1/5/17

Greetings Monkeys,

I have been hovering around this topic on my own over the past few months, for reasons you will get introduced to further in the post, and have not had much of a chance to discuss it with other people from the industry as I do not really know many Prop Traders outside my firm. Posting here might actually do harm if the wrong people read it, but I have reached the point where they should either deal with it or do what has to be done about it.
** Disclaimer: Might turn out to be a longer than you would bother to read, but any advice will be greatly appreciated. **

Brief Introduction: I have been working as a proprietary trader (US markets, from outside the US), for a little more than a year at a prop shop. The structure is somewhat standard for the industry, I guess - you start with low limits (Size, Buying Power, Overnight Exposure), have a mentor who has financial benefits if you are profitable, pay the platform fee yourself, pay commissions (from which the firm profits to an extent), and have a %-based payout which increases in line with your Gross PnL since you joined. Another detail is the fact that you are essentially operating with the firm's own capital, but part of your profit remains as a tool for risk management - cushion for losses (you'd go broke before hurting the firm), therefore also as a benchmark to determine your limits (mostly the overnight exposure).

The essence (in bullet points to avoid writing a novel):

  • I was profitable from my 2nd month (adjusted for platform fee and etc.).
  • I continued to grow fast, despite paying big (on my scale), for my mistakes and surpassed my peer group and others with much more experience than me. In a nutshell, I was consistent as hell and the 'luck' factor dropped out, unless I somehow had insane luck for 8 months in a roll.
  • I would say that I worked much harder than the majority of people as well and somehow felt like this was a new thing for the firm's culture - few people analyzed our products as much as I did.
  • Just as I was experiencing the 'snowball' effect and possibly letting my portfolio grow too big for the risk I can take, our whole clearing house got a Margin Call and the firm had to essentially unload in a matter of hours.
  • It is worth noting that our products' main characteristic is relatively low liquidity. Therefore I feel like the 1.5% loss on my portfolio was almost incredible, considering that most of the unloading was done in 2 hours.
  • So much about that, but since then (5th month in progress right now), we have been unable to get up and running with a new clearing house and have been restricted to intraday trading only when our products are absolutely ill-suited for that, unless you are a wizard and manage to cope up with the broken Risk/Reward ratio.
  • From experience (heh), I feel like we might reach the 6 month mark before being actually able to work properly.
  • We are restricted from trading Common Stock, ETFs and have no access to fancy products such as Options, as you have probably figured out by now.
  • To conclude: I actually reached the bankruptcy point during the Margin Call and the following few months (drop by drop). The only days where I actually made money in the period were characteristic with extreme volatility.

The Question:
Given the situation, hoping I have not missed out anything, I have been wondering for a long while if it would be ethical to quit and seek out something better in order to continue my development? The products we are focused on are not exactly scalable and I feel like my interest in doing proper research is somewhat wasted on them.

I absolutely want to remain involved in Trading and avoid wasting precious time on 'safe' jobs and stuff.

Long story short: The group of traders is decent and some of them are really talented. However, I feel like I would never be able to scale up properly and see if I am actually good at trading, not just at picking up bread crumbs in illiquid products.

As far as I know (so far), my end-game is going to involve establishing a fund with a bunch of friends from the industry who have very different approaches or running my own account at some point. So my focus is explicitly on pushing myself and growing as I have no f*cking idea what the word 'complacency' stands for.

Thanks a bunch if you managed to get this far and feel like giving me your 5 cents on the matter.

Comments (2)

1/7/17

Why would it not be ethical? Most owners would probably screw you over quicker if there was a profit in it.

Financial Modeling

1/8/17
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