1/12/17

So I've been in the trading industry for 6 years now. At some point in the future, I want to transition to prop (I have a strategy) and I'm not talking about Market Making. I'm talking about actually managing a discretionary book to generate alpha... like a portfolio manager.

Anyhow, we've all heard of Adam Guren, who used to work for FNY Securities and now he runs his own hedge fund. He came straight out of school and went to go play semi-pro soccer and joined FNYS afterward. He never worked on any trading desk at an investment bank or a large Asset Management for that matter. In one of his old interview, he said he trades based on intuition (as do I). I'm going to assume he knows when to buy or sell when the market is relatively cheap or expensive.

So does anyone know if he's all discretionary? In one of Glassdoor review for FNY, a guy wrote "You can't look over someone's shoulder every time and watch if a $60 stock moves 30 cents"... Not word for word but close to it. With that being, I assume FNY is a short term trading shop. At one point he made over $5MM in one year. That is over $20,000 a day, assuming there are 252 trading days a year. FNY is very risk adverse because they trade their own capital. So how could anyone who trade equities make that much in a single day, consistently?

Also Jennifer Han, hedge fund superstar that made arrow hawk, 18%. She had her own hedge fund but it went bust, but not because of a huge loss but due to a redemption. Prior, she worked for MS and BAML commodities desk... if I recall correctly. She got picked up by Millennium immediately after. Her strategy is on the basis of relative value on commodities.

So with that being said, investment banks doesn't teach you strategies, so how could she go into a fund and kill it? I assume this is a strategy she developed?

Comments (16)

1/11/17

FYI FNY Securities doesn't just trade U.S. equities, they trade international equities, rates, fx, credit, derivatives and etc... but I think Guren was dedicated to equities.

Financial Modeling

1/12/17

FNY also has a large number of groups that fall under their name. As @mswwonc noted each of these groups trade different products with different time horizons. Some of these groups go flat every night while others may hold a position for a day or two etc.. It also important to note the type of leverage you can get intraday vs if you hold over night.

1/12/17

Right and overnight leverage I believe is 6 to 1 and intra-day is a lot higher, obviously... but kindly speaking, can we stay on topic, thanks.

1/12/17

if you have been in the industry for 6 years, then you should have some kind of track record.
Either you have an actual PnL, or you are in sales / strategy / research, and you make trade recomendations, and your recomendations can be tracked to create a paper-trading portfolio PnL.

So, first, what is your PnL / track record? (yearly, or however best describes your journey...)

your answer to this question will determine how you can proceed.

1/12/17

I'll get to that and I really appreciate your help, but in the meantime, I'm not asking for any advice on how to move to prop. But what I will say is that my strategy that I developed is not scalable to run a large book. So really, what I want to know is, how can someone like Guren who I "assume" is running a 20mm book make $30,000-$40,000 a day consistently, just trading equities, given the risk limits mandated by FNY? I mean to make that much, he's taking huge risk and he's trading on what... "Intuition"...?

And Jennifer Fan... She's a relative value trader, market timing for her needs to impeccable. From what I heard on the street, she is running a 200mm book (ALL BY HERSELF)... And she is trading commodities so on a given day, she can be down by a significant amount, in the case she is wrong. When she was a trader at the bank, no one taught her to prop trader. Maybe it's a dual combination between intuition and her stats degree from NYU and she was able to make a strategy? I mean no one taught her anything.. Can you agree she developed a strategy on her own. What skills you think was transferrable when she moved to the fund?

1/12/17

we don't know exactly how a persons market intuition develops...but for most, its a combination of exposure (seeing lots of different things) and mentoring (more senior people who have figured things out teach their juniors). After some number of years, the combination of these 2 things, combined with your own insight that you develop over time, coalesce into your own personal trading strategy / style.

its different for everybody, but these elements are the foundation. When you develop a way to look at the market that makes sense to you, and the market confirms your view/strategy....it just makes sense. If you don't have this gut feeling that is confirmed by the market, then you just aren't there yet.

Once you do have this strategy confirmation, then you can scale it up and trade it in much larger size to the point where you dominate a market...and that can be into the billions.

Best Response
1/12/17
mswoonc:

I'll get to that and I really appreciate your help, but in the meantime, I'm not asking for any advice on how to move to prop. But what I will say is that my strategy that I developed is not scalable to run a large book. So really, what I want to know is, how can someone like Guren who I "assume" is running a 20mm book make $30,000-$40,000 a day consistently, just trading equities, given the risk limits mandated by FNY? I mean to make that much, he's taking huge risk and he's trading on what... "Intuition"...?

And Jennifer Fan... She's a relative value trader, market timing for her needs to impeccable. From what I heard on the street, she is running a 200mm book (ALL BY HERSELF)... And she is trading commodities so on a given day, she can be down by a significant amount, in the case she is wrong. When she was a trader at the bank, no one taught her to prop trader. Maybe it's a dual combination between intuition and her stats degree from NYU and she was able to make a strategy? I mean no one taught her anything.. Can you agree she developed a strategy on her own. What skills you think was transferrable when she moved to the fund?

First: Jen Fan worked at Arrowhawk and Arrowhawk failed to raise enough money and shut down. She then started her own fund (cant be bothered to look up the name), her own fund shut down due to it being down 5-10% in her two years.

That aside, who says that if your at a bank you cant learn to prop trade. Banks had alot more flexibility prior to the GFC. MS in NY has a big commodities team and they do prop trade to this day. They also do lots of physicals, and if you understand how the product flows and regional S&D balances you can translate that into financial trades.

"no one taught her anything"...........did she tell you this?

You are correct that your timing has to be impeccable if you are just taking out flat price risk. However many who trade commodities - trade spreads. For example if you know that that production in the Permian is going to pick up and associated gas will cause a regional surplus, as there might not be enough takeaway capacity to move the gas to the gulf coast. Your trade might be short Waha and Long other regional benchmark (credit RBN). Benefits of this kind of trade: Less risk and you dont care what the price of gas is but rather what the spread is.

1/13/17

Spot-on commodities-wise.

Not sure what OP meant saying investment banks don't teach strategies? These guys had big physical presences a few years back and that flow of information makes spread trading in commodities very do-able. Must be much harder now. The flow of info at a trading house gives you that edge to effectively trade spreads and that must have been the same when she was at an IB.

1/13/17

They are still a big player in Power it seems, not so sure about Gas & liquids

1/13/17

They got run over on the last physical pipeline deal they did with Williams...I think most of their physical trading these days is trying to minimize losses on that. Also know they do some physical gas buying for power customers and trying to get into some basis hedging for NE gas producers.

1/12/17

I guess what I'm asking is a question that is impossible to answer unless you're him/her.

1/12/17

maybe someone will fwd this thread to them and they'll be kind enough to answer...has happened before.

1/12/17

What exactly are you asking?

Are you asking how traders develop an edge? It's different for everyone. You can read about many different ways in the market wizard books (in fact, the latest one has an interview with a FNY trader)

1/13/17

You are asking an unanswerable question really, if you want to know how a person developed a strategy then you need to ask that person or someone very close to them.

But I would say this:
-20k per day is not a huge PNL sigma for 1 trader. 5m per year PNL on a 20mm book is 25% without leverage (and im assuming there is leverage on top of that so the unlevered return is lower). Great return, but certainly not even close to unbelievable, especially on such a small base (obviously gets harder to make large returns as capital increases).

-Running a 200m book by yourself isnt crazy either, Ive seen much much bigger than that.

1/13/17

Like others have said, the numbers aren't anything to write home about, really... I don't know anything about the people in question, either.

In terms of how managers develop their skills, most commonly it happens the same way as in all the other professions. Namely, through an apprenticeship. Alternatively, it can also happen by trial and error, but that's much less likely to to produce a positive outcome.

1/13/17
Add a Comment
WallStreet Prep Master Financial Modeling