Well, you want to be in a place where the size they trade is similar to what you'll trade.

Thanks a bunch. Two followups:

1. Can definitely understand how being around other traders would help. Are most traders at these firms discretionary or systematic? My style is 100% algorithmic (although w/ manual execution) and I'd like to keep it that way, so I'm not sure I'd learn nearly as much around discretionary traders.

2. Any tax benefits to trading at a firm? I currently pay over $3k/yr for charting software/research (and this number could expand dramatically if I expand operations). I don't write this off now and I assume I still couldn't if I worked at a firm. Is this true?

1. There's some of both where I am. The industry as a whole is moving towards automated/systems trading. I got my start by automating strategies I saw people trading manually. There are definitely things to learn from various types of traders, especially those doing things very differently than you.

2. Not really, but I do write off computers, charts, news services, research and things like that

Thought i'd bump this thread as this is still my dream and i'm at a point in life where it makes sense to take this kind of shot. My love for trading has not diminished, I have a lot of trouble focusing on my ho hum corporate finance job during the day while the market is open. Love to have more discussion about making the transition or whether it's best kept as a hobby etc.

- Little note on the " Eldorado" interview I had, the LIBOR futures business with them had 28 traders, they're now down to 3 and I hear automated trading and HFT has almost entirely cornered this market. It's crazy to think that as little as 18 months ago they were generating 25% of the volume in this market and trading manually.

the thing is HFT especially at the market making simply stops the inefficiency from getting bigger so they also affect long term inefficiency that isn't risk related (inefficiency exist cus you take more risk and larger drawdown on strategy, and not simply alpha returns)

this happened to me where all edges in stat.arb in the 1 month to 1 year time-frame got killed by intraday market making. I'm pretty sure normal stat.arb is dead for retail (prove me wrong?).

FWIW,as I see it there is currently to situations due to decentralization:

a) Covestor - for portfolio management
b) Quantiacs - for algorithmic trading

funny enough, I'm pretty sure a lot of edge will be gone in 5-10 years at best

Yeah inefficiencies come and go. Any strategy that has profits way in excess of its risk will deteriorate overtime, either from more people piling on, or from the counter parties changing their behavior. The prop world is always chasing after inefficiencies that deliver returns way in excess of the risk so it's almost expected that their bread and butter trades won't last.

We've been trading a strategy that 10 years ago, was profitable nearly every week, while now in 2017 it's profitable nearly every quarter. There's still, and always will be plenty of opportunity lower down the risk/reward scale. Just anything that's free money is on it's way out.

no u prove urself right

Last time bumping this thread I swear.

I've interviewed at a few firms in the last few months, made the 2nd-3rd round a couple times but I am not succeeding at getting any offers at mid-high tier shops.

Interviews with Akuna, Cutlergrouplp, SIG, and Frontline capital since January, have had varying degrees of success.

I struggle a little bit with the "tests", 3 of these firms have tested me in mental math speed and "sequencing" tests, I feel like i'm reasonably fast but from what I gather i'm not as fast as many people at answering these questions.

I'm considering joining a BYOC firm ala T3, I also have a standing offer at 7 points capital. The deal there is they seriously restrict your trading allowance until you prove you're profitable, (trading with company funds), and the profit split is 60/40 in their favor. This is in NYC. So i'd need to be generating 10k a month to pull 4k out. It sounds pretty difficult and like they have a very low success rate. This would involve renting/selling my home and moving to NYC, while expecting to not make money and just learning for at least 3-4 months.

My question for you guys doing this full time, is this a dream I should just let go and focus on something else? I've put a lot of time into getting interviews, I've had reasonable success trading on my own but I can't physically sit in front of the screen from market open-close due to my new job where I travel through the city during the day a lot.

The way I see it is I think I have the aptitude and ability to succeed, i'd like to take a shot but I've gotten a lot of warnings about the success rate. I don't want to quit my decent paying corp. finance job and burn through my nest egg trying to generate ridiculous returns without A. a reasonable assurance that I can succeed and B. some sort of observation trading environment.

At 7 points, it sounds like they just put you in front of the screen till you to get some chart time, and it's "every man for himself". I feel like there's a lot to be gained from sharing ideas after hours or a mentor type situation, but I don't know where to find that. If this isn't something I can realistically do either because the industry is shrinking, or i'm not the right fit, I can accept that. But if there's still reasonable opportunity for someone very passionate about trying this out, i'd love to get more input/PM's etc. I just want to enjoy what i'm doing every day, I don't necessarily need to be wealthy but if i'm gonna be working for the next X number of years I don't want to be miserable waking up in the morning.

I'm a little confused as to which firm you are referring to. 60/40 in their favor sounds pretty bad unless they are really helping you out somehow (ie mentorship, small salary, software edge). BYOC should be 75%+

It's all about who you can learn from or work with, and it will take experience to figure out who is worth listening too. There are a lot of guys who sound smart who are really just living off the last flash crash. You aren't just rolling the dice imo. It's not hard to tell who makes it and who doesn't from the start. The ones who make it are the guys who are trying to soak up all the knowledge and experience they can from the successful veterans.

JB, what do you think the success rate of guys in your firm or other firms like it is these days that started trading in the last 3-4 years?

http://www.sevenpointscapital.com/

I have a friend trading here and it sounds really difficult. Extremely high turnover rate, he's been there 3 quarters and he's average 27k a quarter which is 3.6k a month take home... kind of bare bones living out there no? It sounds like the strategy is lots and lots of trades on 1-5 penny moves with large share size. Rebates on commissions help out or something. He's convinced I have a decent chance but he's still saying it's less than 50/50, it's hard for me justify leaving my "normal" life to give this a shot, especially when he's saying it's not much a of community environment.

I completely agree with your sentiment that in order for me to really be successful i'm going to have to listen to and observe the successful traders and understand what they're doing/seeing/looking at to be successful at this.

3.6k a month take home after only being there 9 months isn't bad at all. It takes time to learn things.

Sent from my Nexus 6P using Tapatalk

Good bump, very interesting to hear about the process.

Can you share a little more about the interview process with Akuna and SIG? Those are definitely not easy places to get interviews AFAIK (especially SIG). At a high level what did your resume look like?

Best of luck with 7 points or whatever you decide on!

Agree-- I've never heard of this firm but as long as you aren't putting up any capital, this is decent pay to start out. Living in NYC for $45k/year isn't ideal but it's definitely doable.

That is interesting. 81k in his first 3 quarters is impressive. I'm having trouble picturing exactly what they are doing when you say "lots of trades on 1-5 penny moves with large share size". At my firm, and I've heard similar stories from people at other firms, a lot of the older traders made most of their money from inefficiencies that are disappearing.

I'd just be a little worried about a firm trying to assert that they've got lots of profitable traders. I know a lot of traders that were touted as being good 7 figure traders that are now struggling to really make anything. A lot of people who started pre 2008 learned to trade inefficiencies that rarely occur anymore. Unfortunately those skills aren't really transferable. On top of that they never developed the work ethic necessary to make money in today's environment. A lot of those guys are content with being mildly profitable with the expectation that they will crush the next flash crash, or volatility will pick up and make old strategies profitable again.

I'd also want to know how their payouts work since you are trading their money. At a BYOC firm, you want to retain a very large % of your profits when you first start. How do the payouts at 7 Points affect your bankroll? I have a friend that trades firm capital at a very successful firm, but the payout seems very unfair to me. When new traders start, the firm takes 100% of the risk. Once the trader makes even as little as $20k, the firm then segregates, $10k is the firm's profits, and the other $10k is the trader's profit and now their bankroll. At that point the trader is, in reality, trading their own money. All the firm capital did was get them off the ground.

There are other places that trade firm capital that will let you cash out your entire cut of the profits with out cutting your risk or BP. That seems like a fairer trade off for a lower profit split, but firms are hesitant to do that because that leaves them exposed. Especially since guys will try to risk more than their whole bankroll since the firm will cover the excess losses.

Sounds like it's +ev to me, considering you know a guy there who's gotten a good start. If he's made 81k in first year, I'd like to think he has a decent shot of making many multiples of that per year down the road. You also have to consider how enjoyable this is compared to whatever sort of other job you'd have.

you probably need to expand on this, i'd see it as a relatively large red flag without knowing further details. success is more likely the more work you put into it, which implies more time in front of screens. if you can't handle that, find a different job.

Do yourself a favor and forget about prop trading. It is a poor model for the aspiring trader and a complete waste of your time. Unless they are willing to pay you a nice base plus upside, look elsewhere.

If you want to trade for a career a much better route is to start your own fund management business.

Grind for a few years, figure out your strategies, develop a track record, and then go out and raise money.

It's possible to raise a decent amount of capital from friends & family, and you do not need to be registered to run your own private fund if you are under a certain AUM or number of investors. Also these types of clients aren't looking for lean edges in the LIBOR futures market or something like that.

You could pretty much return beta plus some sweetener and they will pay you. Remember most people absolutely suck at trading/investing. They either try it themselves on the side and lose all of their money or they give to Vanguard to harvest buy and hold beta. Your angle is to market as the sexy fund that can return a bit more than beta or perhaps give them exposure to something like the currency market or the agriculture market.

Another idea, you can still "trade" outside of public markets. You can buy from overseas and sell at a markup on AMZN for example. This is still a form of trading although outside the traditional realm, but has a much fatter edge than what you will find in financial markets.

FYP
Starting a fund is not trading. It comes with legal hassles and is based around sales and marketing. If you wanna trade then TRADE. Sweating the variance on your own is bad enough without worrying about your friends and families nest eggs.

If you actually can trade there is no reason to do anything else. Funds are for hucksters. If you do find an edge in a big capital intensive strategy it won't last. It will evolve or evaporate.

Really interesting thread and enjoyed reading the responses. From an outsiders perspective, there feels like there are so many corollaries with poker.

1) People who learnt pre 2008 who now can't beat the games.
2) Successful people now having a much more analytical/programming background. (Not identical but essentially people being more technically good)
3) Inefficiencies dying out / edges in the games getting smaller
4) 'Can I go pro at this?'
5) 'Whats a good ROI after playing for this long?'

I'm sure there are more I could find if I wasn't at work.....

Trading for yourself is great, if you have the capital. But just like in poker, it's hard to make a living if your roll is small. What do you do if you have a small roll? The only option is take salary somewhere and grind up trading as a side biz. At some point hopefully you save enough and reinvest enough that you can break out on your own and trade your own account.

You seriously cap your upside and your ability to scale your skill set if you are not willing to take outside capital and provide values to others.

SIG/Cutlergroup started with a phone interview. I rely HEAVILY on my success at poker to obtain interviews. My resume is pretty standard, I have a 3.5GPA from a state school in finance, I worked in Mortgage for 2 years then transitioned into Medical Underwriting and recently transitioned into a role with the same company where I negotiate our contracts with hospitals and doctors. It totally sucks, and I wish I could have my old job back but they're sour that I left and that opportunity is gone.

tradertest.org is what I used to prepare for the tests. They're nearly identical, i'd say it's the medium math test and the hard sequence test you need to be prepared for. It threw me off because in the actual tests they'd have some things I didn't prepare for, like lettering sequences of the alphabet instead of numbers, or some difficult multi-decimal division problems that took up way too much of my time. it's timed, 7 minutes math and 15 minutes of sequencing. I answered probably 20 math questions, and about 15 sequencing questions. I skipped 10 of the sequences entirely.

The phone interviews focus quite heavily on my poker experience and success, they seem to care less about my ho hum finance career. It gets tricky whey they start asking the probability type problems, eg: 2 bullets are loaded into a gun consecutively and fired at you, nothing happens, would you rather the gun be fired again or have the chamber spun and fired and why? what are the odds for each?

What's 3^8?

Or, "make me a market based on the size of NYC at an 85% confidence interval, I did so, he took the ask and said okay make me a new market based on me buying your entire ask, what volume do you offer and what's the new market range?"

These are questions I feel like i'm probably answering right (I look up the answers after i'm done) but I take too long to think through things perhaps. I don't know.

It sounds like they use huge orders to manipulate the price up or down a few pennies and then lock in the the profit after a penny or two of movement. My friend says he trades millions of shares a day, often for just seconds at a time. The 60/40 split seems entirely ridiculous to me, and if you're not profitable they're just letting you go anyway. He justifies the split because of some sort of rebate deal they get on commission for trading so many shares, but it still sounds like the burnout rate is over 80%. apparently he lost 6K yesterday on a black swan spike in AYI (take a look at about 1PM MST it spiked $2 and back down in the about 2 minutes).

I asked him about the payouts, apparently they reconcile monthly, which seems to me like you're incentivized to risk heavily towards the end of month in lots of situations since the upside is only 40% if you win and the downside is 100% of losses...

He told me he doesn't think anyone that's joined after him has made as much as he has, I know some of it is ego driven but he's a smart dude, PHD in mathematics and quick on his feet. It's not the trading i'm used to which is generally holding for 30 mins-48 hours, this is not algorithmic based but still what I would consider "HFT" because of how many trades he's making and the amount of time the trades are held. It's definitely a lower tier shop, they recently updated the website but a month ago I noted two spelling errors on the main screen which is just sloppy and makes me think twice about joining (amongst the many other variables).

What's the success rate like at BYOC? I'm seriously considering these shops, but I have almost no basis on which to consider my success rate. I understand the basics etc. but I really want more of a feel for how i'm going to turn 70k into a sustainable career trading off my own capital. I have the drive to succeed but I don't want to play the lottery with my future based on a potentially outdated dream that I can trade manually based on trends and instinct and soaking up knowledge if it's not really going to work out. I definitely will put in the time to learning EVERYTHING I can if I go this route, it's pretty all in which scares me quite a bit.

Obviously i'd be putting in a TON of screen time. What i'm saying is that I also need time either observing others during active time or mentorship/speaking with successful traders rather than an environment where they just tell you to "figure it out" which is what it sounds like at 7 points. I get that practice and screen time make perfect, but I want to be somewhere where I can see what others are doing, discuss the actions I made, etc.

I'm curious what you think the correct answer to this question is

I'm not sure it's common knowledge, but 2008 was a fantastic year for most prop firms. I believe my firm had well over 100 traders, and now I think we have like 30-35. They said there were guys who came in when the market was really juicy and turned their 5 figure accounts into 7 figures in a few months, and gave nearly all of it back when the market slowed down. I'm one of three guys that started after 2008 that's still around. I've seen probably 7 or 8 guys who were giving it a serious effort, quit since I've been here.

I'm not saying all of the older guys suck, but it was just a completely different game back then. Back when the prop firms still had a technology edge, there was just free money all over the place. Guys made lots of easy low risk profits with basically no knowledge of economics or finance. So if a trader has just looked at charts and the order book his entire career, it's not surprising they won't be quick to adapt. What they're doing still works ok, and if you made a ton of money doing something you won't be quick completely change your game.

It's not like online poker back in the day vs today, poker is still the same game. What the new traders specialize in vs what the old school guys specialize in, are completely different games.


I don't think you can get a guarantee in terms of a good environment to learn in. You probably just have to take a shot. I think I got lucky here, as some of the older guys showed me some strategies and let me sweat their trades. I've also got a buddy at a different firm and we collaborate on a lot of stuff. It helps to talk to a lot of people and gets many different stories or perspectives.

Bowling night and I've been drinking too much, but this is a very interesting discussion.

You balance what you think is your correct answer vs the % chance the opponent is wrong vs the % chance you have the wrong information, and adjust spread and size accordingly.

Obviously we adjust the market upward as the entire ask has been taken. But what's your risk tolerance? What's your confidence in the original midpoint? I adjust the market (in this case my interval was 8-12MM at 100k volume both sides initial bids.) and make my market 12-15MM, widening the volume offered at the the high point. (So lets say now i'm offering 50k 12MM bid 200k 15MM offer).

What information is not known? Am I making a bad decision or is someone risking money based on unknown information? I don't know that, and so I must adjust my spread accordingly. I've already made my estimate based on the information at hand. My original estimate has been taken and the entire offered volume has been absorbed. In my mind, we clearly move the spread upward but limit the volume to the downside as the known information has already been confirmed, and we're exceeding my confidence interval range the further we go.

We're more willing to offer you a higher price after exceeding the interval as volume is absorbed and price moves higher, other variables remaining neutral. So Ask volume begins to widen and bid volume becomes more thin as you move outside my original estimate.

Maybe i'm totally off base here, but that was my answer to the question. We went back and forth on it a number of times.

I think you're overcomplicating it.

I think the correct answer is that you'd be a fool to make a market on something like that on the spot based on your own knowledge since it's something other market participants could easily look up. Why would you want to bet anything on your own 85% confidence interval when you're only going to make a trade when you're wrong?

Maybe there was more context given in the actual question though.