Paying for risk management

Discussion in 'Prop Firms' started by quinoa, Sep 20, 2008.

  1. quinoa

    quinoa

    How much would you pay for "added" risk management on your account? Meaning, your firm would watch over your p/l more closely, hit you out/shut you down at certain drawdown levels. What percentage would you give up for this type of "service", say if you could make on avg 50-100k monthly?

    The alternative is to hire someone whose sole responsibility (in contrast to what the firm is offereing) is to sit next to me and punch me out (literally if needed) at whatever level I decide. I could probably get an aspiring trader "intern" to do this for peanuts. Thoughts?
     
  2. quinoa

    quinoa

    Do some platforms have this ability installed automatically?
     
  3. It seems that you have to work on your psychology on risk management instead of seeking an outside 'switch'...
     
  4. quinoa

    quinoa

    I understand your point; personally I don't place too much weight in psychology as scapegoat.

    I was just curious from others about similar arrangements with their firms. I know that some of the biggest traders out there keep risk control out of their own hands, it's inevitable that one's objectivity fails at times.

    Here's an outtake from an interview with Paul Rotter (aka The Flipper):

    Question is, how much is that worth paying for? I have a pretty good idea in my head, but just wanted some outside input.
     
  5. quinoa

    quinoa

    I suppose the idea is so outlandish/inane/nonsensical that no one has ever considered such a deal?
     
  6. Bushido

    Bushido

    In all honesty the idea is not nonsensical. If I ever decide to do it (i have considered it once or twice). I would hire a person and train them to enter and exit trades as I instruct them, the idea here is to not make someone handle risk for you, but to take a observer/risk management role on your trading as a third person.

    The theory is: in events when you people require risk management (i.e. a trade going wrong) the mind may ask you to get out, and that is exactly what you would want to do, but you talk yourself out of this. When someone else is doing it for you the sequence is quite similar apart from the mind says time to get out, you utter the words and you are out before you can convince yourself otherwise.

    Hire someone pay them 2-2.5k pm + bonuses (calculated solely on your discretion - don't commit to it but give it at random intervals dependent on if you like the level of alertness etc.) This is a classic example of non-systematic positive reinforcement, makes them stick around longer.
     
  7. quinoa

    quinoa

    In my case it would never even come down to that level of micromanagement, all the person would need to do is watch my net p/l for the day, and hit a single button once a predetermined level is reached. In other words, a 12-year old could probably do this. But the reality of it is, most days he would probably not even have to do anything; it's just him being there ready to pull the trigger which would make me slam the brakes myself once the level is about to be breached.

    Out of curiosity, how many out there just starting out in this buisness would be willing to do this for a token hourly rate, just so he could sit and watch a profitable trader trade? Let's say call it a paid internship, 10/hr to just sit there watching another trader's p/l, and perhaps learn a thing or 2 while he's at it? Seems to me a perfect mutual symbiotic relationship.
     
  8. riskmetrics software
     
  9. A number of prop firms use that kind of risk managment. At my old firm when you hit your stop loss (about 1/10 of your predicted monthly income) you would get a shutdown clock of 5 min. After 5 mins the system would liquidate your position using arca market. Thats why i left them. At the current company when I hit my stop loss my keys get disabled so I can only exit the position. If I hit 2x my stoploss the risk manager will talk to me and ask me what i propose. If i am not replying to his IM he will exit me almost immediatly. Otherwise I can negotiate a little bit. So he will give me time and I don't have to use arca market which would aboslutly kill me. At 3x loss he will stop negotiating. But becasue its not automatic they will acutally use diffrent ecn and smart orders not to cause market impact. I can't imagine people trading with 5 min automatic stop loss. For me and most of my trader co-workers it would be disastrous.