You have to understand these firms aren't putting up any money. They can borrow the money intraday for free and return it. No cost. To hold positions overnight, requires real money/risk. Swing/position trading typically requires more risk and is more suited to hedge funds. The best prop firms do allow traders to hold overnight. Likewise, the swings tend to much bigger when holding over longer periods and the returns lower. i believe Don's pair trading focus includes longer term holds..
Yes, we have always allowed overnight positions. Most do hedge, but many keep some naked positions. What's interesting is when the newer people want to keep a bigger position overnight, they just hedge with a SPY or DIA or other ETF, and seems to work well overall. All the best, Don
What is the point to take on a big position then hedge with an index etf? Might as well take a small position alone and save the transaction fee.
I have given you a REAL NAME they are callled Great Point Capital out of chicago You trade there money and when you get good you get a better deal.
Umm because the idea is to capture the excess return (alpha) from the single stock, not to take a bunch of unnecessary risk on the market return overnight.
Say u long xyz and short spy, hoping xyz will outperform the index. You wake up the second day found xyz is down sharply because of some scandal or whatever and spy is going straight through the roof cuz of good job data. ah oh...
The purpose is to capture the alpha. Of course a stock can gap down. That would happen if you just held it outright as well. Obviously with this approach one would have many "small" positions so that any one gap would not hurt that much. Every strategy has risk and gaps pose the greatest risk to this type of strategy. You don't think there is risk trading some tightly correlated commodity spread at 50 to 1 leverage like a lot of prop firms do?