-proclaimed successful traders on this site are smoke and mirrors unable to trade consistently... but now you state that you have a strategy that returns 400% annual up to $8mm, and presumably still does very well up to $30mm. To put it mildly, I'm very, very, very, very skeptical.
+1 Wasn't hard at all to get a couple hundred thousand in conventional debt at <10% interest a few years back. By the time I was thinking about starting a fund, the math never worked out. OTOH, I might consider starting a fund for my other strat that hits about 30% annual with much better scalability. But such a fund is much more difficult to market. 30% isn't unheard of.
The key number is still Sharpe (or Sortino, if you prefer). If you have proven performance that shows a 1.5 Sharpe over 2-3 years, even with just 15% annualized returns, I speak from personal experience when I say you will have a lot of institutional investor interest. Professional managers able to deliver the above are extremely rare, and they are VERY well rewarded for their efforts.