Leverage in the Prop Model

Discussion in 'Prop Firms' started by bentedges, Oct 21, 2008.

  1. Hello all.

    A question for Don, as well as all others at other firms:

    With the increased volatility over the past few months, have you scaled back on the intraday and overnight capital that traders are allowed to use?

    For those at other firms - what have you seen? Are they 'dialing it down' with the amount of capital available to you?

    Thanks in advance for your insight.
  2. We modify risk parameters based on market conditions somewhat, yes (on naked positions)...but no change on 30 to one hedged positions.


  3. Thanks for your reply, Don.

    When you say 30:1 on hedged positions, is that overnight, or intraday?

    Others in the forum, what have you seen?

    Furthermore, how are you handling the volatility personally? Are you scaling back position sizes? Has the increased volatility created money-making opportunities, or has it become too difficult to make "normal" bets? What have profitability levels been in this 'new' environment?

  4. lescor


    Firm-wide margin changes are probably unique to each outfit and how they manage things. IB recently implemented reduced margins for everyone. Others have made no changes at all. The serious $$$ risk, the big hitters with many millions in play, their risk is going to be determined on a case by case basis as the firm knows them and how they trade and they will probably have a good level of equity in their account anyway.

    I've personally reduced share size for most strategies, partly because everything moves more so there is more $ risk. But also there are more opportunities, so I am likely to have more positions on at a time. Profitability the last 8 weeks has been through the roof. The greatest period of trading in a generation, eclipsing everything I or anyone I've talked to has experienced.

  5. Thanks for your insight, Lescor. And good point on each firm, and individuals within each firm, having varying levels of capital available.

    I'm just trying to wrap my arms around it as I look at the profession and different firms.

    Anyone else care to add their two cents?

  6. 30 to one is basically for overnights, but at the same time, we like the intraday to not get too much higher at this high of VIX, etc.

    Our traders have had a couple of really good months lately. The "normal bets" are a bit more cautious, but seem to be paying the same or higher rewards (like opening envelopes, MOC share sizes, etc.).

    And, as always, Lescor tells it like it is.