I'm currently an equity prop trader in NYC. Academically, I majored in Finance and graduated towards the top of my class at a semi-target. Hard work and persistence allowed me to get 3 nice job offers (MM S&T Chicago, prop NYC, prop NYC) despite a rough economy. I very systematically analyzed and perfected the job search process, so I think I can speak intelligently on resume / interviews / networking / general thoughts for people still in school.
From a trading perspective, some good areas to ask may be about the mental aspects of the job, what I like/dislike, different strategies, arguments about efficient markets / HFT, industry culture, advice, favorite books, best lessons. And of course since this is an "ask me ANYTHING" I will do my best to also answer any embarrassing, trolling, or unrelated questions provided I stay anonymous and do not discuss anything too stock/strategy specific.
Overview of the Average Day for a Proprietary Trader
I usually get in around 8am. I'll check where the indices are, check any overnight positions I may have, and start looking at what news has come out and what stocks are moving pre-market. Once I get settled, I start getting a feel for what stocks I find the most interesting and develop a list, making a few trades if there is anything good.
The open is obviously the most exciting and hectic time, so I'm very focused and really zone in prior to the 9:30 open. Just prior, I mentally review and visualize what I need to do and how I need to act - decisive, aggressive, and agile. Off the open, there is a lot of shouting within my group as we look for the best opportunities. Especially in this current market environment, things start to slow down around 10am and you can take a nice deep breath and assess what you did well, did poorly, and missed.
From 10am through 3:30pm, I do whatever I feel like. For discipline reasons, I pretty much never leave my desk. Once a week I'll go out for lunch, but besides going to the bathroom, I am in my chair with an eye on the screen ready for any opportunity. You never know when a day-making, month-making, or year making opportunity may occur, so I personally am very strict about being in my seat. I'll set alerts for any trades I may find interesting, but for the most part I am largely just sitting around. I'll listen to music, watch movies, or surf the internet, but no matter what my hands are on the keyboard and I'm ready to act.
The market close can sometimes have a little excitement, so we do focus in more than midday. I'll trade earnings afterhours if there is something interesting. By 4:30 most days, I'm done trading and will review the day and look over some charts. You get better through experience, but a lot of progress is made reviewing your day and the opportunities that occurred. Most days I'll leave by 5:30pm. The job is very mentally draining so I find it hard to do much more than that, but even after leaving if it was an exciting day, you don't stop thinking about it. If it was a bad day, you go home and drink.
Good Books to Read for Prop Trading Career
- Market Wizards
- One Good Trade
- Michael Lewis Books
- Pit Bull
- Reminiscences of a Stock Operator
- Mark Douglas
- Elder
Why Prop Trading vs. Sales and Trading?
To this day, I have my questions regarding the decision. Prop trading has been very slow these past few years. It is way different than if I started in like '07 for all the craziness. I chose prop because I wanted to be hands-on immediately, have the huge upside immediately, the environment is a lot of fun, and I was coming off of a very bad internship from a large firm. I will still say that there is no cooler job than prop trading when things are good and the market is moving. The excitement and challenge and fun is unmatched. That being said, coming out of college, I failed to properly appreciate the risk of a slow market, how niche the skillset is, and how nice it would be having a salary and a more tangible skillset at a bank. Time will tell whether I made the right decision.
What is the Outlook for the Prop Trading Business?
It is a difficult place to be in right now. Volume and volatilty is very slow. People in equities, options, commodities are all struggling. I have friends at various firms in NYC, friends in Chicago. Nobody is loving it right now. People in commodities are still struggling from the MF Global collapse... Equities are facing more and more regulation and talks of transation taxes, etc. I am bearish on the short-term outlook (1-2yr).
That being said, everything is always cyclical. There will be more bubbles, more panics, more volatility, and more volume. I have no idea when. But it will always happen and prop trading will be strong again. The world needs traders. There will always be a need for them at some level. But right now with low volatility and volume and increased scrutiny, it isn't as strong.
How Do You Develop an Idea for Investment?
I develop trading ideas and strategies through a lot of thought and creativity. Some ideas come from market observations and tons of time in front of the screen. Others come from a more intuitive hunch. People argue that markets are efficient which really dissuades people from thinking in-depthly about ways to beat the market, but there are tons of ways out there. You need to constantly be observing and wondering if there is an edge in EVERYTHING.
You need to always be asking Does X happen when Y occurs? What is the reward of that? What is the risk? What could I be missing? Why might this edge exist? You then need to look historically, if possible and see how it has performed. A lot of people are too busy saying "no way that would ever work," but a good day trader trusts his instincts, goes for it, and hammers out the details later. Markets make some very obvious mistakes. For compliance reasons, I need to be vague so I apologize. But as a very simple example, you could test whether stocks that have gone X% in Y days tend to follow momentum or mean-reversion. Then you could refine it and say of those stocks, is there any reason why Basket A reversed while Basket B had continuous momentum?
Also, for the type of trading I do, not much math at all. You do need a good quick intuitive feel for numbers and percentages though. If the market is up 1%, this stock should be up X%. Also, I am constantly doing rough expected value calculations in my head. I think this has an X% probability of success, and Y risk, Z reward so I want to buy ABC amount of shares. Having a good feel for gauging these estimated probabilities and risk/reward is super important
How Do You Break Into Equity Proprietary Trading?
You already have the answer. You break-in from unusual backgrounds by HAVING that desire and DEMONSTRATING it. You can do this by networking and having intelligent discussions with people in the industry, trading your account, blogging about your trades, tweeting on Stocktwits, learning about the markets. You need to be able to talk and speak intelligently about trading so that you can really impress someone and then make sure you somehow get in front of the guys making the decisions. Take every possible opportunity there is. I got one of my job offers through non-stop persistence. Another I got through networking properly and sending out some low-chance of success emails that actually got responded to.
Learn more about prop trading in the video below.
Read More About Prop Trading on WSO
- Prop Trading Vs BB Trading
- I'm Trying To Get Into Prop-Trading From A Non-Target School
- Prop Trading Interview
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Breakdown of average day?
I usually get in around 8am. I'll check where the indices are, check any overnight positions I may have, and start looking at what news has come out and what stocks are moving pre-market. Once I get settled, I start getting a feel for what stocks I find the most interesting and develop a list, making a few trades if there is anything good.
The open is obviously the most exciting and hectic time, so I'm very focused and really zone in prior to the 9:30 open. Just prior, I mentally review and visualize what I need to do and how I need to act - decisive, aggressive, and agile. Off the open, there is a lot of shouting within my group as we look for the best opportunities. Especially in this current market environment, things start to slow down around 10am and you can take a nice deep breath and assess what you did well, did poorly, and missed.
From 10am through 3:30pm, I do whatever I feel like. For discipline reasons, I pretty much never leave my desk. Once a week I'll go out for lunch, but besides going to the bathroom, I am in my chair with an eye on the screen ready for any opportunity. You never know when a day-making, month-making, or year making opportunity may occur, so I personally am very strict about being in my seat. I'll set alerts for any trades I may find interesting, but for the most part I am largely just sitting around. I'll listen to music, watch movies, or surf the internet, but no matter what my hands are on the keyboard and I'm ready to act.
The market close can sometimes have a little excitement, so we do focus in more than midday. I'll trade earnings afterhours if there is something interesting. By 4:30 most days, I'm done trading and will review the day and look over some charts. You get better through experience, but a lot of progress is made reviewing your day and the opportunities that occurred. Most days I'll leave by 5:30pm. The job is very mentally draining so I find it hard to do much more than that, but even after leaving if it was an exciting day, you don't stop thinking about it. If it was a bad day, you go home and drink.
Favorite books and advice for those looking to get into the business and those just starting out. Also, compare and contrast NYC versus Chicago if you have time! Thanks in advance.
I have read a ton of books on trading and the markets and IMO, there is no such thing as a bad book since you can always learn something or develop a new way of thinking. My favorites though are the Market Wizards series. Now I may get some hate for this, but I did enjoy One Good Trade also. Off the top of my head, Michael Lewis books are always fun, Pit Bull, Reminiscences of a Stock Operator, Mark Douglas, Elder, are all decent reads.
Do you mean compare contrast NYC vs Chicago as far as trading opps? Or how I like one vs the other? Assuming in regards to trading opps, Chicago has a lot of prop shops that focus on market-making and commodities/futures/options. I'm guessing this is due to the origins of CME and CBOT being there. NYC has a bunch of hedge funds and some equity prop shops (and I'm sure in small numbers any kind of shop). I would say, overall, Chicago is more "prop shoppy" than NYC since there are a tonnnnnn of market-making options houses there.
Why did you pick the prop offer over the S&T? Also I'm curious about this line "I very systematically analyzed and perfected the job search process, so I think I can speak intelligently on resume / interviews / networking" if you could explain how you perfected the job search process. Thanks for answering the questions.
To this day, I have my questions regarding the decision. Prop trading has been very slow these past few years. It is way different than if I started in like '07 for all the craziness. I chose prop because I wanted to be hands-on immediately, have the huge upside immediately, the environment is a lot of fun, and I was coming off of a very bad internship from a large firm. I will still say that there is no cooler job than prop trading when things are good and the market is moving. The excitement and challenge and fun is unmatched. That being said, coming out of college, I failed to properly appreciate the risk of a slow market, how niche the skillset is, and how nice it would be having a salary and a more tangible skillset at a bank. Time will tell whether I made the right decision.
Regarding that line, I spent hours thinking about each part of the process. What is the purpose of a resume? What do I want to get across? What do successful resumes look like? I read through great resumes and just kept on tweaking them and thinking about how best to tailor my resume to the jobs I was applying for. Simiarly, I spent a lot of time thinking about the most efficient ways to network and the best strategy as far as interviewing. As far as interviews, I was coming from a semi-target so I REALLY needed to sell myself. I knew that I needed to be aggressive and earn it in there and develop the mindset of that it might just be my only shot. From networking, to resume, to interview, to thank-you letter - every part of what I did was polished! I could write for days about the specifics, but no matter what you do it is important to think in-depthly and analyze your objective and how best to accomplish it.
What is your outlook on the future of prop trading?
It is a difficult place to be in right now. Volume and volatilty is very slow. People in equities, options, commodities are all struggling. I have friends at various firms in NYC, friends in Chicago. Nobody is loving it right now. People in commodities are still struggling from the MF Global collapse... Equities are facing more and more regulation and talks of transation taxes, etc. I am bearish on the short-term outlook (1-2yr).
That being said, everything is always cyclical. There will be more bubbles, more panics, more volatility, and more volume. I have no idea when. But it will always happen and prop trading will be strong again. The world needs traders. There will always be a need for them at some level. But right now with low volatility and volume and increased scrutiny, it isn't as strong.
How do you develop trading ideas and/or strategies?
How much math?
I develop trading ideas and strategies through a lot of thought and creativity. Some ideas come from market observations and tons of time in front of the screen. Others come from a more intuitive hunch. People argue that markets are efficient which really dissuades people from thinking in-depthly about ways to beat the market, but there are tons of ways out there. You need to constantly be observing and wondering if there is an edge in EVERYTHING.
You need to always be asking Does X happen when Y occurs? What is the reward of that? What is the risk? What could I be missing? Why might this edge exist? You then need to look historically, if possible and see how it has performed. A lot of people are too busy saying "no way that would ever work," but a good day trader trusts his instincts, goes for it, and hammers out the details later. Markets make some very obvious mistakes. For compliance reasons, I need to be vague so I apologize. But as a very simple example, you could test whether stocks that have gone X% in Y days tend to follow momentum or mean-reversion. Then you could refine it and say of those stocks, is there any reason why Basket A reversed while Basket B had continuous momentum?
Also, for the type of trading I do, not much math at all. You do need a good quick intuitive feel for numbers and percentages though. If the market is up 1%, this stock should be up X%. Also, I am constantly doing rough expected value calculations in my head. I think this has an X% probability of success, and Y risk, Z reward so I want to buy ABC amount of shares. Having a good feel for gauging these estimated probabilities and risk/reward is super important
How can someone demonstrate their desire to prop trade from an unusual background and break-in?
You already have the answer. You break-in from unusual backgrounds by HAVING that desire and DEMONSTRATING it. You can do this by networking and having intelligent discussions with people in the industry, trading your account, blogging about your trades, tweeting on Stocktwits, learning about the markets. You need to be able to talk and speak intelligently about trading so that you can really impress someone and then make sure you somehow get in front of the guys making the decisions. Take every possible opportunity there is. I got one of my job offeres through non-stop persistence. Another I got through networking properly and sending out some low-chance of success emails that actually got responded to.
What do you think about comments that Equity S&T is dying?
Please see my other reply regarding the outlook of prop trading since it is very similar. I don't like the word dying. This industry serves a very good function, it will never be dead. But right now it is towards a cyclical low. There will always be good times and bad. And during the bad times, people say it will never get better and during the good times, people say it will never be bad.
What are your thoughts on prop trading vs. hedge fund vs. investment banking.
Would you recommend moving from a Investment Banking Associate to a Trader at a top prop shop?
My brother is in investment banking. He hates the hours, but likes the work, likes the safety, and likes the lifestyle it provides for him. It is impossible for me to give a broad recommendation. People have different values. Some firms are good, some firms are bad. Long story short, it is too vague a question to be valid and too much of a generalization without me know anything about you.
Were you formally trained? Or just sat in front of a platform and told to have at it?
I had and still have formal training. I would never ever go to a place without a good training program. The market is way too difficult. I'm telling you, I've never done anything more difficult in my life. It is very mentally and emotionally rough on you and it takes a lot to figure out where the edge is. To this day I am refining my strategies, trying new ones, thinking faster, and gaining more experience. Plus my firm really helps with the software and costs and is always improving on their end. Most people won't stand a chance.
This is kind of unrelated to trading itself, but I'm still really curious:
How old are you? What's your life like? Are you largely happy with the way it's turned out? Any girlfriend? What are your future plans? And what's the best advice you can give to someone still in university?
Damn, exactly the reflective question I was hoping to avoid answering. I'll wear my heart on my sleeve for you :)
I'm a few years out of school. My life is ok. If I didn't start trading during one of the worst times ever, my answer would be way different. I took the job estimating as best as I could the risk and the rewards. I work with people in their low 30s, late 20s that have absolutely crushed it. Like I mentioned earlier, there is no cooler and better job with more potential. It was just bad timing and I had no way of knowing this - nobody did. So I enjoy going to work, but sometimes it is real slow and I question what I'm doing. Why aren't I making a stable lifestyle learning tangible skills? What the hell was I thinking? So far it hasn't turned out that well, but I made my decision for the reasons I had at the time. We'll see what happens.
Had a girlfriend for about a year or so, until recently. Prop trading does allow you a lot of free time unlike banking. I can date and do whatever I want.
Future plans are just to keep trucking and see what happens. I like the job and I'm decent enough at it. Nevertheless, I always stay learning and read new books and improve myself.
My advice for someone in university is put as much effort and drive into every aspect of your life (that includes, social life). Just be efficient and be passionate. Seek out mentors for their thoughts. I wish I had a good mentor... Do well in school so you have a lot of doors open, but at the same time live life and enjoy college for the unique period of partying and being surrounded by friends. Just whatever you do, go hard.
Thanks for your response man. Yeah, I get that this is a heavy question to respond to. Sucks that you entered the industry at the time you did. I'd like to hear your opinions on DF at some point. Also, if you really envision a slump in the short run, maybe you should go back to school now. I'm glad to year you have a social life. Really hoping to have the same luxury once I graduate
Any expectations or limitations for shorting? Also, what about the use of options in your trading?
Some stocks do not have "locate" or short availability. The clearninghouse just does not have shares to borrow. This occurs for prop shops, hedge funds, retail investors, whoever. Sometimes you just don't have shares to short. Otherwise, no, nothing I can think of. And we do not do options here whatsoever. It just isn't where our edge lies. We know our niche and we make sure we are the best at it without scaling out to areas where we may not do well in.
What are your thoughts on prop shops that require a capital contribution prior to joining?
They are an absolutely awful idea. For a very select few people in very select circumstances, it is a bad idea that is still worth doing. If you a) live, breathe, and sleep trading b) have no better options and c) can afford to lose the capital while being able to put a roof over your head and food in your mouth, then it is worth doing.
Like I said earlier, trading is SOOO DIFFICULT. Those types of firms tend to lack proper training, focus on unsustainable or manipulative strategies, and there is also the added psychological pressure of if you blow up, you lose your own money. You will very likely fail at those firms, but if you will regret for the rest of your life not trying, then yes definitely go for it. It is still a cool and fun job.
Thanks for the insight!
As a day trader, have you ever caught the bottom or taken advantage of a flash crash? If so, how did you handle it?
As a day trader, and particularly the style of trading my firm does, we are very involved in catching the bottom in panics and taking advantage of flash crashes. Despite all the trading mantras about catching a falling knife, doing it properly can be very rewarding. For examples sake, you should read the interview with the FNYS trader in the most recent Market Wizards book.
Sorry again, but I will be somewhat vague here. Through experience and hours of focused observation, you do develop an intuitive feel. It is like watching a basketball game. Lebron James and I could be watching the same basketball game, but he is observing it in so much more detail than I am. He sees how the defense is adapting to an offense. He knows whether a certain player tends to drive to the left, how often he does a fadeaway, the likelihood he is going to go for the three-point shot. Similarly, I can time bottoms and panics and crashes and whatnot very well by experience and observing things many people wouldn't take note of. As much as people want to argue randomness, it is very much a developed skill. If you took charts with my buys and sells on them, it is very significantly clear that these things are not random.
Also, as a day trader you need to learn to thrive in uncertainty and chaos. It is our job to stay rational when others are emotional. Truthfully though, if I have a big position on and craziness is happening, I am shitting myself just as much as the next person. The difference is that I have the experience to realize that if I'm scared and want to panic, a lot of other people are doing the same. There is certainly skill and edge in knowing when people are scared. Think back to '07-'08 when people thought it was the end of America and our financial system and people were selling any and every stock and there was so much uncertainty out there and so many forced liquidations and margin calls.
This is one of my favorite paragraphs I've ever read on this site. Thanks a lot for doing this
Starting out when times are difficult can be advantageous. You will learn a great deal more about what is important, and what is not.
Yes, thanks for the pick-up. Particularly in trading, if you learn during a difficult time and survive, you end up a very crafty and disciplined trader that knows how to find the money that is out there even on the slow days.
Can you touch on Compensation??
Eh, really nothing of value I can add here since I can't get too specific. You get paid on commission after the training period. The commission percentage varies based upon your performance. Some people make no money, some people make some money, and some people make a lot of money. I know quant shops and market-making shops tend to pay a salary after training, but equity prop shops tend not to.
What's the best way to network if you did not go to Ivy League?
Put some time in and think about it. Trading teaches you that there is a way to analyze and systemize anything. So do it with networking. What are your advantages? What are the options you have to choose from? What would be the most efficient way to go about doing it? I happen to have a huge alumni network. I was a part of a special Wall Street program in my undergrad. In my case, I would leverage these points and filter out alumni through the directory and e-mail them in huge batches since it will still be a numbers game. If you don't have an alumni network, maybe the answer is through industry conferences, the WSO conference, friends, family, who knows. If you have a wealthy and connected parents, that is an advantage. If you are a minority, there are groups that help you network and that is an advantage.
What did you do to set yourself apart in the job search process?
1) I worked my damn ass off in school. I'm a very smart guy, but you don't do as well as I did without a lot of drive and motivation also. So purely from my resume those two qualities are made apparent.
2) I refined my job search process very well. I had a spreadsheet with the various firms, any contacts I had with them, and kept track of all my options.
3) Heart. The firm I got my Chicago S&T offer from didn't recruit at my school for S&T, but they did for banking. As a junior, I expressed my interest in S&T to the guy during OCR. A year later, he comes back to recruit, and a year later I am still there telling him how badly I'm interested in trading. I was the first person to even interview from my school at this firm for S&T and I am happy to say, I started a trend in that they now interview other students from my alma mater.
4) Aggressive interviewing strategy. An alum from my alma mater gave a seminar on interviewing that made a huge impact on me and I have been refining his strategy ever since. I learned how to find what the firm is looking for, align my experience to those qualities, and hardcore sell the interviewer that I have those qualities. Of course I got my fair share of rejections, but I sure as hell tried my hardest in that interview room to make them see why they should take a chance on some random unconnected kid from a state school. I may do a separate post on interview strategy since it seems a lot of people are interested in this, so keep your eyes open.
Quick q, does humility have any place in prop trading land?
Thank you.
Thanks for the input!
hows the pay?
There is always money to be made. The good experienced traders still make a crazy living. It is much more difficult on the newer guys. The poor traders quit/get fired, decent traders probably make a pretty standard living when it is slow but a very good living in the good years, and the rockstars make 7-figures.
Im sure its a touchy topic but despite pressure against prop trading is it still a way to make a good living and could you give us an idea of what an average trader may make in a year vs a rockstar who's in his 30's. I am interested in prop trading but worried that it is losing its possible profitability compared to ibanking and other avenues. Thanks.
Any "best lessons" for prospective monkeys pursuing ER, other careers in finance, or work in general?
Hmmmm. Be honest with yourself and make sure you are living the life you want to live. Be intense, really go for it regardless of what you do. Every day is a blessing, so every day try to work hard, learn something, and have a little fun. Your values will change over time, be in tune with how they change. Unfortunately, I am still pretty young so I don't have anything too sagely regarding long-term career advice or anything. I really don't have much perspective on the big picture yet, so please take all this with a grain of salt.
You mentioned most of the guys you with with are young. why is that. Does no one stay for that long?
A lot of people don't survive changes in the market and don't adapt. Others don't want to wait through slow periods. Some dig themselves into holes they don't want to dig out of.
Otheres retire early. Some find new interests. Some take on managerial roles. Some get MBAs to learn something new.
There are people with 10-15+ years of experience at my firm. Just in general, the average age stays young for the above reasons and probably a few others I am not thinking of.
Thanks for doing this. I'm not sure how much you can divulge about these questions, but I'll give it a shot.
Best trade you've ever made $ wise? Best trade you've ever made execution wise (Strategizing, Planning, and hitting that home run)? How long do you typically hold a position? Do you specialize in a particular sector, a few names, or just look at everything? Any other products aside from Equities?
Thanks!
Since I'm not that established, I don't trade crazy size or anything. I guess the most specific I feel comfortable saying, is I've had trades that have made my month, but I've never had a trade that has made my year. That should put it in a pretty decent ballpark.
Good question asking about my best trade execution wise, since some of the highest-$ trades are the easy super-rare events. One recent trade that comes to mind that I was really proud of was when a stock was coming off on a rehash of old news. The bear argument was still valid, but I felt like most people were already aware of the argument and it was just irrational panic of people not wanting to be left holding the bag. I took a few other variables into account and the whole picture just "clicked" for me. I had a really good hunch where it would bottom, knew exactly what my stop would be, and felt like the reward could be very good since this was an old bear argument that had already been priced in. Sure enough, it moved exactly how I expected it to and it as always an added bonus when you check the firm stats and you're the only person that crushes a move.
Ser kooo! Anonymity at its finest big dawg
Do you think it is possible to have a personal trading account that is profitable given the high commissions that brokers like E-Trade charge?
I would not be actively trading on something like E-Trade. The odds would be very stacked against you with those commissions. In general, as a retail investor, I would stay away from trading. It is just so difficult to find edge and have an advantage. Professionals have better technology, news sources, more experience, more capital, etc.
You mentioned that you had a couple offers from prop shops. How did you choose between them?
Also, you talked a little about how some people quit, get an MBA or get fired from your prop shop. Can you talk a little more about what they went on to do (i'm thinking about exit opps here)? Also which schools did they go to for MBAs?
I really like the people and culture of the firm I work at. It is just a very cool environment.
Prop trading is very niche and the skillset isn't too applicable to other things. Some people do manage to get a hedge fund gig, or move to analyst positions at banks. One friend of mine is getting his MBA at a very good business school now. It isn't like banking where you have tons of options. So certainly one does have to worry about the exit opps some in making a decision. Excel modeling and accounting skills are far more easily marketable than what I do.
Assuming you work within a bank, do you get market color from other departments that helps you?
Do you trade all electronically?
What is the worse part of your job?
What would you be doing if you weren't doing this?
I trade for a prop shop and do not trade within a bank so there are no other departments to help me :(
Yes, we have custom software we trade through.
The worst part is how emotionally painful the job can be at times. When you aren't doing well or things are very slow, it is very depressing. Trading is a rollercoaster ride. The highs feel real good, but the lows feel even worse. My co-worker and I joke around that a good day doesn't feel close to as good as a bad day feels bad. There has been a day where right before the end of the pay period, I've lost my whole month in a single bad trade. There was a day where after a hot streak, I came in and accidentally hit the wrong key pre-market and lost thousands giving back my hot streak. There is also the pain of missing out when there was a great opportunity and you fucked it up or weren't there for it. It is impossible to separate your emotions from your performance. I guess that is the cost of a lot of fun and excitement.
Hmm, tough to say. I do love trading and the industry. I find markets so interesting. One day I would love to teach though. I enjoy mentoring people and tutoring and learning, so if I wasn't involved in trading, I guess the answer is I would love to teach college.
Just tell us how much you make already.
i.e. How much did you take home last year?
Haha, it wouldn't be impressive. I'm still relatively new and the market is slow.
Do you share/discuss trading ideas with your office colleagues for the good of the firm? Or do you keep it to yourself for the end of month rankings? You mentioned earlier about the satisfaction of identifying a trade before anyone else and being the single one to act on it...
Also, are you somehow split on equities from specific industries or some other criteria? I imagine it must be easier to folow 1-2 industries all the time and how they react to market movements, rather than following the whole market... I personally am interested a lot in tech + bio tech + related tech stuff, so I would like to trade only on those stocks...
Within my group, communication is very open and everyone makes more money because of it. We share ideas so when I said I was the only one to act on it, it means that either I executed the idea better or others weren't that interested in the idea enough to do it themselves.
We are not split on specific industries. Some industries are more interesting than others though and you get a feel for each industry over time. You know which industries have been doing well, really selling off, common news, etc. Certainly biotechs are going to make some bigger moves and have some huge moves on news as compared to utilities.
what do you think of $SPY ?
Sorry, can't address this.
1.) Given (IMO) what worked in 2007 doesn't work as well now, how has your trading style changed over the years? Ex: longer holding periods, different strategies...
2.) What blogs do you read? (RIP Traderfeed...)
3.) What news services, software programs, etc do you use/subscribe to?
4.) Approximately how many guys in your firm that were making decent money in 2007-2008 are still successful?
I was not trading in '07, but from my co-workers that were, you are correct that the market is much different and some things don't work as well. Volume was also much better then so most people probably trade for less size now. I think many would say that in this market you need to be much more selective and really take advantage of the opportunities that are there. You need to assess where you are making the best money and make sure you load up in the right places. This type of market certainly teaches you how to trade very lean and efficiently, because otherwise you will churn yourself to hell. It is weird that I've seen certain types of trades work some months and not work others. The best thing is to just be conscious of this and make sure you adapt. If a type of play stops working, you need to cut it out before you lose thousands on it, but still monitor it for if it comes back.
Ha, surprisingly since I've become a trader, I tend to stay away from trading blogs and other investment stuff. By the time I get home, I much prefer to step away from the markets and am very mentally drained. I instead like reading about self-improvement blogs and nutrition blogs or other stuff that match my interests. I'll read the Tim Ferriss blog, James Altucher's, Mark Cuban's, and whatnot.
As a firm, we subscribe to everything under the sun. In some fashion I am tied in to probably every news service / squakbox / software program imaginable. I know you probably want me to list them, but we really probably do use just about every major news service. Bloomberg, Reuters, various squawkboxes, etc.
I'm sure everyone wishes it was still the '07-'08 market, but at the same time, if the trader is still around now after these last few years, they've found ways to be successful. The money is always there, you just need to adapt and refine and capture what the market presents. So I guess by nature of being around, I would say all the 07-08 people are still making a living.
Thanks for this AMA. Do you think skills learned in trading currency are applicable to trading equity?
Yes and no. Yes, in that trading will always be trading. Whether it is a currency or a stock, in an open outcry pit or on a computer, the goals are always the same. The emotions and psychology of trading will always be the same. Risk management will always be the same. The mindset needed to execute a strategy and the thought process needed to find edge will always be the same. A lot of the big picture aspects, never change. Reading the Market Wizard books really proves this when you get so many different traders that trade different strategies and products all reiterating the same advice.
That being said, currency markets move differently and are super liquid. You don't need to worry about slippage or missing your stop or not being able to get the size you want like in equities. Also, the news events and fundamentals that you need to be aware of are very different. If I had to take a guess, I would think currency markets are probably harder to find edge in simply due to the size of them and their structure. In the stock market people may not be aware of what is driving a stock or people may really need to buy or sell something and have to move the market. Intuitively, it seems to me that the stock market has a much higher proportion of opportunities compared to the money/eyes watching it.
Cool, I may have an opportunity at a prop firm and have been speculating on currencies in my spare time. Do you use any indicators that retail platforms use?
It seems to me that you're a discretionary trader instead of a mechanical trader - meaning you pick your entries and exits based off of judgement.
My understanding of mechanical prop trading is that you formulate an idea, mine for data, backtest said idea, refine, rinse and repeat. You run your idea and then say, every 3 months, you do a monte carlo simulation of your results to determine your confidence level of your trading system.
If done correctly trading prop is supposed to be boring and emotions aren't supposed to get involved at all. You just sit there all day and wait for signal to trigger your entries and exits.
Sounds about right to me, give or take. You are correct that I am a discretionary trader. A mechanical trader is much more systematic, however emotions will become involved regardless. It is near impossible not to. Whether you are a mechanical trader, a discretionary trader, or a large player getting stock algorithmically - emotions are a reality that must be dealt with.
Hello,
First let me thank you for taking the time to do this AMA. I'm rising college sophmore at a big 10 school majoring in finance thinking about a career prop. trading(or any type of trading that isn't extremely math intensive). My first question is how can I gain experience when my school has no real investment clubs? What activities/clubs did you participate in during college? Additionally, if I were to apply for in internship at a prop. trading company would it be helpful to list the returns of my personal portfolio, along with some basic stats(Sharpe Ratio, S.D, R^2, etc)? Again, thank you for your time
prop trading isn't investing
Yes, I realize the distinction. However, there is a club on campus called "___ Investment Club", which is actually focused on teaching students trading skills. The problem is the club has no corporate affiliations and is run by students. I used investment club as a blanket term for any clubs involved with the equities market.
There are tons of ways to show a passion for trading and to gain experience, one way being by trading your own account like you mentioned. My school had an investment club that I was a part of. What stops you from starting one at your school? Or just finding a few people at your school that like trading and starting an informal group? What stops you from reading blogs, books, WSJ? You will also want to aim for internships in the industryalso.
And there are also all types of creating trading things you can do. A friend of mine at a hedge fund was super-impressed by a guy who developed a model to arbitrage the used car market (and making tons of money off of it) and ended up getting this guy a job as a market-maker. This guy didn't have any background in trading, but had the know-how and drive to go ahead and try these things. People that love trading are always thinking of ways to make money from all types of markets. Hell, you could even arbitrage the used textbook markets at your college.
The returns and statistics of your own trading are probably irrelevant. It is the passion that matters. There is no way I had any edge in college and I was not making any money trading in college. On the other hand, tons of college students think they are master trading gurus because they picked a few stocks that went up. Unless you are really moving huge sums of money and have a complex proven system, it isn't that significant.
Solid advice. Thanks!
Being a discretionary equities trader, what is your edge over competitors with phenomenal infrastructure and teams of specialists and quants?
There is a whole world of inefficiencies in all sorts of different markets, as you know. We know where we are competitive and where we are not. We don't try to do statistical arbitrage, or high-frequency trading, or be a hedge fund, or a fundamental analyst. So our edge is that we don't try to compete with those guys, as they will kick our ass.
As one of our managers says, "we are not the elephants trudging through the jungle, we are simply the little bug hitching a ride on the elephant." So while hedge funds and institutions and other big players accumulate huge positions or sometimes have to panic out or get sloppy, we take advantage of the ebb and flow of these price movements.
Also, within our niche, we do have some of the best technology and infrastructure. My firm does a fantastic job of always being on the cutting edge of speed, accessibility, and cost.
Lastly, the hedge funds need to go for the home runs and crush out returns above the market and please investors. If you do the math, assuming a 70% commission, really all we have to do is average even $400 a day and you have yourself a career there. So the big boys can't be bothered doing what we do, which leaves tons of opportunities for the little guy to find a layup or two a day and make a few hundred bucks.
Thanks for taking the time, REALLY appreciate it. Much like u I'm trying to systematize my approach, im developing a spreadsheet w several data points etc to compare my choices intelligently, along w standardizing my approach w firms...
As i evaluate offers .what are your thoughts on this one....?
.005 comish , capital contribtion under 5k, for it 100% payout, 10X BP (chance to up it quickly based on results) and opportunity to move to 60-40 - 90-10 firm capital only after 90 days (depending on results, drawdown,strategy etc...) for a prospective newbie...? they havent gotten back to me on desk fees if any...
are these ok conditions to start w?
other firms offer more BP but i mistrust their risk mgmt practices if right off the bat they give me 100k+...
also,broadly speaking would u categorize ur strategy as scalping, swing trading, or momentum trading...my guess is on swing...?
Thanks!
No good prop shop requires capital contribution and the OP posted before that its rare that someone would need to or be able to take advantage of capital contribution circumstances.
Miamiguy, I did respond to your question just above this post and moreso addressed how to judge a prop shop offer.
However u/watersign is also right. Please Control+F "capital" on the first page to find my more detailed response discussing capital contribution in general. (Thanks watersign for pointing that out).
IMO, commission / capital contribution / BP / desk fees are the wrong focus of discussion because they are only symptoms of the most important factor: trader success rates. Asking about the desk fees or the commission is the wrong question. What you need to be asking above all else is "DO MOST TRADERS THERE SUCCEED AND MAKE HUGE SUMS OF MONEY? PROVE IT TO ME." It is possible to succeed with all types of commission structures, BP, and desk fees depending on trading style so those numbers really don't accurately tell the whole picture. You need to know what percent of each class is there after Year 1, Year 2, Year 3. How long it took most people in the new class to become profitable. What the 70th% of traders there make a year, what the 30% make, and the 95%. Are there people making millions? Hundreds of thousands? Do most at least make $100k? I would not have accepted my job offer, if I didn't know as a fact that there were lots of traders at the firm making lots of money.
Also, the second most important question after that, is what type of training do they provide? It is near impossible to learn this stuff quickly on your own. You need a strong training program with close mentorship.
If you are contributing capital, I'm generally not a big fan. The learning curve is very long. I would say to get 80% up on the learning curve, it probably takes one year or more in this market. Maybe you can eek out a living then. But to really gain proficiency probably takes two years, expert proficiency maybe 3-4, and mastery 5+ years. Can you support yourself and be able to lose that capital contribution for at least a year or two?
Also, you are wrongfully being skeptical of places that offer $100k+ in BP. That is not a sign of poor risk management. Most software systems will have restrictions in place. You could have $10m+ in BP, but only be allowed to trade 100 shares with a max PnL drawdown of $100 due to software restrictions, so BP is not indicative of risk management.
I don't know how to broadly categorize my strategy besides saying that the majority of my trading is intraday. I try to make money wherever I think there is edge. I'm happy to make a few cents on a few thousand shares in a second, a minute, or a day. I am happy to catch points over a day, an hour, a minute, or a second. It doesn't matter to me. If I can find any trade, in any equity, over any timeframe where I believe there is positive expected value, I am taking it.
Thanks lbreitst, I was a broker and I quit my job 3 yrs ago. Now I am a daytrader, and I tried to get into a prop firm. I sent my cv and the performance of my retail account to almost 50 firms all over the world, but I failed to get a job. Could you just disclose your (or your colleagues, friends') winning rate and average profit/loss rate? I've read ( I don't remember where) prop firm's average winning rate is almost 90% and average P/L rate is 10:2. Is is possible?
I too have read before that prop traders have a super high winning rate on trades and that the P/L rate is around 5. However it is absolute nonsense. There are some traders that are very consistent and may have stats like that, but the truth is you can succeed with any combination of numbers as long as your expected value in the long run is significantly positive. That is all that matters.
Would you rather be positive 90% of days and up $500 on the up days and down $100 on the bad days? Or would you rather be positive 10% of days and up $10,000 on the up days and down $200 on the bad days? While it is an extreme example, the second trader makes way more money in the long-term and I'd much rather be him.
I have no idea what my winning trade rate is and P/L ratio is and it greatly varies by the day. Some days I can't do anything right and it is a bloodbath. Other days, I can do no wrong. While the opposite was true when I first started, nowadays my really good days are MUCH bigger than my really bad days.
It is worth bringing up one overlooked point though. Being the type of trader that is positive almost every day is a lot easier mentally. Hitting singles and knowing you can make an ok living doing so really helps your psychology. I wish I could do that since it would be a lot easier on me mentally during the slow months, however I would much rather have some crazy positive skew to my PnL and that is how I've been trained. Really crushing the big opportunities makes up for so many bad little days and mistakes.
Hello I'm 31, I worked in IT for majors banks since then ; as a BA working for business line, any chances that a degree will bring me to market activities ?
Any chance that a degree will bring you to market activities? I don't understand what you are asking.
Sorry , Generally tech guys are considered as not able to have a career path in a front office or in market floors ; in your opinion, does a masters degree in finance in post experience is enough to make a career shift into trading activities ?
There are other posters on here who are more knowledgeable on this topic, but I believe that it is does help since at the least you get another shot at on-campus recruitment and stuff like that. I would recommend consulting others though, not my expertise.
hey quick question, are u at a place where they pay salary during training programs, then give u firm cap? or is it a place like t3? where its ur money+leverage?
Salary during training, then firm capital. I am not a fan of contributing capital (see previous responses ITT).
hey wow thanks for the quick reply, I have been trading since frshman year high school, and is now a stock broker. I did the stock broker thing because I wanted the wall street experience, and as well as sharpen my communication skill(was that shy-afraid-of-the-world kid is u know what i mean..). But now i want to follow my passion in trading, i have great dicipline and have great EQ. But how can I get into a firm like yours?
It sounds facetious, but the biggest thing is just to simply apply. You never know until you try and there is no downside. Compile a list from WSO on prop firms and just go for it. Network if you can, polish the resume, and see if you get any interviews. Quant/HFT shops will require the strongest background, whereas discretionary shops tend to weigh qualitative factors more heavily.
Thanks for helping the guys trying to get into the industry. Question is do traders still make money? Do u have friends or coworkers making over 100k a year?
Absolutely, traders still make money. It is a slower and more difficult market, but there are still tons of people crushing it and making way more than $100k.
I just finished reading Inside The House of Money: Top Hedge Fund Traders on Profiting in Global Markets. I thought the way they approached trading was incredibly interesting. I also noticed a trend that these guys traded many different asset classes and strategies throughout their careers.
Do you plan to diversify your experience as much as possible throughout your career? Is it easy for a trader to become overly specialized in one area--and, do you think this may be a reason some traders have trouble adapting when the market changes?
Assuming you stay within trading, where do you want to be in 5 years? Do you have any major goals farther out?
Ya, I've read the House of Money and thought it was a pretty fantastic book. Similar to Market Wizards and possibly even about as good.
Hmm, good question though. My style of trading equities is certainly fairly niche and overly specialized, which is not preferable. Ideally, in 5 years I would just simply be crushing it at my current job since I really enjoy it. So if life allows me to succeed where I am now, then no I don't plan on diversifying my experience in the short/medium-term. If things weren't working out, then yes I would certainly need and want to diversify to different instruments and styles. I'd probably either want to go into commodities or start from scratch learning how to analyze financial statements and become a value guy since there are so many opportunities on and off Wall Street for that skillset.
Speaking longer-term, I would probably like to teach. If I had to stay in the markets, maybe I'd want to be at the same job in the long-term, but since I like learning so much it is possible I would want the challenge of starting over fresh learning a new style of trading. I suppose I could always mix in fundamental strategies into my trading down the line which could be the best of both world.
Thanks for the early reply. I see you've been using the word "crushing" couple of times, how much is crushing to a good trader annually
Ha, hmmm... I guess it is all pretty subjective - depends on the person's goals, risk tolerance, experience, and the market. If I was forced to make a simple formula for my idea of "crushing it," it would be (# of years experience) x $100k = "Crushing It" Annual Salary.
Thanks again, you've really shine some light on the subject. I just interviewed with T3 Trading on Wall Street. I will be starting a journey to my career. I currently work in sales making $60k a year but my dreams and aspirations are much bigger than $60k annually. I will keep u updated. Thanks
Feel free to shoot me a PM and we can talk more openly about everything.
Hello Ibreitst! Thank you so much for sharing your insights here. I have a very quick question if you would be willing to answer. What is the usual returns(%) do different levels of traders make (or at least in the range) every trading day?
It is really hard to say because so much depends on the opportunities the market provides each day and also the size of the trader.
Generally, with intraday trading, you don't look at % return, but moreso just overall PnL since you aren't really utilizing your buying power.
A boring day is certainly going to be 3 digits. A decent day 4 digits. And a great day 5 digits. On really great or really bad days, an experienced trader can hit plus/minus mid-5 digits or 6 digits.
I have some first round interviews coming up with some prop trading firms in NYC and Chicago. One question they always ask is "Why do you want to do trading?"
How should that be answered? Should it be answered with "Because I want to make money." I want to learn. etc
I have just interviewed for a junior role at a small prop trading firm. My interviewer, the CEO, has asked me clarify how much equity capital I need and what type of revenue I can expect to achieve and when, with this capital. I am a junior index options market maker at the moment and have little experience of running my own book with a prop approach. I am wondering exactly what my interviewer means by equity capital and how best to approach answering these questions. Thanks
Hi I'm a freshman majoring in Economics in Chicago area. I have heard that now trading prefers people with computer science major because now computers can do a lot and even better than human. Do you think people with computer background actually perform better than others in trading? Do I need to minor in computer science in school? The Market Wizards book you mentioned focus on technical analysis; compared to fundamental analysis, which side should I focus more to better prepare myself for trading career? Thanks in advance!
I need some advice. My brother was a prop trader for a small firm in Tampa, Fl for 10+ years. He was very successful and happy. Since all the new regulations, prop trading is not profitable. I'm sure you've seen other prop traders go through this very experience. What career options do prop traders have after this? Any thoughts or suggestions would be great to hear. Thank you for your help.
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