The First Annual WSO Fantasy Macro League 2014

OK fellas i have seen a lot of half-ass macro theory on this board over the years and now I think its time to figure out who has the chops and who is the true macro master of WSO. The Rules are simple. 10 players. each player must submit 2 trades each week. Each Trade should have a thought out idea so that we can all benefit from each other's wisdom. The trade can be in the FX, Commodities, Rates, ,equity index, or credit index markets. No single name stocks or anything that we cannot get a good price off bloomberg. Trades must be in by noon Sunday and will be marked 3p Friday EST. You can alter your book between weeks only on the weekend using friday closing prices.

Each player starts with 100MM Bondarb bucks to buy the two securities he wants. When buying bonds or futures it is going to be on you to learn how they work...this will be a good experience.We also will be coiunting carry on FX positions which we need to learn about.

My plan is to run this for 6 months and then crown a champion who will get all my silver bananas, a beer, and the satisfaction of knowing you are a champion. Any interest post below...lets see if we can get ten or even one.

 

A well known macro fund is actually doing something similar. I hear a particular WSOer won thanks to the advice put forth by the macro men on this site over the years.

I'd be happy to make a fool of myself. I'd suggest restricting the writeups to one page at most, or you just might get a slew of 'verbose' short AUD/NZD trades from a bunch of sophomores.

 

I am more of an single name guy so I might have to sit this one out. Great idea however and would love to follow some of the better ideas that you guys come up with.

"When you expect things to happen - strangely enough - they do happen." - JP Morgan
 

If this is executed properly it's going to become the best thread on WSO ever.

2 questions: - Since there's limited participation, what's the goal of the league? To get people who are already in the business (i.e. you, Martinghoul, Revsly, etc..) so that people can read their ideas or to get students interested in the field so they can learn the ropes, learn about products and markets and get feedback from the experienced users? - 2 trades or 2 securities? So flatteners, steepeners, basis, spreads etc.. count as 1 or 2?

 

Is this a long job interview / competition? JK!

I'll pass this time as I would have to study the actual execution of it all as I'm mostly focused on energy market fundamentals and not so much on all the various contracts. There's so much on the actual execution that I don't fully understand.

Out of interest, you said each week you have to come up with 2 trades, do they have to be different than the week before or can you keep the same position / trade as before? Also, does it count as 2 trades if they are used to express only one idea (ie long/short volatility via options straddle)?

 

Ok so let me clarify....yes u can run traades for more then 1 week u just have to say on sunday before noon "i will run the same trade" going forward. Right now we have interest from the following users:

wallstreetoasis macroarbitrage vagabond85 bi-winning brandon st randy zeroblued dbcooper vizio csodopok amondo therapist synthessnits goodbread ..me...bondarb...

that is 13..

i will keep score for these 13 if u put ur trades here prior to sunday at noon EST. Anyone not putting a trade here by this sunday will be out and those that do will form the original league. 100MM of notional capital with at most two trades...u can do 1 trade also or even stay in cash week 1 if u want butu must say something by sunday at noon. I will be on here sunday and will try to regulate a bit...but please keep in mind this is a new idea and so my authority as commisioner has to be respected and i will be in some ways flying in uncharted territory. if the trade is too complicated or hard to track i will DK it. And because this is a learning experience for all of us everyone MUST put a short explanation of why they like the trade in this thread or i will not take it. These are markets...there are no wrong answers (at least until after the fact) so dont be shy.

This will be fun, i am excited....plse everyone respect that i am doing this in my spare time and we are somewhat working in uncharted territory but i am willing to put in some time to get a good/fun dialogue going.

 
Bondarb:

Ok so let me clarify....yes u can run traades for more then 1 week u just have to say on sunday before noon "i will run the same trade" going forward. Right now we have interest from the following users:

wallstreetoasis
macroarbitrage
vagabond85
bi-winning
brandon st randy
zeroblued
dbcooper
vizio csodopok
amondo
therapist
synthessnits
goodbread
..me...bondarb...

that is 13..

i will keep score for these 13 if u put ur trades here prior to sunday at noon EST. Anyone not putting a trade here by this sunday will be out and those that do will form the original league. 100MM of notional capital with at most two trades...u can do 1 trade also or even stay in cash week 1 if u want butu must say something by sunday at noon. I will be on here sunday and will try to regulate a bit...but please keep in mind this is a new idea and so my authority as commisioner has to be respected and i will be in some ways flying in uncharted territory. if the trade is too complicated or hard to track i will DK it. And because this is a learning experience for all of us everyone MUST put a short explanation of why they like the trade in this thread or i will not take it. These are markets...there are no wrong answers (at least until after the fact) so dont be shy.

This will be fun, i am excited....plse everyone respect that i am doing this in my spare time and we are somewhat working in uncharted territory but i am willing to put in some time to get a good/fun dialogue going.

No. I won't be participating this time. Maybe later tournaments if this goes on. Just want to watch how it unfolds.

Too late for second-guessing Too late to go back to sleep.
 

I'd like to join the league if there's still room. Should we include stops, or does that overcomplicate the game?

Hypothetical $100mm My trades: Long Gold (GCG4 Comdty) - 500 lots * This is a stupid, short-term, conter-trend trade that will probably hurt me. But the rest of the December data (retail sales esp.) can disappoint due to weather, its mega positioned the other way and therefore has the most convexity to that view (for the moment). And I like the chart here. I think it'll be the best position over the next 5 sessions (which is all we're playing for here). I'm bearish med-term fwiw and will probably go the other way before the next NFP.

Short HSCEI (HCA Index) - 200 lots * Rationale - China is attempting to reform a "ponzi stage" economy, in minsky-terms. In attempting to liberalize interest rates, they will kill "profitability" of SOE's. Chinese gov't has also stated they want to see a LGFV fail, to teach the market a lesson. I don't care about what the P/E is, this sets up a condition where its almost impossible for Chinese equities to rally. They are still months away from potentially crying "uncle" and reversing course, as activity and employment are still v good. I'd be bigger, but I don't like where I'm starting this position from on the chart. Still, too compelling to exclude from the book.

 

OK here are the official rules...they are a bit more restrictive to keep things easier for me to track.

1) You have a notional capital of 100MM
2) You can have up to 2 line-items at any time 3) You can only trade on the weekends and all you can do a total of 4 trades per week max. (meaning you can turnover a full two position book). If i dont see anything from a person in this chat before noon on Sunday I will assume you are keeping your book unchanged for the next week. 4) Positions can be sized however you see appropriate, however any drawdown of 5% in a single week or 10% total from your high-water mark (calculated weekly) eliminates you from competition....at that point you have received the "tap on the shoulder" from the head of risk management who has told you to pack your bags. This does not apply to drawdowns within the week it is just on the weekly PnL (our risk manager is lazy and spends most of the week golfing). 5) You can trade equity indices, currencies, commodities, and fixed income but only liquid futures that i can find in bloomberg. No cash bonds, equities, or spot FX is allowed b/c I do not want to calculate a complicated PnL that includes dividends, carry on bonds, or rolls in FX. If you allow a futures contract to expire without using a trade to roll or close it out you will be automatically eliminated from the competition...you have been fired for negligence. As commisioner, head of risk, and CEO I reserve the right to disallow any product that i am finding difficult to track properly. You can find lists of futures products and the rules of the contracts on the websites of the exchanges. I expect you to figure out the rules of the contracts you trade and to report the trades in contracts.

Sample Trade to be clear: I buy 100 TYH4 (CBOT 10y Note Future) ...

6) When you trade you will get the open price for that future whenever it begins trading Sunday night or Monday morning. This price is readily available but if there is confusion my discretion will be the final arbiter on where you traded. 7) The contest is judged strictly on PnL...make as much as you can without getting stopped out (see above drawdown rules). 8) Every trade must have a brief reasoning to it to make it more of a learning experience for everyone...this doesnt have to be an essay it could be as simple as "I bought stocks because I think the economy is fine and the fed is dovish" but it has to be something. It could obviously also be a 100% technical reason such as "it is breaking out". 9) This league is an experiment, it is meant to be fun, and I expect everyone in here to approach it in that way...no as$holes. Of course everyone wants to win but also keep in mind that we are dealing with some rules that make this not very realistic and over and 6 month period luck plays a huge part in the result....so let's try to keep this civil.
10) This contest, which i see almost as a trial for the idea going forward, ends on May 31st 2014. If i see a trade from you time-stamped in this forum by noon EST tomorrow that meets the above criteria you are in.

 

Last thing: Expect two updates from me per week in this thread: 1) A weekend update of the standings as of friday close 2) Sometime during the week a list of trades that were filled Sunday/Monday...this may not come out until sometime toward the middle of the week as it will depend when i get 20 minutes to do it. Assume you were filled at the open if you put a trade here before noon sunday and don't complain until you see that list that doesnt include your trade. I will write down the trades on Sunday at noon to prevent people from editing their posts but i may not get around to finding fill prices till later.

 

one more thing...on foreign ccy trades (futures that trade in foreign currency) i will translate back PnL using the friday FX close...ie i will calc the PnL in foreign cry then use the friday closing currency price to translate back to USD for weekly MtM. when u close a position i will calc the total PnL in local currency and then translate back to USD using the price of the currency at the open (so at the same time as you closed the trade).

 

May be too late, but would like the following if you'll let me in:

Trade 1: all $100m of my allocation LONG SLV for this week (can we do that?).

Rationale: shitty jobs # last week will reverse a pretty dramatic drop in silver over the past 4 months...if that jobs report is real/not an abnormality, looks like Fed may have to pause tapering and/or keep it slow = weaker dollar = stronger commodities in short/medium run.

Trade 2: Short $20m of XRT retial ETF.

Rationale: retail looks like it might have had a weaker than expected holiday season, and you have to love shorting an ETF that has Groupon as #1 holding...plus the chart looks weak here already run way up with a double top recently.

Did I do this right or do I have to talk in lots (is a lot = $1m?)? If 1 lot = $1m then 100 lots of SLV please.

Thanks, Patrick

 

trades have to be futures contracts and reported in contracts, not dollar amounts...sorry to be so narrow but calculating PnL on equities, physical commodities, bonds, and spot FX is more complicated due to financing costs, dividends, FX rolls, etc...it would really mae it difficult for me to do accurately. Silver definitely has active futures but it is on you guys to figurte out the specs of the contracts you want to trade and pick your trade sizes in contracts.

 

Trade #1: Short 250 lots ADH4 (AUD/USD futures)

This is a potentially foolish mean reversion trade. Aussie $ absolutely loved the poor NFPs but I think it will drift back down over the week. NFPs are one very weather-centric data point surrounded by a whole lot of decent-to-good news in the US. Retail-oriented numbers coming out this week could be a threat but I'm thinking market trees through it. Lots of bad numbers coming out in China right now and the RBA has no intention of hiking soon. Plus, 'short loonie' is the more obvious trade right now which might play in favor of this.

Trade #2: Long 125 lots NKDM4 (Dollar Nikkei futures)

Timing this is difficult but this is a placeholder until something better comes along. The opening up of Nippon Individual Savings Accounts should rotate a lot of yens into Japanese equities. I would rather be doing this with JPX-Nikkei Index 400 futures since that index should get the bulk of the money (institutions are getting mandates to invest in this ROE-centric index), but those futures don't exist yet.

 

Another huge advantage of buying Nikkei in H1 is seasonality. Druckenmiller pointed it out at the Robin Hood conference, I was doubtful so I tested it and it really does exist, particularly in Q1. The second strongest "macro-seasonality" I found was buying EUR in December.

And just to be clear, my 'short Loonie' trade has little to do with China/ EM structural issues - I don't trade with a rear-view mirror at hand.

 

Yeah, been jumping in and out since early October when it was deemed an absurd contrarian bet amidst parity centric mean-reversion. The trade has become notable in the last month, but nearly everyone on board is focused on the increasing yield differential, which mathematically has little predictive power over the currency pair on a comparative basis- I'm much more concerned about other deeply ingrained issues confronting Canada that should lead to a 'gestalt shift' and effectively crush cad valuations.

 

Trade #1: Short 600 lots AUBH4 (30yr US treasury March future)

Expecting long term interest rates to recover from their drop on Friday and continue their long term upward trend as tapering continues, causing bond prices to decrease.

Trade #2: Long 100 lots CL (light sweet crude oil).

More of a guess here, but expecting oil to recover from its recent drop, at least in the short term.

 

i am an amateur so i am going to start with small position sizes, however i'm here to experiment and have some fun, so if the price action is favourable i will be adding to my positions very aggressively

Trade 1: Sell 8 GEU15 (Eurodollar September 2015) Trade 2: Sell 16 ZFH14 (5-Year T-Note March 2014)

  • growth '14 upside surprise
  • less stimulus = lower inflation premium
  • normalisation, no japan-style secular stagnation

  • tapering already discounted by the long end of the Tsy yield curve

  • markets will drive rates up despite Fed "forward guidance"
  • curve will flatten, driven by the short end, which is more mispriced

  • 5s will lead, like last tightening cycle

  • huge open interest in Sept and Dec 15 Eurodollar futures
  • a certain "bond king" is very publicly long the short end
 

also i seek clarification regarding Maximus' question; 2 securities or 2 trade ideas (involving potentially more than one security)? because i would prefer to consider the above "one trade" so i still have a free item-line

 

I'm an amateur as well and I'm just trying to learn from some "skin in the game" so here goes (first macro trade ideas I've conceived probably):

  1. Short Gold (GCG4) - 100 lots: Expect a slight reversal from Friday's rise because fed should continue tapering and gold should continue the downtrend. On Friday people were scared that the Fed might reconsider its tapering efforts and after today I think it's less of a scare. Because of the negative correlation, I'm also implicitly long some USD here.

  2. Short S&P March Futures (Would this be SPG4?) - 25 lots: Will probably lose money on this next week but intend it on for a week or two. I just have a feeling that the S&P will correct over the next couple of weeks after the strong rally in 2013, esp. after NFPs came out. Hopefully retail #s are not too great too. This might serve as a hedge for the first position as well.

 

Trade 1: Short 17 contracts of W H4 (CBT March '14 Wheat).

Came up as a strong short candidate based on a profitable time-series (across about 50 Equity Index + FICC contracts) and cross-sectional (within the DJUBS commodities universe) momentum signal, and has not suffered a significant recent reversal like corn. Unidentifiable other trends in sector, with reasonable 90-day volatility @ 15%. Don't want to waste valuable trades rolling this thing so expiry in March is fine.

Trade 2: Long 9 contracts of LCG4 (CME Feb '14 Live Cattle)

As I haven't had time this weekend, my position sizing leaves a little something left to be desired (roughly equal notional $ amounts per position). Thus I'll stick with something relatively low volatility (6.5% 90-day vol) that has had absurdly significant time-series momentum.

This leaves a bit in cash as I want to leave a bit of room for opening moves Monday; given the fact we can only have 2 line items per week and this is a 6 month contest, trying to isolate attractive term structure/roll yield plays is probably not going to cut it. On the to-do list is coming up with more rigorous risk management as opposed to eyeballing vol numbers so drawdown limits aren't hit.

 

Trade 1: Short 200 C6H4 (CAD/USD futures) Summary: diverging monetary policy with the likelihood of easing from BoC, crude supply revolution in the US that will massively undermine CA's terms of trade.

Thesis edited.

Trade 2: Buy 30 M6G4 (MXN/USD futures) Summary: Recent energy privatization reform should greatly reduce both CA and fiscal deficits (critical to defy another tapering EM selloff) and support economic growth.

Again, edited for same reasons...

 

Thanks man, glad I can help in any small way. After all, its some of the very people posting in this thread that altered the trajectory of my life few years ago. Scrapped out a portion of my thesis summary having pitched them to a few macro heavyweights, some of whom presumably initiated positions, so it wouldn't really be fair to them.

 

Week 1 Trade: I Buy 300 March Long Gilt futures (G H4 on bberg)

...lost in the non-farm focus on Friday was UK IP and construction output which were both very weak and make the big Q4 GDP numbers people were hoping for in the UK very questionable. After many months of strong data in the UK specs are highly short the bond market. Bigger picture the UK curve is quite steep relative to the rest of the world and i see gilts as relatively less vulnerable to an "end of qe" trade given the term premium already there and the lack of foreign ownership in that market.

 

Buy 220 CDH4 (cadusd): Medium term mean-reversion trade as CAD looks highly over-extended. Fiscal drag and obnoxious weather will weaken US data, putting forth fertile grounds to strangle short CAD positions and trigger stops. With non-opec oil supply decreasing, WTI will eventually rebound.

Buy 8 KCH4 (coffee): Brazil rain floods and surge in coffee etfs should bring the KC down-trend to a closure, especially given speculators are largely net-short with commercials increasing their long positioning.

I win here, I win there...
 

Week 1 Confirms We have 9 players in the contest, and below are fills for trades done on open this week. I used the bberg "OPEN" price for all contracts...please check your fills to make sure you got the right contracts and price. If you see a discrepancy plse PM me...many of these products are new to me also because i generally trade spot FX and cash gold/silver and do not trade much in the smaller commodities space so be patient with any errors. Good luck!

Bi-Winning Bgt 220 CDH4 @ 91.56 B-Winning Bgt 8 KCH4 @ 120.35

WSO.com Bgt 500 SIH4 20.19 (you didnt specify a maturity so i gave u March which seems active) WSO.com Sld 200 CDH4 @ 91.56

Bondarb Bgt 300 G H4 @ 108.19

MacroArb Sld 200 CDH4 @ 91.56 MacroArb Bgt 30 PEH4 (CME MXN ticker on bberg) @ 7.6725 *you said Feb but March seems to be front month..i may have thw rong contract here

Vagabond NO TRADE

Synthetic Sld 17 W H4 @ 571.5 Synthetic Bgt 9 LCG4 @ 137.175

Therapist S 100 GCG4 @ 1247.70 Therapist S 25 SPG4 @ 1838.30

Vizpok S 8 GEU5 @ 99.125 Vixipok s 16 TYH4 119-26

mrmarket B 500 GCG4 @ 1247.70 mrmarket S 200 HCF4 @ 10,167

 

One more point on league etiquette: We are all gentleman here, but when i say "no assholes" i definitely do not intend to squelch discussion of trades. By all means, give your views, even on other people's trades, and dont be shy...the dialouge is what will make this worthwhile. I just want everyone to respect that the market is a fickle bitch and it doesnt matter how smart you are you WILL make some awful calls from time to time. I have done this for awhile and i've had some very good calls and you bet your ass ive had more then my share of head-scratchers that made me want to crawl into a dark hole and not emerge until everyone had forgotten. So please please dont hesitate to talk some smack but remember that if you get cocky and be a dick about someone else's idea your time will come also...the best i have seen in this business get that 100% and are humble (at least in terms of trading ideas).

 
GoodBread:

Trade #1: Short 250 lots ADH4 (AUD/USD futures)

This is a potentially foolish mean reversion trade. Aussie $ absolutely loved the poor NFPs but I think it will drift back down over the week. NFPs are one very weather-centric data point surrounded by a whole lot of decent-to-good news in the US. Retail-oriented numbers coming out this week could be a threat but I'm thinking market trees through it. Lots of bad numbers coming out in China right now and the RBA has no intention of hiking soon. Plus, 'short loonie' is the more obvious trade right now which might play in favor of this.

Trade #2: Long 125 lots NKDM4 (Dollar Nikkei futures)

Timing this is difficult but this is a placeholder until something better comes along. The opening up of Nippon Individual Savings Accounts should rotate a lot of yens into Japanese equities. I would rather be doing this with JPX-Nikkei Index 400 futures since that index should get the bulk of the money (institutions are getting mandates to invest in this ROE-centric index), but those futures don't exist yet.

What happened to my fill?!?
 

also since i am short, i feel compelled to comment on today's bond rally -- which goes against the trend we have seen since the start of Dec. i have read numerous explanations: * market can't sustain yields above 3% * weak labor report will make "data dependent" Fed question taper * rotation from stocks into bonds i think it was due to positioning, and the lack of a clear "story" means it won't be a big correction / no substantial trend change. i am still willing to bet the US is at escape velocity and explain away the weak labour report as the product of bad weather

 

...also will be interesting to see how the group does as a whole...ie if this was a multi-manager platform will the WSO group be able to keep pace with your Tudor, Caxton, Moore, Brevan-types that are doing the same thing with many PMs? the half of the group that is not taking any real risk needs to get in their and start trading for us to have a good WSO Fund return!

 

Not to derail this amazing thread, but I'm pretty bored (read: I have a decent buzz) and instead of reading another K/Q (read: do actual work) I've been destroying the search function and found what is probably now my favorite WSO post of all time.

I'm posting it here because I think this will continue to be a high traffic thread and because Bondarb wrote it.

//www.wallstreetoasis.com/forums/just-so-you-guys-know

[quote=patternfinder]Of course, I would just buy in scales. [/quote] See my WSO Blog | my AMA
 

^ I'd be happy to take the other side of that EUR/JPY trade, just not immediately for timing purposes and preferably not against JPY. I think the market will have to get religion about an eroding peripheral region sometime this year. No idea what RTY signifies.

Would be awesome to have you part of this, I'm sure we can glean (and fade!) a lot from your insight and I was actually hoping you'd join when this started.

 
Macro Arbitrage:

^ I'd be happy to take the other side of that EUR/JPY trade, just not immediately for timing purposes and preferably not against JPY. I think the market will have to get religion about an eroding peripheral region sometime this year. No idea what RTY signifies.

Would be awesome to have you part of this, I'm sure we can glean (and fade!) a lot from your insight and I was actually hoping you'd join when this started.

The passive tightening in the euro area is hard to fight in FX. Many have tried and many have failed, plus there is a decent amount of eur/xxx carry to be unwound from longer term names. Perfect example tonight with the bad miss in AUD employment and the euraud demand is out in fl force. RTY is Russell 2k index on bloomberg, IWM would have been clearer (or the futures are RHA I believe).

I have not been visiting the site regularly and didn't even know this forum existed. That will change but that means I will have to wait for act 2 of WSOs fantasy macro league. Something tells me that come roll time there will be lots of learning done and this thread will get interesting.

 
Best Response

i assume u r being sarcastic but markets do a fantastic job of keeping me humble. I find very few seriously good traders who are anything but humble about their ideas and market calls. The only thing I give myself some credit on in regards to the 2007-2008 situation is my timing as I know many people who were way smarter then I am who lost money, got stopped out, and in some cases got fired in the 2006-early 2007 risk rally. One of the first guys who ever talked to me about the housing crisis, way back in 2005 while the bubble was building, actually lost his job because by the time late 2007 came around he was so mentally busted he actually found himself long financials somehow having been stopped out so many times on the short side. This was a guy knew the story 10x as well as a guy like Paulsen who knew practically nothing and just had a chart of house prices vs their trend. It really taught me that being smart is meaningless, the market is always right, and that being early can be worse then being wrong because u can blow so much physical and mental capital waiting for the inevitable that you are no longer around when it happens.

 

two things: 1) i forgot cc066 on the fills...will add his tomorrow 2) When sizing positions your notional capital is not a limit for the notional size of the underlying commodity/bond/stock index/currency you are trading...one of the great and dangerous features of futures contract is that you only have to post margin as opposed to buying or financing the full underlying notional size and therefore it is easy to get leverage. You should size your trades to your stop loss which is 5% in a week or 10% from peak, you shouldnt really be thinking about "using" your notional capital. In reality our fund which is 100% futures would have a ton of cash sitting around consistently because we would only regularly have margin to our futures clearer out and we wouldnt have big physical positions. Some of the low sizes especially on fixed income futures trades here are a misunderstanding of this...if you are trading fixed income, especially front-end stuff, you are probably going to need contract sizes that imply positions that are significantly bigger then your 100MM notional capital if you want enough risk on to "move the needle" in terms of PnL.

 

Let's see how hawkish one can be with EONIA at 30bps and 1y1y starting to price in hikes. Super Mario will have to pull sth out of his head again if excess liquidity stays low. Coeure pointed the direction today that another LTRO would not be appropriate. I'm wondering what is left in the toolbox now regarding neg. rates/QE and how that would be implementable within the ECB's mandate. At least Weidmann does not play the contrariant anymore. Also USD swaps 5y5y payer and EUR 5y5y receiver had such a run and I do not see that stopping soon based on fundamentals. Lastly, ED Greens. The Fed always says it will not hike but when it does then it's brutal and given the current fwd guidance regime and QE, the Fed will have to hike even more aggressive than usual. Anyway, Greens look way too cheap.

What do you guys think?

 

U mean cheap as in the price is too low or the rate is too low? I usually talk about eurodollars in price so "too cheap" would mean rates are too high...i think u mean opposite though. I dont have a strong opinion on pricing in the greens right now...I think those contracts will expire at much higher rates then are currently priced but I also think it is going to take an awful lot strong data for the market to actually come around to pricing it this year. On Europe, I agree that the ECB will likely act at some point soon (hopefully in Q1), but the problem is that every day they dont act they are passively tightening and that (along with very strong trade data) is supportive of the currency. With forward eonia above the refi rate I'd much rather own the euro front-end then mess around with the currency.

 

Drenched with work right now, but I'd like to make my trades for Friday's open/ close:

Trade 1: Buy 275 CDH4 (cad)

This should leave me net-long 75 contracts. Upcoming BoC benchmark rate decision on wed, I think they could maintain rates and that would trigger a substantial USDCAD selloff (BoC is notorious for deliberately surprising market expectations). My long CAD position is not a vote of confidence in the loonie, I just think the BoC will inevitably ease on a subsequent date in the near future and I don't want my bondarb dollars being caught in the middle of a possible stampede on Wednesday. CAD also happens to be slightly extended so a correction could be due.

Trade 2: Sell 30 PEH4 (mexican peso)

Liquidating position. Was waiting for an upside break-out during the week, it didn't manifest and MXN is still range-bound, so shawty you disqualified:

Running abnormally low risk so feel free to call me a piker, but rest assured, I will go in guns blazing once the smoke clears... perhaps I should just buy some cattle on the basis of "cross-sectional time-series" momentum.

GoodBread, nice call on AUD - I may be a hypocrite cause I'm also short and have been for a while...

 

With ED Greens I meant that their price is too high. I think many fast money players are looking at them at the moment, which is why you can have quite choppy price action. I agree with the longer-term view that the Greens yield should be much higher/the contracts trade lower closer to maturity. It's one of those trades where if you would not have MtM you could just sell them and wait.

Other things, which I find quite interesting atm are Bunds in ASW and Gilts in ASW w.r.t. their seasonality and for Bunds the EONIA fixings are getting increasingly important.

For MXN: USDMXN yesterday broke out of a flag pattern, which many cited as the reason for its loss.

One thing in general, even though I am not a player of this game: Why do you not include the rational for why doing a trade now, for that weekly window? There must be some catalyst on the horizon, otherwise I do not fully understand the exercise. Post-NFPs overreaction/mispricing is a good reason for example, or the release of some datapoint or so. I could think of many things that should happen over the year, but I do not have that many ideas with the constraint that they should happen very very soon.

 

ezekiel this is a very good point on catalysts and one that many traders (even seasoned pros) find difficult. Valuation or a bigger-picure view is sometimes a good enuff reason to put on a trade even if you dont have a really identifiable near-term catalyst, but you are right that without a specific catalyst it can result in a lot of frustration as you wait (and often get stopped out). The other side of the argument is that often catalysts are tough to identify in advance...for eg a central banker comes out of nowhere with an unexpected comment or an economic number that most though would be unremarkable misses massively one way or another. So like all things it is tricky and hard to have a hard and fast rule...you can wait for a specific catalyst that you can identify but you may sometimes miss a good trade that starts to move based on a catalyst that was very hard to see in advance. What was the catalyst to start the unwind of the housing bubble? Sometimes the actual catalyst to start a big move is something as simple as a bigger player who was going the other way "throwing in the towel" and liquidating a position...stuff like that is hard to identify in advance.

 

^ I was expecting an upside break-out from the flag, consistent with broader fundamentals. Oh well...

In the real world I'd go long MXN funded by a basket of crappy Latam currencies (basically all of them) and walk away for a few months.

I did include my short term catalyst for a long CAD position this week - the upcoming BoC rate decision.

Although you're right, I mostly focus on medium to long term fundamentals and have a few quantitative models (I call them my analysts) to take care of short term posturing.

 

Sorry for the misunderstanding, I was not trying to pick on you specifically, I just meant for everyone regarding presenting ideas - why should it happen now, why is it not priced in yet?

 

Long 300 PEH4 (MXN/USD Future Mar 14)

  • Developed markets still drive a lot of EM and most positive on US vs. China vs. Europe, Mexico benefits from this
  • Energy sector reform in Mexico has passed- will bring ~$10-15 billion FDI every year and first oil company has signed already
  • Low external funding needs relative to other EM's (low current account and discal deficits)

Total newb when it comes to position sizing. If I'm understanding this correctly should you be looking at the value of tick value (in the case of PEH4 its 12.5), vol (~13%) and max drawdown (5%)?

Arbitrarily I took the effect of a 2 standard deviation move (~26%), which would be equivalent to a move of around 2 pts at current levels (~7.56) and calculated the projected loss at $5000 per point and 300 contracts, which would be a total loss of ~$3,000,000. As this is still less than the drawdown it seemed ok sizing wise.

Would appreciate more experienced hands chiming in as i'm sure I missed something...

 

position sizing is an art not a science but you are certainly on the right track...most people who size their positions quantitatively in some way relate the volatility of the product to what they can afford to lose...I might take some objection to using that 13% number but i will let you think it thru and get a feel for it by trying whatever size u think appropriate. There is definitely no "right" answer to how you size your position.

 
Vagabond85:

Long 300 PEH4 (MXN/USD Future Mar 14)

- Developed markets still drive a lot of EM and most positive on US vs. China vs. Europe, Mexico benefits from this
- Energy sector reform in Mexico has passed- will bring ~$10-15 billion FDI every year and first oil company has signed already
- Low external funding needs relative to other EM's (low current account and discal deficits)

Total newb when it comes to position sizing. If I'm understanding this correctly should you be looking at the value of tick value (in the case of PEH4 its 12.5), vol (~13%) and max drawdown (5%)?

Arbitrarily I took the effect of a 2 standard deviation move (~26%), which would be equivalent to a move of around 2 pts at current levels (~7.56) and calculated the projected loss at $5000 per point and 300 contracts, which would be a total loss of ~$3,000,000. As this is still less than the drawdown it seemed ok sizing wise.

Would appreciate more experienced hands chiming in as i'm sure I missed something...

you guys should be copying bondarb's or c4g's trades instead... that thesis above is a subset of exactly what I posted.

bondarb, please consider putting on some herd mentality restrictions, or I may have to consider deliberately putting on some crappy trades that others would blindly over-size and quickly blow up.

 

There is nothing wrong with herd mentality trades. There is a Keynes quote along the lines of "the market is a beauty contest where you vote on what everyone else thinks the winner looks like, not necessarily what you think the winner looks like." You could have the most well thought out idea but sometimes it comes down to whether someone buys or sells enough after you do.

 

Because all great skilled macro traders come up with their ideas in a vacuum. Give me a break dude. How many people do you think thought of shorting the loonie going into last week? Probably everyone in this thing. The timing and sizing of your trades is what will most likely set apart whoever wins this. Who cares if my trades meet your "3Cs of macro tourists" test? Style points are for the birds.

 

Didn't mean to step on any toes. Can guarantee I won't be in the running to win the thing as I'm very green to trading (research guy trying to learn to think more like a strategist). That said I'm an EM guy so my options were limited when it comes to the non equity EM futures space. Nevertheless can hopefully add a little more on why I'm bulled up on Mexico. - Enrique Pena Nieto (elected last fall) has the potential to be a transformational president BC he knows how to get the extremes talking to each other in mex. The speed with which he got reforms done was remarkable and I believe he'll do the same for the tax system and ther areas in mex (energy bill is the start) - energy laws in Mexico were among the worst in the world at discouraging private enterprise (worse than North Korea/Iraq etc) so this really is low hanging fruit. And there a history globally of nimble private operators getting additional producing out of fields previously operated by state monopolies (Colombia) - the sell off in EM assets last year punished the externally vulnerable countries the most (fragile 5 etc) an Mexico does not share the same characteristics as those countries (high current account and fiscal deficits, current account deficits funded by portfolio flows/high percentage of foreign bond holders).

Hopefully that adds a little more color, though it's pretty much the consensus bull case for mex (if others have another angle or are short mex id love to hear it)

Bonarb- thanks for the feedback on position sizing

 

My sincere apologies for being an ass about it, was not in the best frame of mind yesterday. Most of my thematic trade ideas are widely recognized by market participants, I just happen to often delude myself into thinking that the potential risks have been exaggerated and some granular details have been overlooked. You clearly are way more knowledgeable than me when it comes to EMs, and hence deserve to put the trade on.

With regards to quantitative position sizing, I will be developing a web based app focusing on volatility adjusted and VaR based approaches to futures contract position sizing. Very busy right now and have never built an online app before which involves server side programming, something I have never looked into, so this may take me a while.

If anyone has some experience with Shiny for R and would like to collaborate, please shoot me a PM.

 

Week 1 Standings (as of Friday Jan 17 close in USD) GOODBREAD 605,000 WSO.COM 393,000 BONDARB 290,750 MRMARKET 257,712 MACROARB 84,750 SYNTHETIC 16,960 VIZPIOK 650 WSBALLA 0 VAGABOND 0 THERAPIST -17000 BIWINNING -118800 CC066 -280,250

TOTAL 1,232,727 WSO LEVERED MACRO FUND RETURN .21% ...this is a hypothetical fund where i take our return and apply it to a 600MM capital base (as opposed to the 1.2B of total notional capital assigned to managers). Most multi-manager funds lever up by over-allocating capital internally to managers so this is not unrealistic.

 

Week 1 Wrap-Up: Good start to the WSO fantasy league with Goodbread jumping out in front with a prescient sell AUD call...dissapointing employment umber Wednesday night "down-under" touched of two days of pretty aggressive selling and AUDUSD closed near the lows Friday. Elsewhere, our precous metals bulls Patrick and MRMARKET both had solid weeks as both silver and gold closed strongly. Silver had a characteristically volatile week and Patrick was in one point in first place and in one point in last place this week. That's silver in a nutshell. Bondarb (me) had a solid week being long UK fixed income...on theother side of the trade cc066 had a rough week being short US bond futures. CAD also weakened again this week providing gains for Patrick and Macroarb.

Best of luck next week...all trades in by Sunday at noon please.

 

Week 2 Trades

I'm stepping in with a spoon to a gun fight but i'll have a couple well thought out ideas for week 3

Anyway, this week aside from signals on a technical system

Long 500 ES2 Contracts Short 200 VIX2 Contracts

Will probably close out the VIX trade in a couple of days going into the week (or not depending on how it goes)

Analysis:

Expected low volatility going into this week (No Major Econ releases are set in the motherland for this week), Staples and Consumer Discretionary recently been slammed (Expecting a pick up in these sectors), and last and most importantly Jan is slowly approaching month end, mutual funds need to deploy new inflows.

Caution:

Managers are starting to play defense with the tapering coming to an end but until volatility picks up, stay long the tape.

I welcome and am open to hear people rip this trade/analysis apart

 

Week 2: Close out last week's trades. Then

1: Long 25 SIH4 contracts (COMEX Silver)

2: Cash

Sorry this is a little stupid but it's been a busy week/week-end and I don't have enough time to come up with something else. Long Silver because gold and palladium have started the year off nice but silver has gone nowhere. The odds for a move in gold being a reasonable bounce are good imo, silver could move in sympathy. Tiny position because I'm pulling this one out of my butt.

 

gentlemen, today i expose myself for the clueless amateur that i am.

after reading Bondarb's comments, i have decided to add to my positions.

Trade 1: Sell 177 GEU5 (Eurodollar September 2015) Trade 2: Sell 376 FVH4 (5-Year T-Note March 2014)

at my current level of "knowledge" i am not comfortable with using historical volatilities, so instead i based my position sizes on what Colm O’Shea wrote in Market Wizards:

"First, you decide where you are wrong. That determines where the stop level should be. Then you work out how much you are willing to lose on the idea. Last, you divide the amount you’re willing to lose by the per-contract loss to the stop point, and that determines your position size."

the numbers i have produced look VERY wrong to me, so i have attached the maths below and would appreciate it if someone had a quick glance.

as you can see (below) i am very loose with my stop levels. i have decided that i am wrong if the price action totally retraces the trend that i believe started late Nov/early Dec. this is just wild speculation based on nothing, so again i would appreciate some input.

~~~

willing to lose/(((entry price-stop price)/tick size)*tick value)

FVH4

willing to lose: 5000000 entry price: 119-260=119+26.0/32=119.8125 stop price: 120-280=120+28.0/32=120.8750 tick size: 1/32=0.03125 tick value: 7.8125

5000000/(((119.8125-120.8750)/0.03125)*7.8125)=-18823 18823-16=18807

decided to divide by 50 (arbitrary #) because the size seems absurdly large

18807/50=376

GEU5

willing to lose: 5000000 entry price: 99.1250 stop price: 99.3500 tick size: 0.005 tick value: 12.50

5000000/(((99.1250-99.3500)/0.005)*12.50)=-8888 8888-8=3457=8880

8880/50=177

 

I assumed that the process of closing existing trades counted as individual trades. This changes everything as my prior order-set was more geared towards unwinding. Here's my updated trades for the week:

Close the MXN position.

Buy 369 C6H4 (CAD/USD):

This should leave me net-long 169. Same explanation as above: Upcoming BoC benchmark rate decision on wed, I think they could maintain rates and that would trigger a substantial USDCAD selloff (BoC is notorious for deliberately surprising market expectations). My long CAD position is not a vote of confidence in the loonie, I just think the BoC will inevitably ease on a subsequent date in the near future and I don't want my bondarb dollars being caught in the middle of a possible stampede on Wednesday. CAD also happens to be slightly extended so a correction could be due.

Sell 168 E6H4 (EUR/USD):

Technical weakness (all Gann angles are pointing south, MACD turns negative and a hanging man pattern was formed), potentially dovish ecb and seasonality signal.

 

holding my Silver position for at least another week:

Hold: LONG 500 LOTS SI (Silver 5000 oz)

Close Out: SHORT 200 LOTS CD (Canadian Dollar) -- think there will be continued weakness here with BOC loosening quickly, but I have stronger conviction in trade below...

SHORT 100 LOTS DHH14 (DJ real estate index) since it's at ~$250, I think this means I am short $25 million (1 lot = 1,000 contracts?) ..still not sure what site I shoudl be using to find the lot sizes, etc, please excuse my ignorance...

Thesis: real estate will be under more pressure as higher interest rates continue dampen private RE investment here...also, DJ Real Estate index has shown nice downward trend over last year with rising interest rates, but has had a bump back up since mid December...I like to bet on the longer term downward trend continuing, so I see this as a good entry point to short.

Good luck guys! Patrick

 

New trade:

S 250 PEH4 (MXN PESO)

I am not just doing this trade to be a wise-ass and fade a popular idea...I believe in the mexican reform story, and I agree that MXN is "good" EM in terms of external funding and all that jazz, but I think it is still a very crowded trade, it is highly levered to US growth which to me is priced for perfection, and it is very vulnerable to a continued exodus from EM bond markets (based on how much foreign money has flowed into Mexican bonds since QE began). Also CADMXN has gotten seriously pummeled and so I think it won't be easy for MXN to conitnue to hang in if broad dollar strength continues (which I think it will). Lastly USDMXN broke some big technical levels last week.

...I also stick with my Gilt future long.

 

Sorry this is a little late.

Sell 500 GCG4 Buy 800 NXH4

Everyone knows the medium-term Japan case, so there is no need to rehash. I like this as an entry point after the early stumble. Gold was short-term / counter-trend, and US data should resume its trend over the next series of releases. Sticking with short H-Shares.

Thanks

 

Sorry if this is late, just got back to school and couldn't come up with much.

Close out short Gold Trade.

  1. Add to S&P 500 short. Same rationale, expect some correction in the coming weeks. I'll add 150 contracts for a total of 175 short.

  2. Short TRY futures. 400 contracts. Central bank meeting on Tuesday. Will likely avoid hiking rates and TRY should slide further.

Edit: CME quotes futures on the turkish lira as USD/TRY, so I guess I would be long these futures to be short TRY.

 

Yeah, I'll be out of this game very soon if I continue trading like this... I actually broke a rule of mine to never trade around numbers.

Fortunately I drastically reduced my long USDCAD position size in my PA last week, so I still caught the move today to a small extent.

I'm very confident that they will ease sometime in H1. COT data showed that speculators are massively short CAD, so if the BoC did maintain, which to my understanding was a somewhat contrarian view, I anticipated it would catch a portion of them off-guard, potentially triggering stops and forced liquidations. Self delusions...

 

This week's fills...plse check yours are right...

VAGABOND B 300 PEH4 7.5175 SYNTHETIC S 2,500 W H4 566 SYNTHETIC B 1,250 LCG4 140.825 WSBALLA B 500 ESM4 1827 WSBALLA S 200 UXH4 (2ND VIX FUTE) 15.15 GOODBREAD B 250 ADH4 87.40 GOODBREAD B 200 NXH4 15,775 GOODBREAD B 25 SIH4 20.30 VIZ S 177 GEU5 99.085 VIZ S 376 FVH4 119-26.75 MACROARB B 369 CDH4 91.03 MACROARB S 168 ECH4 1.3530 WSO.COM B 200 CDH4 91.03 BONDARB S 250 PEH4 7.5175 MRMARKET S 500 GCG4 1252.50 MRMARKET B 800 NXH4 15,775 THERAPIST B 100 GCG4 1252.50 THERAPIST S 150 SPH4 1832.80 THERAPIST B 400 TURH4 2.2812 *This is a borderline situation because in reality ur size would be 25% of open interest and berg has no tick data for this future meaning it rarely trades. I will let u have it but it's close.

 

this contract starting trading tuesday of this week due to the MLK holiday and i used the tuesday open...you cannot put a trade on here sunday and get friday's closing price. USDTRY obviously traded monday as did all spot FX but not these futures according to bloomberg. If you want to bust the trade I can but unfortunately i dont want to start complicating things by allowing people to trade spot FX as the PnL will be much more complicated to track correctly.

 

Trades for this Sunday:

After getting badly bludgeoned this week, I need some time-out to evaluate a lot of things, hence I'd like to purge all my positions instead of resorting to revulsion trades.

1) Sell 169 C6H4 (CAD/USD)

2) Buy 168 E6H4 (EUR/USD)

Hopefully I'll never have to stay cash ever again... I clearly became way too cocky over nothing and have paid the price in this game, another competition and in the real world.

 

Do intra-week fluctuations matter?

  1. Close silver long. Then Short 400 NGH4 contracts (Henry Hub Natty for March). Kind of a bold move given that this whole cold weather thing should keep going into the middle of the week but natty has gone vertical and the move seems to be way overdone and due for a pullback. Commercial hedgers books are basically flat now, this is a scary trade but I like it.

  2. Reopening the short AUD trade, Short 500 ADH4. I'm not expecting anything hawkish out of Australia after what happened this past week.

 

Apologies for the delay, just woke up, changed my mind and wanted to add some positions:

1) Close all existing positions: - Sell 169 C6H4 (CAD/USD) - Buy 168 E6H4 (EUR/USD)

2) Buy 300 6JH4 (JPY/USD): Not kidding, just had a vivid dream about the Yen appreciating. Speculators are largely caught in the yen/ abenomic carry trade and I want to be on the other side this week as they continue to unwind. Lot of important numbers this week, but I don't think they will ease immediately.

3) Buy 300 6SH4 (CHF/USD): Inflow of foreign funds to meet capital ratio requirements for lending and continued safe haven flows are the primary reasons for this trade. The 1.20 EUR/CHF floor is so 2011...

 

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Vitae et quod ipsam sit. Voluptas culpa occaecati provident.

 

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Perspiciatis voluptate corrupti sint vel velit minus ipsa. Quisquam quod sit esse ea veritatis exercitationem. Molestias exercitationem id nam.

 

Accusamus ut excepturi ut nobis omnis officia. Cum corrupti iure quas dicta natus est. Libero incidunt provident sed corporis voluptatem voluptates modi. Officia ut asperiores est illo ex et. Reprehenderit deleniti qui repellendus vel nesciunt a fugiat. Voluptatem ipsum quasi quia vitae aut neque quia non.

Dolorum corrupti sunt voluptas vel. Sunt exercitationem harum tempora a. Similique minima quasi inventore aut odio voluptatibus.

 

Sequi delectus repellat dolores id. Qui porro quia et molestiae aliquam. Quia velit ipsam non. Ipsa cumque culpa aliquam enim dicta voluptatibus aut. Quae corporis optio iure asperiores sunt magnam ut.

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Quod in quia et aut. Impedit iusto et nostrum perspiciatis excepturi. Incidunt nihil quia nesciunt magni. Vitae aliquam rerum facilis officiis repudiandae nemo fuga. Sed provident quis adipisci doloribus officiis laborum fugiat. Nostrum culpa est nulla maxime cumque et recusandae. Quia laudantium fugit totam dignissimos.

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Dicta vel perferendis non quam sint rerum. Non sed architecto molestiae. Dolore ratione quo voluptate consequatur et. Voluptas vel quidem neque ullam eligendi dolores.

 

Esse omnis et explicabo eum. Veritatis quo molestiae ut non. Qui earum ea aliquid beatae repellat neque. Nihil ab quia consequatur dolores dolorem eligendi non occaecati. Illo officiis incidunt ut et beatae vitae eaque.

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Sunt quis similique necessitatibus minus aut blanditiis qui. Rerum fugit et doloremque debitis ut sunt voluptatem. Soluta sit tempore nemo fugiat porro deleniti assumenda quae.

 

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Fuga et voluptatem occaecati nobis reiciendis pariatur. Saepe aut quia pariatur atque libero. Consequuntur expedita libero et et est rem itaque magnam.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

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