Dear ET community. I am kind of a in a tight spot and would appreciate input on a non-compete and going forward plan. Thank you in advance for your relevant, constructive input! Summary: I was trading a consistently profitable automated trading system at a prop firm. Technology issues out of my control created a loss so large it blew up my entire year and then some. After continued issues after this I quit and now have a very ‘ambitious’ non-compete to navigate. Would appreciate any advice. The non-compete: Cannot pattern day trade for prop firms, others, myself, or family members for 1 year. Pretty sure I could do futures/commodities Have to pay the firm 20% of my gross profit of any kind of trading I do for the next 3 years. This would include even my retirement accounts. (This is really crazy) Cannot talk about anything I’ve ever done there, including show my track record (this seems ridiculous) If we go to court I have to pay all of their expenses out of pocket where their headquarters is (which is quite far from me). Background: I was using the Takion platform and do 30% discretionary/70% automated API trading. My systems have been live trading with a Sharpe ratio of 1.67 since inception in Dec 14 when I left a top NYC discretionary trading firm (think those that recruit ivy league kids and pay salary first year). I only have 2 years professional trading experience and it took me about a year to become consistently profitable. I starting building some pretty profitable automated trading strategies and left the firm to deploy it due to the fact that they didn’t have automation support. I was profitable every month but started with a very small account that ended up growing in BP to about what I had at my last firm. April it returned 6ish% with a peak to valley daily draw down of 25bps. I put no initial capital up at the company and didn’t have to register. It was a subprop account deal. I am not registered at my prior firm which was a very well respected firm that has been around since the birth of electronic trading. Due to some veteran benefits I pretty much break even cash flow wise month to month before having active income, so I could go a few years without an active income source. I exhausted my savings buying the fastest compute technology, software such as Matlab (which was nearly 5k for a legit license). I have developed a pretty scalable SPX/VIX futures trading system that I live traded from 4k to 110k in college but stopped trading it when I moved to NY to join a prop firm trading equities in 2013. This has a CAGR 8x peak to valley daily draw down. I ran at a pretty stupid leverage level that I never would do again, but it's a solid system. I have been enhancing this with a quant PhD from a HF I used to work at and could start a fund out of it, but I think AUM would be all too scarce given my limited track record. If you’re wondering what happened to all that capital, most was in futures IRAs, the rest I blew all that like a mouth breather buying a new Porsche and other crap that supported my newly developed thesis that I was the man. I live lean and mean now and trade because I love it not for the money. I don’t care that all that money disappeared from my prop account. I care that I have to sit and my hands and not trade for a year. That’s the equivalent of an intellectual prison for me. This is the Issue: The company changed their execution ports and pushed it to traders, so they didn't tell anyone. However, since the port destination was hard coded in my API my system kept executing to the old ports. I saw executions on my platforms but no positions. I called them and they told me it was just erroneous and I had no positions. I was trading discretionary on the correct port as manual trading change were pushed to clients, but the API kept making trades. Because the trading platform didn't know I had positions the closing trades via the API didn't go through. I kept turning the API on periodically to check if it could execution. Each time I did it crated new positions. I talked to the desk through their internal chat app four times over two day to ensure that no actual executions were going through. They guaranteed me they were not but couldn't figure out why my API was doing what it was. The summary is that in the span of 3 days positions in excess of 3 times my buying power were created. I found out these were real due to prop reports telling me what I thought was a positive day was actually a loss of about 12x my best day. I pointed this out and they guaranteed me they flattened all positions. They in fact had flipped all positions; this resulted in another very, very large loss. I lost my entire year and then some. They told me this draw down wouldn't affect my risk track record, but the losses were all mine to eat. After this the head trader would chat with me every day and tell me I needed to dig out quick as he was getting heat from his boss. I found this very frustrating but due to the fact that they have a pretty crazy one year non-compete I didn't leave. Last week their servers went down 3 times, all of which cost my money with the inability to flatten positions going away from me. This is after I increased leverage by about 20% at the request of the head trader. I resigned effective today. Going forward: This is where I am a little lost. Had my 1, 2, 5, 10, and 20 year goals lined out but always have to adjust them. Here is what I am looking at and open to other suggestions: In an ideal world I could find a loop hole to the non-compete and deploy my automated intraday equity strats at another firm. I could go do something related to commodities/futures, possibly even options. I worked at a pretty good quant commodity trading HF for a year and a half in college. I have also started to develop my own trading platform so I could spend a year on this but it’s not really an accretive project, just something I am intellectually curious about. I am a former Marine could go back for my masters on the GI Bill but any good program wouldn’t start until Fall 2016 and non-compete would be done by then. Haha if you made it through this a deep thank you and I sincerely appreciate your feedback/perspective.
I'm not an expert on contract employment law. I do know that if the contract is too restrictive that you can't earn a living at all, that they are often set aside in court. The best thing to do is ask them to wave the contract or parts of it. If they won't, you will have to consult an attorney to go over what is enforceable and what 's not in your state.
Robert, Thanks for your input! I don't think the getting to waive it is on the table, they weren't very happy that I resigned.
Have some experience...in a nutshell....will be almost impossible for them to enforce the Non Compete. Don't take that as legal advice...but it is not up to you to void the Non Compete...it is up to them to enforce it. Hope that helps. H
I was told from the lawyer that wrote my prop trading contract that the non compete clause wasn't worth the paper it was written on! You can't stop someone from having a right to earn money and a lot of non compete clauses do seriously restrict. If you left a firm due to gross misconduct you will have a few issues but provided you honoured everything in your contract my personal opinion would be to say to them "if you aren't happy then come and get me." Do they really want to lay out expense, time and bad press to recoup a few thousand? I doubt it. Unless you are a 500k a month trader it would be in their interest, but if you are you can afford top lawyers. This is all my opinion based on experience and not professional legal advice by any means
That might all be true, but no one will hire you while that document is in effect. They either have to "let you go", or you need to take them to arbitration for something else hoping to get rid of this or hire an attorney to make it go away. This contract sound overly restrictive to be enforceable.
Not sure why you signed that contract in the first place. But, since you did... I agree with the others, if it is so restrictive it keeps you from earning a living, you may be able to get out of it. Worse case scenario, develop a futures/options version.
Hi, This may be your lucky post-/ I have a friend in the major hedge fund space. He read this and may have some interest in talking with you. Please send me your contact/ resume and ill link you up. I am 100% serious. Surf. Marketsurfer at gmail dot com
What State does your ex-firm do business in ? My sense is that: 1. You developed your Intellectual Property prior to your latest employment stint, 2. asking for future income is undue consideration, and 3. your contract sounds incredibly burdensome and restrictive. I'm certainly not an attorney but your description paints the picture of a document which is egregious and downright unenforceable. My suggestion would be to hire a labor attorney with a license to practice in the State of your former employer, and ask him to spend two hours to review the covenant and write an opinion about its enforceability. Could be $600 or so very well spent, and would go a long way towards allaying the concerns of future employers. http://www.foxrothschild.com/upload...survey_nationalSurveyRestrictiveCovenants.pdf
Create an LLC; have the LLC open up a brokerage account with say IB. The LLC is the one making the trades in the account, not you . You could me a member of your LLC and you have charging order protection, just don't take any distributions for the 1st year and build the capital in your LLC. This is very pen on napkin directions, but should be enough for you to figure out the direction you need to go.