Are you saying that market neutral strategies are designed to create volume from traders as much as they are to create a profitable strategy? If so then what about openings, MOC and imbalances? That is scary if that is the case. I hope not.
I am not endorsing or promoting any strategy. The question that was asked earlier on this thread pertained to getting fully backed in which I responded that very few if any guys are getting 100% backed using directional strategies. There are plenty of guys in the prop universe trading directionally and there is nothing wrong with that. They are using their own capital. That's one of the benefits of trading your own money, you can do whatever you want. Fully backed firms don't care how commission intensive your strategies are because you are trading at cost. In other words, all the money they make is on your p&l, not your commission.
Well...I've had this debate with Don Bright before. He put on his boxing gloves and he and I went a few rounds. LOL. I have accused him in the past of trying to capture double commissions by making his traders trade stock pairs. I have softened up on Don a little bit over the years (he is getting older), and have given him the benefit of the doubt that he is looking out for the well being of his traders. Ultimately it's up to each trader to determine that. If you want to trade stock pairs, Bright is probably the place you want to go.
hey gmst, i am going to put out an idea to see if someone can come up with anything better. I am doing something similar to you. I have been trading ES for just about 2years now using a handful of intraday strategies. And been profitable.. so i tried to expand; first i looked at other liquid futures markets - other than bonds and maybe euro most of the other futures markets are a little less liquid for my taste (see my edge intraday is good to give me good risk adjusted returns but not enough to trade most of these markets).. so i then looked at stocks. But always cost of carry and commisions have kept me out of equity markets. Recently about maybe 9 months ago i found out about the prop model - where you get leverage and cheaper commisions than on the retail side. It works out well for me; i put up 30-40k and get to trade close to a million. Slowly i will grow but this is plenty for me for now. So if your strategy is not hardwired to forex (which it should not), why not look into expanding into equity markets? and just use prop firm as a partner who gives you good intraday leverage and good commisions (specially if you add liquidity most of the time - i do about 90% of the time). The way i see it, if i am with a firm that only takes my commisions and gives me leverage, its like a hedge fund where you keep 100% of profits. -gariki
I completely understand where you are coming from. I'm just asking the question from a business model perspective and trying to flush out what might be the best model. When you look at all the big asset management companies like Fidelity, Merrill, Schwaab, Morgan Stanley etc., the trend with them is that they are all transitioning clients to wrap fee accounts. So perhaps the ideal prop firm is one that charges a flat 1%-2% wrap fee on the principle deposited coupled with all the other features prop provides such as leverage, technology, community, training, mentoring, etc. What do you think of that idea?
Yes, that works because in that space it's all about collecting assets. You can get away with 1% or 2% if you have billions in assets collected. Having said that, there was a firm on ET who at one time was a sponsor who had a unique idea of charging a flat monthly fee I think of $1500 a month. In return, you got office space in the CBOE building which was suppose to be pretty nice. And your commissions were at firm cost. This also included your software. So they made 18k a year per trader no matter what. But that was it. You got 100% of your p&l. If you were trading small obviously not such a great deal, but to a size trader, this was an outstanding deal!
Hey Mav, i was reading this post and had another slightly different question for you. Say you are an individual trader with a small edge; say 3-4cents... (youve got very smooth equity curves, good backtested and real time forward tested systems etc..) and your systems are very agnostic to underlying as long as its liquid - see you cant get into non liquid stuff; what would be the best way for you to go forward? -gariki
Just keep growing your equity right? Not sure I understand the question. If you are executing a simple plain vanilla strategy, you probably want to stay independent.
Yes. right. My question was is there a better model - is there something else i should be doing? other than raising capital because its simply not possible for any joe to raise capital on the street. ps: see many times i feel good about actually having found this prop model that gives me so much more to work with. But sometimes it feels like time is not going by fast enough.. or that markets need to trade 24/7; those guys in the fund business are pretty lucky eh.. 80% of them loose to S&Ps and still keep their 2% on billions of bucks. lucky bastards. -gariki