This is a question I have asked myself through the last half of my decade and a half long career, in fact I still make this mental calculation a couple times a year.
This article is hands down the best framework that I have seen on this topic. If any of you are currently trading for a sell side broker, giant asset manager, or even the nimble hedge fund or prop shop, you probably have asked yourself this as well, in which case I highly recommend you reading this and perhaps share your thoughts in the comments as there are many points of view and factors to consider here.
The benefits are certainly great, wear whatever you want, don't really have a manager, setup your trading operation wherever you want geographically (for the most part anyway), among other blessings. This is assuming you are good at generating constant positive P&L of course.
As much as I love daydreaming about doing it, it's hard for me to imagine a reasonable situation where that ever makes sense. Risk-neutral, you'd need your expected alpha over whatever you normally have your PA in to be greater than your expected comp/your capital. So a trader that makes $400k with $3 million to their name would need to beat the market by 13% on average for this to be a break-even trade. When you drop the risk-neutral assumption, it becomes even less of a reasonable step. And if you can actually, proveably beat the market by that much, you should just ask for a raise or get a bigger HF seat anyway. Personally, the amount of cash I'd need to go for this, I'd be past my FIRE goal anyway and have no reason to bother with it. I'm lucky in that my firm still allows a good amount of PA flexibility-albeit with trades on a delay-but I can still do medium and long-term bets to test my luck without risking financial ruin.
Note: current prop trader here
I'd say that this is a feasible goal with as little as $100k. You won't be living lavish but can reasonably make around or a little above six figures. If you know how to be tax-efficient and live in a LCOL area, your lifestyle can even be competitive with many front-office finance jobs. If you have anywhere between $200k - $500k to trade with, you're probably out-earning most jobs in finance.
As long as you are not running some crazily complicated HFT strategy where alpha decay necessitates having complicated and expensive quant infrastructure, this can be a reasonable goal. In fact, prop firms love hiring people like this as they are typically stronger traders as they have a better understanding of risk management.
Just one person's opinion
Very late to this and would love to discuss.
I think that u should have a job for stable cash flow and u can do ur trading plan in part time till u get the stable cash flow to corver ur life expenses .
Yes, this is a bit how I think about it as well. Trading for yourself also requires that you are the CEO of the operation, meaning that its up to you to keep your broker relationships, code your exchange integrations, legal/audit/accounting/ops/etc. Whereas I think all of us just want to be CIO, so working for an established fund is better because all of the infra is taken care of for you.
Besides funds nowadays let the PM work wherever/whenever as long as they do their first year or two at the office and have consistent Sharpe.
Not for me personally because if I don't have a proper work environment I tend to day dream and procrastinate and I end up depressed. Without work I go to bed at like 5 in the morning and never go outside for weeks or months at a time.
But if you are a normal person then maybe it is worth a shot.... although you might get a bit lonely and I doubt you could beat your real comp trading by yourself. Don't do it OP, stick to your job or create your own HF.
I was expecting the article to really illuminate me and shed some truths to which I was ignorant all my life and paid darly for it; unfortunately, It ends up being an avg. article that - rightly - states a basic idea: Risk-reward of PA vs. institution (institutions wins, obviously: Cushion to fall on, more info, exchange of ideas, etc. etc.).
I see this more as a sacrifice between career/compensation vs. WLB. But the reality of trading is that WLB is extremely hard when you're financial wellbeing can be affected by market flucutations and your destiny is left to a degree to randomness. I even think that the more time it passes, the harder it will be to trade because tech HF will exploit anything that is conceivable investment-wise for an avg. trader/investor. A battle with titans, basically.
The entire reason trading is lucrative is because of scale. Rich person (or
firm) gives you money, you make them money and they make you richer in return.
not sure how u pay the bills trading your 500k PA even in a knockout year let alone a flat or down year.
Know a few well known PMs in macro and quant that have done it. I’m about to do it as well. You don’t do it for the money. You do it because you value your own freedom and autonomy... optimizing for a lifestyle. Funds have more than their share of politics, and it’s a shark tank environment where your own friends/ colleagues want to bet against you. It’s not a pleasant environment to be in for many of us. Also if you’re not a RV basis points chaser you’re doing yourself a disservice by occupying a multi-mgr seat. You can also trade more asset classes (ex crypto swaps, or pegged currencies) and diversify strategies with greater freedom. And finally, you won’t be forced to jam some size into the market. The most fun I ever had trading was the phase where I was following Bondarb’s advice and trading/ researching independently in a dark room with a small network of close friends/ mentors. The least fun was when I had a famous CRO/ CIO with a sharp guillotine ready to drop at any moment while I was on a temporary work visa (I.E one would have to leave the country in 72 hours). And re: the risk - that’s a given, and I’ll need to trust myself to manage that. But as for the risk of not having a stable income, even with a small book, one can run a few high-sharpe capacity constrained strategies that serve as a “synthetic salary”. So I don’t running independently is extremely risky, either. Just requires the right guardrails and creativity. The people who left the buyside to trade independently have all shared they’ve never been happier - and sure there’s survivorship bias, but that’s also uniquely telling.
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Can I PM you? I have thought about doing this as well and have a few ideas on how to go about it. Would be interested in hearing your approach to it as well.
Sure thing
This brings me back. I remember that guy Bondarb who perfectly called '08 or something. Wish he was still around to tell us when next crash is coming.
Also remember your posts from back then when you were still starting out. Was very impressive and not surprised you're in a position to exit the rat race with a nice setup. Congrats.
Oh man thanks! Yeah those were great times. The journey of learning and aspiring for freedom. And bondarb went out of his way to share real nuggets. Anyone could read all his posts and walk into an interview at a macro fund sounding like a wannabe PM. I know I definitely did.
All the large platforms have independent PMs who use their infrastructure and sometimes also their capital (if it's your own money, you keep more of the returns), but are remote and control their own operations, hiring, etc. This is especially common in the prop/hft world, and often the risk limits are much looser than a regular pod. This is a better setup than working in a large fund and dealing with the internal politics and backstabbing. For certain strategies it can be better to use your own money and making less money for the firm but keep more for yourself.
If you come from a long-term-ish fundamental equity background, I would advise against it unless you have pretty big reserves (or enough at 5% real APY) to fund your living costs for the next 5 years, given the high volatility of running an LT equity strategy. Have seen some friends get burnt on it because they were thinking the bull mkt performance would sustain post 2022 and now they are (trying to) coming back to the job mkt.
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