Obtaining Trading Capital

Discussion in 'Professional Trading' started by funky, Jan 8, 2005.

  1. lescor

    lescor

    A prop place like Echotrade, Bright, Assent, etc makes most of their money on commissions. If you put up enough capital, you will keep 100% of your gains and be responsible for 100% of your losses. It's basically a retail account on steroids. You can do whatever you want and don't have to answer to anyone. If you want to use some serious overnight leverage, then you will have to convince or prove to a few people over a couple of months that your system is stable and that you aren't at risk of blowing through all your capital and then eating into theirs. 20:1 leverage on a system like yours wouldn't be that uncommon. I've held as many as 70 positions for weeks and months at a time leveraged 20, 30 or 40:1.

    Haircut is like a risk or leverage premium that the firm will charge you. Prop firms cannot be leveraged more than 6.7:1 on all their overnight positions, firm wide. If you are over that amount, they will usually charge you haircut. For example, say you have $50k in your account and are holding $1M in positions. 50,000 * 6.7 = $335,000. 1M - 335k = $665k. If your haircut rate is 15%, then you'd pay about $277/day in haircut (665,000 * .15 / 360) Haircut is a negotiable rate and some firms don't charge it at all. You pay interest on the full amount of leverage you are using also, around 3-4% at today's rates.

    Your situation sounds like one that is ideal for a prop firm. All you have to be aware of is the drawdowns on the fully leveraged amount, because they come right out of your capital and a few bad days or weeks can knock you out if you aren't careful. A 5% drawdown on a million dollars and your $50k account is all gone. But I'm sure you already knew that.
     
    #41     Jan 9, 2005
  2. funky

    funky

    yeah, this sounds like the eventual solution for me. i think trading my own capital for a while and building up a track record should make it easier to do this.

    makes sense.

    right...actually, i'm starting to think that i should just find a broker that doesn't charge a minimum commission....if there is one. and they have to have a good automated platform. i'm all about automation -- i actually had my system to the point of downloading all the daily candidates, running setups, placing the charts into tradestation, applying the strategies, setting the parameters, and turning on auto execute -- all without touching a key. sick. that should definitely come in handy with this system.

    do you have to get a series 7 with these firms to get these rates/leverage? thanks lescor....
     
    #42     Jan 9, 2005
  3. lescor

    lescor

    Yes. Plus the 55 and 63 if it's an NASD member firm. The tests aren't hard, just require some study time.
     
    #43     Jan 9, 2005
  4. of hedge funds.....many are looking for promising automated strategies. Going Prop is not optimal for your "approach"....for all of the reasons currently mentioned: lousy or non-automated platforms, capital restrictions, trading restrictions, fees, fees, fees. I had built some systems a few years ago and had several inquiries from start-up hedgefunds specializing in automated trading. The deal was a commission-based one....I would get a percentage of the profits. I just read in Trader Monthly where Steve Schonfeld was an automated trading "guru", but if his prop trading firm won't provide the automated order platform you require, you may as well "hang-up" the prop route...doubtful any other prop firms are that sophisticated.

    A final note: building on the Tradestation Platform was good in that it is a powerful automation platform; bad in that it is now tied exclusively to their brokerage. You are most certainly going to have to translate all of that code into another platform....like ESignal or proprietary C++ platforms....which could get very expensive if you must hire programmers to do the translation.
    Since you won't be able to show anything but backtested results, they (the hedge funds) may require you to foot the bill for the translation and commit to your system only after it has been trial-tested for 3-6 months. Thus, you'll have to make a big commitment if you expect them to do the same.

    Think about it.
     
    #44     Jan 9, 2005
  5. The builder has no past successful trading record and the system is only back tested 4 years. Real trading and fairy land trading is 2 different things. It’s just like him stating he is great at sex but has never been with actual woman yet. I don’t even believe in paper trading because the live stock market has so many variables. There is also a lot of risk in his trading that he does not realize. He is talking about having 100 stocks for a good 3 days. I wish him the best but really doing it and back testing it 4 years won’t produce the same out come.
     
    #45     Jan 9, 2005
  6. funky

    funky

    well, porting code is easy for me. i could port it to assembly if i wanted to. :)

    I did see TradeBolt.com, they seem to have a piece of software that routes orders out of Tradestation and into various APIs. That might be an option with the right prop firm. don't know.
     
    #46     Jan 9, 2005
  7. funky

    funky

    i'm glad you have confidence in me! hehe...

    i'll definitely report back in a few months and let you know how my fairy land trading went :D
     
    #47     Jan 9, 2005
  8. Yes....Tradebolt is the direction you need to go for taking Tradestation signals to a platform/brokerage of your choice. It is tough to get Tradestation commissions down IMO compared to other brokerages/clearing firms rates.

    I would say to find a way to trade your system yourself for at least 6 months with around $50,000 of your own money through a good prop set-up or retail arrangement (find a way to get the extra funds to bring your total nut up to 50K). With $50K and even 10 to 1, try to trade a scaled version of your plan to build a track record. Next, tighten up your system over the 6 months and then go door knocking for a full scale deal.....just my opinion. If you can be patient and do this right, then you will have a very nice payoff in the end if you can make your system bang out coin during a record building period.

    OK....now my bad news...

    The market may be tough in 2005 for a "stocks" LONG type trade system. Do you have any ideas for a "futures" trade system....this is the type of trading system that can lure in "Big Money" IMO.
     
    #48     Jan 9, 2005
  9. I've heard of Tradebolt and understand it is solid and powerful....BUT, they do want a share of your executions...so they have their hand out there too ! So...if they use the FIXX api, you'll need an order-entry platform that is FIXX compliant.

    Again, much, much capital out there in hedgefund land....don't let the naysayers get to you. I tried for three YEARS to build a really great automated system for the E-minis, and the only one that showed promise was one that made small profits. When you added commissions, the equity curve went from straight up to straight down...eerie, sort-of, but quite understandable.

    With good HONEST backtesting results, a good dog-and-pony show, you should be able to get a good chunk of capital and run it for 3-6 months in trial mode with "collars" and circuit-breakers in effect if it starts to bleed.
    I've got the names and addresses of about 5000 hedge funds for you to send-out your proposal.
     
    #49     Jan 9, 2005
  10. funky

    funky

    yeah, has anyone ever gotten the minimum $1 commission removed from his/her TS brokerage account? I am gonna ask....

    yeah...see the thing is, the only capital "minimum" requirement is to get around the $1 minimum commissions. the system will work with my current wad (as long as 10 share fills work -- which to my knowledge/experience it does).

    well, this system works both ways. the thing is so stable that i have never seen drawdown like this before. i know why, and i'd love to tell you, but the thing really does work without the help of the overall market.

    the liquidity of this thing is insane. i calculated that trading 10 mil USD would put this at about 1000 shares/trade. its basically because the system is trading so many markets.

    i haven't tested it on any futures markets, but my guess is that it would work just as well as any contribution that an individual stock made. the power of this system is in the overall money management technique anyways, and the diversification of markets. that's where the miniscule drawdown happens.

    i keep thinking that i'm gonna wake up one morning and find out that i missed something somewhere....but i've gone through the trades one by one and this thing is legit....i still don't believe it lol
     
    #50     Jan 9, 2005