Well to start off, this is embarrassing. So a senior trader and I (Junior Trader) manage a joint book and we currently have illiquid spread positions on back of the curve for a deferred year. We got these positions from market making, well he did... over the counter and on the screen it trades in one lot on the bid and offer and it's wide and iceberg would be no help. We currently have couple hundred lots on right now and need to get the fuck out and the brokers are reaching out to the banks but have nothing for us.
Any ideas?
Well he was making a market for the broker, didn't really have a view. He wasn't thinking of the liquidity constraint. As each day goes by and we hold onto these positions, we're losing money. We may be spreading but at the end of day, its still a directional view in terms of where the spreads are going and I know for a fact it's not going to go in our favor but his ass is praying and pushing the price of individual spreads during settlements so we fluff our PnL for our clearing house but at the same time, he's building up even more risk. Any recommendations?
Well when you're incoming positions day to day is down 10 to 15 grand everyday, you know he's wrong lol. Unfortunately, I don't have the seniority to take that kind of risk but at the same time, we share our books. Maybe different during the trading day but It's still the same PnL end of day. I can still help out and give solutions and my view while I trade my own book.
What do you mean real returns? I'm not here to debate... All I'm asking is for hedging solutions or what we can do.
rule #1 - never have shared P&L if you don't have shared trading strategy / view on the market.
Obviously, this cuts both ways.
-if your senior guy makes a lot of money, he's gonna think "i made that money - my junior kid didn't make it...i did...so i'll pay the kid the minimum to keep him around...if i feel so inclined" -if the senior guy loses money, he'll say "we lost money".
-if you make money with your prop ideas in his book, he'll say "we made money" and take all the credit.
in every scenario, if you lose money - "you lost money"
This is why you should put all your prop trades into your own trading book, and make your bosses boss aware that this is your trading book, where you put all your prop trades. Live by the sword...die by the sword (aka...your prop PnL).
if this is an option for you, i would suggest asking your bosses boss for your own trading book. Simply say that you disagree with your bosses strategy...and the only way to track the success / failure of both of your trading strategies is separate books. you can still happily do work for your senior, while having a separate trading book where you take your own positions for your own ideas. Trading is never a group effort at the trade level. Maybe as a group, all books can be rolled together at the top...but it never makes sense for multiple people to put trades into the same book, unless they all share the exact same strategy and view. This is pretty rare, outside of algo books. If your firm/boss doesn't think you are a good risk to be allowed your own trades, in your own book....then you aren't really a "trader"...you are an "assistant". A trader makes their own decisions. If you don't get to make your own decisions, then either:
a) ask to be able to make your own decisions b) accept that you are not the decision maker c) seek life elsewhere
there is no good way to exit an illiquid position that you don't have a view on, and don't want....you are just fucked. i say this with empathy...similar thing happened to me. I was asked to make a market for size on an unknown bond within a group of 20+ bonds. My boss told me to make the market. I said i can't. He said "i don't care, just make it." Some were liquid, some were not...we had no idea which security we were making a market on. We made a market in the middle of the liquidity spectrum...too tight for the illiquid stuff...very wide for the liquid. Of course, we got hit on 500mm of the very illiquid stuff and it moved $$ -5mm before we were able to exit. There was no way to escape losing money after getting into that position.
If you can, Put the hedge piece of shit position into a separate book. Trade and make money in your regular book. Hedge and try to exit the POS. Hope that you make more $$ prop trading to cover the losses from the POS.
if this is not an option for you...then you really have no control, and you should look for a different position where you are not beholden to somebody else's trading fuckups (this is kindof why people go into trading in the first place...to eat what you kill...not to eat what somebody else kills...or starve when they starve).
if talking to your bosses boss is not an option for you (maybe the boss has a relationship with your senior that supercedes you...and maybe you have zero influence/credibility) then you are just in a shit position. If you can make $$ prop trading (if you are allowed) then of course, do that. If you can't, then use this as a story when you are interviewing elsewhere.
worst case scenario, you tell senior's boss that senior has a bad position, and you fear for the firm...boss forces senior to exit position at a loss...position then rebounds in your face (Murphy's law)...then you get fired.
and btw....submitting bids/offers in the market designed to "influence" settlement price is not illegal if those bids are not "artificial" as specified in federal court here. (so long as they are not quickly pulled...because that has been defined as spoofing, which is illegal)
https://www.skadden.com/insights/publications/2018/12/federal-district-…</a">https://www.skadden.com/insights/publications/2018/12/federal-district-…
The CFTC WANTS this behavior to be illegal...but because the bids are not "artificial" (your bid could get hit) then the law is on your side. In most cases however, firms just settle with the CFTC and pay a fine (DRW decided to fight, and they won...but i suspect the legal bills would be prohibitive to your current firm).
Lol, sounds like your boss got some dogshit unloaded on by a broker.... “market making”