So I've always been curious - How do the annual returns of the top retail and small time prop traders compare to the returns of the top traders at the Wall Street banks and big hedge funds? I.e. - Best Bright trader vs. top SAC trader? I.e. - Top ET trader vs. top Goldman trader? I realize many traders look only at P/L - but that depends a great deal on account size. So how do annual returns compare between different traders? Is it fair to strip out the leverage and account size - and look just at total returns? Is there really that big of a difference in the skill level and quality of trader - or is more a function of capital?
If you only look at %gain, I think the most extreme returns will be found in the groups that take the most extreme risk. Extreme risk you according to normal rules wont be allowed to take on in a bigger firm. If you compare risk/reward I think almost every trader at a big firm will beat most of the retail traders.
Risk/reward returns - is that because retail and small time prop traders are forced to trade with more risk due to the smaller account size - you have to push the envelope to make decent money? Or are the systems of the top Wall Street and Hedge Fund traders that far superior to those of the top retail - and small time prop traders? Are we defining risk as volatility? Looking at Sharpe ratio / Information ratio / Sortino ratio or as avg/max drawdown? Consistency of returns? Batting avg?
True - consistency and sustainability are the real tests of quality and skill. And I would have to say that those that have great track records for 5 - 10 years are the truly elite - whether you're trading at SAC or out of your home office. For those that have those (5-10 yr) track records - the original question still stands? And for sake of argument, those that don't have those (5 -10yr) track records - the original question still stands?
I'm a home-based independent futures trader. Since going full-time, my Sharpe Ratio over the last 77 months is over 2 with 85% profitable months. I don't know my exact average annual return but it is around 70-90%. I think my risk-adjusted returns and consistency are superior to most CTAs/hedge funds. However, my strategy isn't scalable to huge amounts of money so I'm competing in a different space.
With all due respect, this is kind of meaningless. A Bright prop trader - or any other individual prop trader (at Assent, Echo, JC, Avatar, Trillium, etc.) may take his or her 25k account and pump out an average of $800/day. Maybe the trader trades 2000 shares at a time and makes 20 cents and loses 10 cents, back and forth until he nets $800 after costs. So that is like a 700 to 800% return on the 25K. At the institutional/hedge fund level - the trader is likely to be responsible for returns on millions. I am not familiar with the inner workings of SAC - but I would imagine that a $5 mln line of credit would be pretty low for one of their traders. That said - if that trader's goal is to earn 8 times his credit line (or even 50% rtn on his credit line) - he ain't going to get there by using the same approach as an individual prop trader. They are not going to bother with trying to make $2.5 mln or more the same way. The main issue - IMO - is that he would have to be in and out using 25k shares at a clip. The number of stocks that can consistently accommodate this type of trading without mad slippage drops significantly.
When you say huge amount - how huge are we talking about? - Those numbers are oustanding - blows away 90% of those hedge funds and Wall Street traders.
Those numbers do not add up. If you were doing "70-90%" with "85% profitable months"... Your Sharpe Ratio would be way higher than 2... probably > 5.