Pro firm leverage and risk management

Discussion in 'Risk Management' started by huby, Jul 20, 2001.

  1. Rigel


    Risk management (the firms risk)
    R = (Commissions/Trading results)
    "A bad trader".
    -1 > R < 0
    "A good trader"
    R > 0 or R < -1
    Account balance is somewhat irrelevant. For instance, if a traders account shows -$25,000 but he's paid $40,000 in commissions, and he walks away, the company has still made $15,000 dollars off him. (In court they might get another $25,000). R=(40/-25)= -1.6 < -1 A "good trader"
    If the traders account shows +$25,000 and he's paid $40,000 in comissions R=(40/25)=1.6>0 A "good trader".
    If the traders account shows -$25,000 and he's paid $15,000 in commissions R=(15/-25)= -0.6 which is <0 and > -1 A "bad trader"
    If someone is saying that they would have made a lot of money if it weren't for the commissions, then they are definately "A good trader".
    They could even be loosing 2-$300 a day and be classified as an extremely good trader.
    #21     Dec 1, 2001
  2. tom_p,

    Just a note. Slowness on direct access software can occur for a variety of reasons . We have used REDI+, ROX and other direct access software in our offices with very good results. Do you access REDI+ over the internet? Then there are several problems
    that could occur including your internet provider, the amount of RAM on your computer(I recommend 256kof RAM when using multiple software platforms on the same computer , REDI+ uses at least 128K of RAM) , server problems at SLK, SOES "slowness" or selectnet slowness not related directly to REDI+ or your firms
    software. Your network must be set up properly.We have a NT tech as well as techs at SLK we contact if there is any problems. I am not touting REDI+ but it is a good system if it is setup properly. The "slowness" of execution very often is a network problem,server problem or computer(amt of RAM etc.), not the design of the software. Executing orders on direct access software is not like turning on a light switch, the network connectivity can be quite complex. I can get great exections at our office and a remote trader in LA is getting great executions and a remote trader in PA might experience slowness or a delay. There are many reasons why this can happen . If REDI+ was a not a good product, I could switch to another direct access software system in a week. We can use any software package we want. The point is REDI+ is the largest direct access software (in terms of share volume) for a good reason, it is a very good product. Everyone will have their own opinion. The reliability of REDI+ may vary because of the problems associated with each individual traders or firms network or hardware. If you are experiencing problems, don't "complain" , try to find the the problem and get it fixed. You are welcome to e-mail me and I will try to diagnose your problem or at least point you in the right direction .Our REDI+ works very well most of the time, come down to our offices for a demo. I know Don Bright
    uses REDI+ for their traders with good results as do many other firms.

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.
    #22     Dec 1, 2001
  3. Hitman: I respect your loyalty, and wish you and your firm the best. As I said earlier, the firms who try to grow the industry vs. stealing traders from other firms with lies and deceit have made this field a much better place. I had 2 Worldco traders here this week for training, and they are moving out West and will need a place to trade. I have had traders try WorldCo as well.

    Since you brought up costs, I do want to say something that happened here a couple of months back. A trader from another firm had come to us a year ago, and showed us his monthly sheets, and we did a simple cost comparison. We showed him that he would save an average of $45,000 per month in fees and expenses...he too, was "loyal" for a while, but when he and his wife ( a lawyer ) started thinking about it, they reviewed the legalities of the "golden handcuffs" and were able to change over. The other firm offered a cash payment (read "bribe") to get him back, which I though was a bit weird, but anyway, he seems happy here, and I hope he continues to do well. Our traders can come and go as they please.

    I'm sure that your case is not that extreme - we have no tickets and our cost structure is, once again, being lowered for 2002. You would probably only save $5,000 a month or so :) ...We don't do "price wars" yet we have tried to pass on any savings we can whenever we can. We too reward loyalty and give long term traders a break.

    (Bargain yourself out of the ticket charges, that would at least pay for your next Mercedes). :)
    #23     Dec 1, 2001
  4. Gene is correct to point out that we can all go wherever we want for trading platforms (we get solicited at least monthly, and have changed our added data feeds a few times, but have felt that Redi has stayed up with or ahead of the rest for overall executions).

    The Internet traders have a whole different set of circumstances to deal with, as do the retail customers who use Redi. Trading style and markets traded can make a difference. What I have found is that people tend to like what they know, and have a "fear" of sorts of new things (we have guys who still want their old "Force" machines, with DOS and keyboard entries!). Kind of like the new pair of shoes story...everyone wants new shoes that feel exactly their old shoes.

    We are adding capacity for about 250 new "online" traders in 2002, and hope that our "people" have overcome the technical concerns (we have been "beta testing" for 12 months). With new pricing and better risk control (for the trader AND the firm...just to comment on one of the above posts). The merger with ARCA and REDI concerned me for a bit, but we have been assured at the highest level that we will be given every priority in technology available.

    Gene, do you have many remote traders? If so, how has your experience been? Have you much in the way of risk concerns? Give me a call sometime, I would like to chat. The number is on the website:
    #24     Dec 1, 2001
  5. McDonalds pays .50 for hamburgers, franchisee pays .75 for hamburgers, customers pay .99, customer is happy, McDonalds stays in business so customer, Franchisee, and McDonalds are happy.

    We have just eliminated the "middleman" no francises at Bright (to me that is "multi'level marketing at its' worse).

    Be well!!:D
    #25     Dec 1, 2001
  6. Bright pays .0025 per share, traders pay .01 per share (good guess??). Trader is unhappy (cuz they have to use REDI+)., Bright is thrilled cuz they gross $7500 per million shares, get REDI for free, get to charge haircut fees, make money on bullets..........! Who needs a middleman?!?!?!?! Lets all get in the brokerage biz!!!
    #26     Dec 1, 2001
  7. tom_p


    Gene and Don,

    Thanks for the detailed replies with which I basically agree. My comments were in light of the apparently snobby tone of Don's original post to you, which I felt was implying that because REDIplus was associated with GS/SLK, it must be the hottest sh*t on the market with everyone clamouring to get it, nudge, nudge, wink, wink, say no more, say no more (indiscernible chuckle).
    #27     Dec 1, 2001
  8. Pretty "Fuzzy math" you got going is a wide open playing field, and if you think that running a firm is easy...come on in, the water's fine! (we have had this post before)

    I do find it interesting how so many think this is easy. We have worked pretty hard, and still do, to provide the best possible services for the best prices available anywhere. We could have been charging double what we do for years, and still had great success...but we chose to take the "high road" and hope that we could keep more traders profitable by keeping the costs as low as we can. We do this by not franchising, not building a big "back office" and by being fortunate enough to not have to pay for a bunch of "recruiters" and advertising.

    We may not have all the fancy Marble, flat screens, and all personnel that some other firms have (paid for by their traders in one form or another), but we do have the best technology and pricing out there, and a financially solid firm. And we keep our money with the firm, unlike so many others who rely solely on the traders to keep the firm going. (extremely sorry if I am sounding irritated, I am just a bit tired once again, sorry).

    Our traders are doing well, as is the firm, so as they say "we must be doing something right"...

    I am sticking to the facts around here for everyone's benefit.
    #28     Dec 2, 2001
  9. Don. No worries. Just the facts maam. I'm not sure why anyone would want to hang a BD shingle these days. The water may be warm now, but it won't be that great forever. :) What you have is a commodity business whether you want to realize that or not. My crystal ball (which sometimes needs a little Windex to be sure) tells me that within a few years firms like yours will succumb to the same pressure as the E-Trades and Datek's of the world--pricing. Your price cuts are starting this snowball already. How else can you compete? Technology? You'll need something more inventive than REDI+. Capital? That's only money and other firms have money too.

    Your best bet may be sponsoring new traders. Who knows? If that doesn't work you can always open a McDonalds. 20 cents per hamburger aint that bad.
    #29     Dec 2, 2001
  10. ShortIgnorance,

    That's a good point. I always felt that there is more to a firm than pricing. E-Trade may have 2 million plus customers and their business model does not make money. E-Trades business model was based on payment for order flow and a Bid-Ask spread(which is now 0 or .01 which is near 0). Commissions were cut, but investors still want great technology, fast executions , customer service etc. The direct access retail firms are now have some of the same problems. There are no free rides on wall street. Technology cost money. Customer service , infrastructure and computer hardware cost money to maintain and they can't be maintained on "ZERO" commissions. You get what you pay for.
    As a professional firm , we try to give traders good service at a reasonable price. But you can't please everybody and that is my point. There is more to a trading firm than just price. Look at the firms service , infrastruture ,software & reputation from other traders.

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.
    #30     Dec 2, 2001