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I was a trader at a big bank for many years. The tools and access I had there put me in a different class of trader that very few other firms or individuals can

by anonu 8y ago

I was a trader at a big bank for many years. The tools and access I had there put me in a different class of trader that very few other firms or individuals can attain. There is such information and technology asymmetry in this business - its not worth trying to day trade as an individual. Buy and hold forever... only way to invest.

dav43 8y ago
Likewise, I was prop and the tools, access to borrow and reduced exchange fees and balance sheet made it all possible. As an individual it’s way more difficult and time consuming.
qwtel 8y ago
I find it hard to believe there’s any day trader using any kind of information making a consistent profit. Isn’t everybody just dabbling around hoping to be in the 50% that outperform by chance? i’ve read about ed thorp pioneering statistical arbitrage in the 80s (?) which would fit the bill of “consistent returns”, but I doubt that there is any of that left close to 50 years later. I’m wondering what all these quantitive funds are doing.
- deleted 8y ago
  [deleted]
- lend000 8y ago
  Allegedly 90% lose money on trades, but 50% of the capital makes/loses money in a given market window (however most of the winning capital is owned by a smaller number of players than the losing capital, mostly banks, quant funds, and creative/smart/disciplined/lucky indie traders).
  - noddy1w 8y ago
    Not if the exchange has spreads and leverage. Even small spreads can screw your odds completely if you trade at margin, and gamblers bust means if you turn over your money a few times at high leverage you'll probably lose it all.
  - omgtehlion 8y ago
    It is not 50%, even if you are allowed to post passive orders (quotes) and pocket the spread (instead of loaing it) commissions will eat a lot. Effectively, brokers and exchanges have almost infinite ROI: with small and fixed investments in infrastructure and marketing they take _percentage_ of your traded volume. And shady trading rooms will screw you on commissions, spread, high margins on volatile instruments, and in very unlikely event if you manage to cash out more money than deposited, they will hold your account for "review of illicit trades". But even on real and legal exchanges far less than 50% of capital wins, I assure you.
- darksaints 8y ago
  FWIW, I'm day trading and I'm making consistent returns, well above the rates of most mutual funds and hedge funds. The caveat is what most fund managers would call capacity. My trading strategy can't scale without severe cuts in those returns. It's extremely easy to buy 10 contracts and hold for 5 ticks. I've never experienced slippage at all. Operating at mutual fund sizes, I would be trading at volumes that would slip 25 ticks before filling completely. My strategy can't and won't ever scale to that level...it would degrade to negative profitability likely with two or three million dollars of daily volume. Effectively this means I have major limits to compounding...like most day traders, I merely skim returns off of a fixed amount of capital. So yeah, I do well enough for myself, and there are thousands of traders just like me. The quant firms may be on another level, but it's not because they have better returns than you can get as a day trader, it's because they have better capacity.
  - ISL 8y ago
    What stops big firms from automating a great many small trading strategies?
    - saosebastiao 8y ago
      Honestly I have very little insight into how the bigger firms work. I've only ever done this by myself. But I can imagine that it's a lot harder to come up with 1000 strategies that don't compete with each other for the same opportunities than it would be to hire a team of geniuses that can build a single high capacity strategy.
      - jamiek88 8y ago
        How long have you been doing this? Sounds like you are eyes wide open anyway.
    - Timmah 8y ago
      Because one strategy returning $50-100k a year is a pittance to an investment bank. And (I bet) those strategies require a lot of manual intervention. Plus the risk value if they go haywire.
- speedplane 8y ago
  The only way you can consistently make money is by knowing things others do not (e.g., insider trading) or by taking advantage of structural problems or inefficiencies in the trading platform (e.g., high frequency trading). I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. Obviously a certain amount of that may be random/explainable, but I've seen it a lot and my intuition says more is going on. This also seems relatively easy to quantitatively measure, I'd love to see a real analysis of it.
  - wolco 8y ago
    Most people follow the community when they should be trying to be ahead of the community.
  - colechristensen 8y ago
    Information asymmetry doesn't have to be on insider information.
    - speedplane 8y ago
      > Information asymmetry doesn't have to be on insider information. In theory, yes, in practice no.
      - topmonk 8y ago
        I used to visit fuckedcompany.com to short sell companies based on information I found there. It worked for awhile until that site became too popular. That was a long time back, 1999 or so.
        Retric 8y ago
        Which get's into the short vs long term problem. In the short term strategy X works, in the long term it failed. How much of that success is random chance and how much is the value of the underlying data? And how do you avoid losing all benefit when the strategy eventually fails? The reality is this kind of short term incite based investing does not really scale. Over time the money you spend on paying people to do this is less than your risk adjusted long term benefit.
- Erlich_Bachman 8y ago
  Who do you expect to take effort to change your mind? It is much better to keep most people with skills and grit away by giving off impression that the task is impossible: it means there is more alpha for the ones who actually work with it and make a living. Because whatever alpha there is available, it is negatively correlated with the number of minds and amount of dollars trying to extract it. The markets can only get so efficient. This industry is filled with secrecy on one side, and paradoxically, with a wealth of free information on the other side. It's just that information is so abundant and complex, a normal person has no chance of using it anyway. Especially if they think it's impossible. The hoards of "get-rich-quick" dudes with no emotional control rushing into this thinking they can learn to day-trade in a month, loosing their life savings and then ranting on forums about how it is all just a big casino - they do not help the situation either. Well I guess in a way they do help real managers to keep their jobs. So you keep wondering. Just stay away from the markets :)
- tim333 8y ago
  Not sure about individuals but https://en.wikipedia.org/wiki/Renaissance_Technologies https://en.wikipedia.org/wiki/Renaissance_Technologies did ok. (Assets now$84bn, "from 1994 through mid-2014 it averaged a 71.8% annual return").
- Ntrails 8y ago
  > I doubt that there is any of that left close to 50 years later. Based on what? The conditions for stat arb to be possible haven't really changed.
- bunderbunder 8y ago
  > the 50% that outperform Not even. After you take your brokerage's fee structure into account, you've got to nominally outperform the market by a fairly decent margin in order to stay ahead of the market. The amount by which you need to depends on the rate at which you incur those fees, so day traders are giving themselves the toughest row to hoe in this department.
  - toast0 8y ago
    Brokerage fees are getting lower and lower. I understand Interactive Brokers will pass through exchange rebates for setting orders that add liquidity. Negative fees add up too.
paulie_a 8y ago
The professional trader must be keeping the profits, I've day traded on a fairly slow volume and consistently get 200-1000 percent return year over year. Meanwhile the professional traders give me a meager 5-10 percent at most. For several years they didn't even beat inflation. Regardless of their access and tech they seem to suck at their jobs.
- wallstquant 8y ago
  You must not be considering the total return of all your wealth just a limited subset. If you started with 10k and earned 300% (138.6% continuously compounded) then after 5 years you will have over $10mm. Wait another 3.3 years and you're a billionaire...
  - paulie_a 8y ago
    I was simply stating I have a substantially higher return than the pros. I've used that money for other purposes. for instance buying American airlines the day they went bankrupt allowed me to pay off a medical bill for a surprise medical emergency. But in that case it was literally 1000 percent return. I bought a bit of their stock the morning they went bankrupt. AMD is also an incredibly easy one to profit one. Wall Street might like to short sell on them to my benefit. From 3 dollars a share to 28 with incredibly predictable highs and lows for two decades. If I had the cash in college I could have been a millionaire by making ten trades a week on that one stock. The pros suck. I beat them year over year vs my managed retirement fund. It's pathetic.
    - selectodude 8y ago
      >for instance buying American airlines the day they went bankrupt allowed me to pay off a medical bill for a surprise medical emergency. Good job, you got into the same short-squeeze opportunity everybody else did that morning.
      - paulie_a 8y ago
        Be sarcastic, but quite a few pros claimed it was a terrible investment. Same thing has been happening with amd. It's incredibly low hanging fruit. I just wasn't able to or decided not to reinvent the profits. My original point stands, the pros are terrible at their job. If you can't beat the rate of inflation in a multi billion dollar fund get a new job, despite all the fancy pointless tech.
robk 8y ago
What sorts of proprietary data?
mabbo 8y ago
I worked briefly[0] at a startup that helps get professional traders faster/easier access to reports, data, etc[1]. It was eye opening. Brokerage firms do huge amounts of research to help figure out where the market is going, then only give that information to the big fish who do millions/billions in trades. You and I are not competing in a fair game when we buy and sell stocks. I just keep my retirement savings in a robo-investment account now, balancing ETFs. Hands off the wheel, don't think about it, don't mess with it. [0]Fintech wasn't for me. Just didn't enjoy it. [1]StreetContxt. Cool folks, great company.
- H1Supreme 8y ago
  > Hands off the wheel, don't think about it, don't mess with it I'm the same way. I put money in, buy more shares of whatever ETF I deem worthy, and outside of the occasional sell to fund another ETF purchase, I don't touch it. It fluctuates, but ultimately goes up. But, man oh man, do I fantasize about trading. When I look at the underlying stocks in an ETF that's doing good for me, and some of them have these massive YTD returns, I get the itch.
  - mabbo 8y ago
    I suspect I could do that successfully. What I do instead is give up 0.5% per year and let WealthSimple[0] do it for me. Automatic weekly payments from my bank account get invested in whatever way gets me closer to a balanced portfolio. It's a big cut for doing something I could do manually but I'm super lazy and it's a percentage of not much money anyways. [0] https://wealthsimple.com https://wealthsimple.com or https://wealthsimple.com/invite/FCU4AG https://wealthsimple.com/invite/FCU4AG if you want a referral link which gives you (and me) some extra discounts.
    - tlight 8y ago
      That's a pretty hefty fee when you compare relative to average annual returns. Plus the compounding nature of those costs is not insignificant. Jack Bogle (Vanguard) has a nice chapter demonstrating this in "The Little Book of Common Sense Investing".
bitxbit 8y ago
This is a joke right? You were a flow trader for a dealer. How is that even remotely the same as buyside regardless of size? The tech at bulge doesn't even compare to what some of the sophisticated buysides have in place.
- Erlich_Bachman 8y ago
  He could have been on the buy side within the bank? Some investment banks still do this kind of business, even if within certain limits.
  - anonu 8y ago
    Correct. I always traded prop, even at a bank. The Volcker Rule was a joke. It caused some papers to be shuffled around and a lot of noises were made. The current Administration pretty much certified its death. Also - having access to flow creates substantial information asymmetry and opportunities.
cheez 8y ago
Retail day trading is guerrilla warfare. It's not about beating the big guys.
kolbe 8y ago
Banks and hedge funds aren't always competing for the same types of profits that other market participants are. I've met some very small individual investors who generate legitimate alpha. There are myriad niches to extract outsized returns from. Even the fact that your bank was able to succeed shows this. Banks have shit technology and fundamental information, but can utilize their customers' ideas and order flow to generate alpha. That's a niche that Hedge Funds and prop shops don't fulfill.
Nuzzerino 8y ago
Aren't there lesser known trading pairs that are too small in volume to be worth the time for institutions to develop and operate trading strategies for, with an acceptable risk level? I know plenty of successful individual traders, and not a single one shares your mindset.
davidmr 8y ago
Similarly, I spent 8 years building research and production trading infrastructure for a trading firm. The quality of data, tools, and trading execution infrastructure produced for these purposes was so far ahead of anything I could access without building my own HFT firm that I resolved to find myself on the other end of their trades as infrequently as humanly possible. I'm definitely the dumb money in the market, trading on stone age tools by comparison.

by anonu 8y ago

dav43 8y ago

Likewise, I was prop and the tools, access to borrow and reduced exchange fees and balance sheet made it all possible. As an individual it’s way more difficult and time consuming.

qwtel 8y ago

I find it hard to believe there’s any day trader using any kind of information making a consistent profit. Isn’t everybody just dabbling around hoping to be in the 50% that outperform by chance? i’ve read about ed thorp pioneering statistical arbitrage in the 80s (?) which would fit the bill of “consistent returns”, but I doubt that there is any of that left close to 50 years later. I’m wondering what all these quantitive funds are doing.

deleted 8y ago
[deleted]
lend000 8y ago
Allegedly 90% lose money on trades, but 50% of the capital makes/loses money in a given market window (however most of the winning capital is owned by a smaller number of players than the losing capital, mostly banks, quant funds, and creative/smart/disciplined/lucky indie traders).
- noddy1w 8y ago
  Not if the exchange has spreads and leverage. Even small spreads can screw your odds completely if you trade at margin, and gamblers bust means if you turn over your money a few times at high leverage you'll probably lose it all.
- omgtehlion 8y ago
  It is not 50%, even if you are allowed to post passive orders (quotes) and pocket the spread (instead of loaing it) commissions will eat a lot. Effectively, brokers and exchanges have almost infinite ROI: with small and fixed investments in infrastructure and marketing they take _percentage_ of your traded volume. And shady trading rooms will screw you on commissions, spread, high margins on volatile instruments, and in very unlikely event if you manage to cash out more money than deposited, they will hold your account for "review of illicit trades". But even on real and legal exchanges far less than 50% of capital wins, I assure you.
darksaints 8y ago
FWIW, I'm day trading and I'm making consistent returns, well above the rates of most mutual funds and hedge funds. The caveat is what most fund managers would call capacity. My trading strategy can't scale without severe cuts in those returns. It's extremely easy to buy 10 contracts and hold for 5 ticks. I've never experienced slippage at all. Operating at mutual fund sizes, I would be trading at volumes that would slip 25 ticks before filling completely. My strategy can't and won't ever scale to that level...it would degrade to negative profitability likely with two or three million dollars of daily volume. Effectively this means I have major limits to compounding...like most day traders, I merely skim returns off of a fixed amount of capital. So yeah, I do well enough for myself, and there are thousands of traders just like me. The quant firms may be on another level, but it's not because they have better returns than you can get as a day trader, it's because they have better capacity.
- ISL 8y ago
  What stops big firms from automating a great many small trading strategies?
  - saosebastiao 8y ago
    Honestly I have very little insight into how the bigger firms work. I've only ever done this by myself. But I can imagine that it's a lot harder to come up with 1000 strategies that don't compete with each other for the same opportunities than it would be to hire a team of geniuses that can build a single high capacity strategy.
    - jamiek88 8y ago
      How long have you been doing this? Sounds like you are eyes wide open anyway.
  - Timmah 8y ago
    Because one strategy returning $50-100k a year is a pittance to an investment bank. And (I bet) those strategies require a lot of manual intervention. Plus the risk value if they go haywire.
speedplane 8y ago
The only way you can consistently make money is by knowing things others do not (e.g., insider trading) or by taking advantage of structural problems or inefficiencies in the trading platform (e.g., high frequency trading). I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. Obviously a certain amount of that may be random/explainable, but I've seen it a lot and my intuition says more is going on. This also seems relatively easy to quantitatively measure, I'd love to see a real analysis of it.
- wolco 8y ago
  Most people follow the community when they should be trying to be ahead of the community.
- colechristensen 8y ago
  Information asymmetry doesn't have to be on insider information.
  - speedplane 8y ago
    > Information asymmetry doesn't have to be on insider information. In theory, yes, in practice no.
    - topmonk 8y ago
      I used to visit fuckedcompany.com to short sell companies based on information I found there. It worked for awhile until that site became too popular. That was a long time back, 1999 or so.
      - Retric 8y ago
        Which get's into the short vs long term problem. In the short term strategy X works, in the long term it failed. How much of that success is random chance and how much is the value of the underlying data? And how do you avoid losing all benefit when the strategy eventually fails? The reality is this kind of short term incite based investing does not really scale. Over time the money you spend on paying people to do this is less than your risk adjusted long term benefit.
Erlich_Bachman 8y ago
Who do you expect to take effort to change your mind? It is much better to keep most people with skills and grit away by giving off impression that the task is impossible: it means there is more alpha for the ones who actually work with it and make a living. Because whatever alpha there is available, it is negatively correlated with the number of minds and amount of dollars trying to extract it. The markets can only get so efficient. This industry is filled with secrecy on one side, and paradoxically, with a wealth of free information on the other side. It's just that information is so abundant and complex, a normal person has no chance of using it anyway. Especially if they think it's impossible. The hoards of "get-rich-quick" dudes with no emotional control rushing into this thinking they can learn to day-trade in a month, loosing their life savings and then ranting on forums about how it is all just a big casino - they do not help the situation either. Well I guess in a way they do help real managers to keep their jobs. So you keep wondering. Just stay away from the markets :)
tim333 8y ago
Not sure about individuals but https://en.wikipedia.org/wiki/Renaissance_Technologies https://en.wikipedia.org/wiki/Renaissance_Technologies did ok. (Assets now$84bn, "from 1994 through mid-2014 it averaged a 71.8% annual return").
Ntrails 8y ago
> I doubt that there is any of that left close to 50 years later. Based on what? The conditions for stat arb to be possible haven't really changed.
bunderbunder 8y ago
> the 50% that outperform Not even. After you take your brokerage's fee structure into account, you've got to nominally outperform the market by a fairly decent margin in order to stay ahead of the market. The amount by which you need to depends on the rate at which you incur those fees, so day traders are giving themselves the toughest row to hoe in this department.
- toast0 8y ago
  Brokerage fees are getting lower and lower. I understand Interactive Brokers will pass through exchange rebates for setting orders that add liquidity. Negative fees add up too.

paulie_a 8y ago

The professional trader must be keeping the profits, I've day traded on a fairly slow volume and consistently get 200-1000 percent return year over year. Meanwhile the professional traders give me a meager 5-10 percent at most. For several years they didn't even beat inflation. Regardless of their access and tech they seem to suck at their jobs.

wallstquant 8y ago
You must not be considering the total return of all your wealth just a limited subset. If you started with 10k and earned 300% (138.6% continuously compounded) then after 5 years you will have over $10mm. Wait another 3.3 years and you're a billionaire...
- paulie_a 8y ago
  I was simply stating I have a substantially higher return than the pros. I've used that money for other purposes. for instance buying American airlines the day they went bankrupt allowed me to pay off a medical bill for a surprise medical emergency. But in that case it was literally 1000 percent return. I bought a bit of their stock the morning they went bankrupt. AMD is also an incredibly easy one to profit one. Wall Street might like to short sell on them to my benefit. From 3 dollars a share to 28 with incredibly predictable highs and lows for two decades. If I had the cash in college I could have been a millionaire by making ten trades a week on that one stock. The pros suck. I beat them year over year vs my managed retirement fund. It's pathetic.
  - selectodude 8y ago
    >for instance buying American airlines the day they went bankrupt allowed me to pay off a medical bill for a surprise medical emergency. Good job, you got into the same short-squeeze opportunity everybody else did that morning.
    - paulie_a 8y ago
      Be sarcastic, but quite a few pros claimed it was a terrible investment. Same thing has been happening with amd. It's incredibly low hanging fruit. I just wasn't able to or decided not to reinvent the profits. My original point stands, the pros are terrible at their job. If you can't beat the rate of inflation in a multi billion dollar fund get a new job, despite all the fancy pointless tech.

robk 8y ago

What sorts of proprietary data?

mabbo 8y ago

I worked briefly[0] at a startup that helps get professional traders faster/easier access to reports, data, etc[1]. It was eye opening. Brokerage firms do huge amounts of research to help figure out where the market is going, then only give that information to the big fish who do millions/billions in trades. You and I are not competing in a fair game when we buy and sell stocks. I just keep my retirement savings in a robo-investment account now, balancing ETFs. Hands off the wheel, don't think about it, don't mess with it. [0]Fintech wasn't for me. Just didn't enjoy it. [1]StreetContxt. Cool folks, great company.

H1Supreme 8y ago
> Hands off the wheel, don't think about it, don't mess with it I'm the same way. I put money in, buy more shares of whatever ETF I deem worthy, and outside of the occasional sell to fund another ETF purchase, I don't touch it. It fluctuates, but ultimately goes up. But, man oh man, do I fantasize about trading. When I look at the underlying stocks in an ETF that's doing good for me, and some of them have these massive YTD returns, I get the itch.
- mabbo 8y ago
  I suspect I could do that successfully. What I do instead is give up 0.5% per year and let WealthSimple[0] do it for me. Automatic weekly payments from my bank account get invested in whatever way gets me closer to a balanced portfolio. It's a big cut for doing something I could do manually but I'm super lazy and it's a percentage of not much money anyways. [0] https://wealthsimple.com https://wealthsimple.com or https://wealthsimple.com/invite/FCU4AG https://wealthsimple.com/invite/FCU4AG if you want a referral link which gives you (and me) some extra discounts.
  - tlight 8y ago
    That's a pretty hefty fee when you compare relative to average annual returns. Plus the compounding nature of those costs is not insignificant. Jack Bogle (Vanguard) has a nice chapter demonstrating this in "The Little Book of Common Sense Investing".

bitxbit 8y ago

This is a joke right? You were a flow trader for a dealer. How is that even remotely the same as buyside regardless of size? The tech at bulge doesn't even compare to what some of the sophisticated buysides have in place.

Erlich_Bachman 8y ago
He could have been on the buy side within the bank? Some investment banks still do this kind of business, even if within certain limits.
- anonu 8y ago
  Correct. I always traded prop, even at a bank. The Volcker Rule was a joke. It caused some papers to be shuffled around and a lot of noises were made. The current Administration pretty much certified its death. Also - having access to flow creates substantial information asymmetry and opportunities.

cheez 8y ago

Retail day trading is guerrilla warfare. It's not about beating the big guys.

kolbe 8y ago

Banks and hedge funds aren't always competing for the same types of profits that other market participants are. I've met some very small individual investors who generate legitimate alpha. There are myriad niches to extract outsized returns from. Even the fact that your bank was able to succeed shows this. Banks have shit technology and fundamental information, but can utilize their customers' ideas and order flow to generate alpha. That's a niche that Hedge Funds and prop shops don't fulfill.

Nuzzerino 8y ago

Aren't there lesser known trading pairs that are too small in volume to be worth the time for institutions to develop and operate trading strategies for, with an acceptable risk level? I know plenty of successful individual traders, and not a single one shares your mindset.

davidmr 8y ago

Similarly, I spent 8 years building research and production trading infrastructure for a trading firm. The quality of data, tools, and trading execution infrastructure produced for these purposes was so far ahead of anything I could access without building my own HFT firm that I resolved to find myself on the other end of their trades as infrequently as humanly possible. I'm definitely the dumb money in the market, trading on stone age tools by comparison.