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?
He disregarded liquidity and made it super tight based around his value for some ungodly known reason, maybe to be a nice guy? But mind you, PnL is netting and I'm getting fucked.
If you can't get out quickly, can you find anything liquid (spread or outrights) to hedge the position with while you work slowly out of the position?
The problem is anything in back is illiquid, so if i use the front, I'll be building up spread risk and it's a combo spread so I can't even turn it into a fly, technically I can but I'll be screwing myself even more
Why do you need to get out
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?
But if you dont have a view, how do you know its going to lose money?
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.
So past returns predict future returns? Are they even real returns - how wide is the bid ask compared to the moves?
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.
So in terms of price you are losing 3-7 cents a day? Does seem like a lot for a deferred spread I believe you are talking oil.
Sounds like your options are hard puke Or hope. Without knowing what you are in I’ve seen plenty of trades that are just not interesting enough for someone to put on as spec and they grind bad everyday for weeks then snap back hard in a day or two.
I feel like tbe zbub spread loves to do that. Grind one way for weeks then gap back once it got interesting.
But ya if it’s something people don’t look at a lot then could have a while of pain before some arb steps or in or some real money needs to sell what your short.
Or he did something stupid and fundamentally on the wrong side.
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-…
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).
It’s not something I would want to mess around with
I also heard don Wilson didn’t care if he got banned from the industry. Made enough money and was bored.
If you are a small timer I would watch my verbiage. Igor and don Wilson won. Others have paid serious fines and suspensions. Overall this is an issue with the industry in that the government hasn’t legally defined market manipulation. Therefore the CFTC is free to prosecute. If you can spend $5 million on lawyers and take a huge career risks then you can say whatever you want. If you can’t afford the lawyers then watch your mouth.
Even if you can afford the lawyers don’t have in a a recorded conversation intent to manipulate. Will make your lawyers jobs a lot harder. I’ve heard of guys fired on the spot for using terms like bang the close. Banks paid billions in libor and currency manipulation and some of the best evidence were instant messages. These are grey areas where a stupid text can hang you.
"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)"
Thank you, at least you understand. It's a legit order in the market, sitting there. Do people think, we, as a firm don't discuss this?
on the flip side...if your large bid were to get hit because somebody on the other side has fundamental info that you don't....you are just totally fucked.
me personally, i prefer to only trade in liquid securities. if trading in the illiquid stuff, then i only put on positions when i have a strong reason to believe that the market is mis-priced, and i am putting on a RV trade for significant reason. i have no interest in being a blind stat-arb market maker for illiquid crap (i've been burned really bad doing that in the past...and have no interest in repeating)
Hence why I said FINRA, not CFTC. The traders are not upholding their fiduciary duty to the firm. Besides which, those bids are NOT bona fide because due to this thread's own admission, they want to close the position, not add to it.
Lol, sounds like your boss got some dogshit unloaded on by a broker.... “market making”
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YOU can be the next james cordier
Fairly incredible thread. Might be my favorite in the history of this forum.
Yeah I thought this would be a decent thread and it blew away my expectations. You traders need to do this more
Oh no no no no no no
Can anyone recommend some good books or other resources that would make some of the jargon in this post a little more understandable to someone without S&T experience?
https://quizlet.com/24381957/sales-and-trading-jargon-flash-cards/
https://www.amazon.com/Giving-Tree-Shel-Silverstein/dp/0060256656/ref=s…
Quizlet had many I hadn't come across before, thank you
read this book https://amzn.to/2H0iNbE
1) Be good looking, and jacked? Not sure there's another way.
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