1/10/18

Hello!

I hear that many/most traders lose money. To what extend is this true? I mean like 70% of traders lose money and they end up with their basic salary and no bonus? Or 0.01% ?

Any insight?

thanks!

Comments (35)

Best Response
1/2/18

Retail traders lose money, most professionals don't. If a professional trader is losing money than he will not be a professional trader for much longer.

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1/3/18
1738Street:

Retail traders lose money, most professionals don't. If a professional trader is losing money than he will not be a professional trader for much longer.

thanks, so what are the chances for a graduate coming into trading, not to make it to become a professional trader? I know it is an individual thing, but I would like to know the chances?

1/2/18

Everyone loses money. The best trader might be right 1/3 of the time. If they make 5x on their wins compared to their losses, over the long run they will be incredibly profitable.

You have to risk money to make money, and that is most certainly true in trading.

1/2/18

This is definitely correct, but I think OP was referring to the net P/L of a trader at the end of the year.

1/3/18

What exactly is a trader's P&L in sales and trading not prop-trading? Why would they lose money on a trade, wouldn't they always be making a bid ask?

1/3/18

If the trade moves against you before you can get out of the trade you still lose money...

You are still taking risk and inventory-ing, not just brokering..

1/3/18

Bid/ask doesn't really exists anymore. It's either taken by hft or your doing something exotic and hoping your hedge makes sense.

Array
1/4/18
traderlife:

Bid/ask doesn't really exists anymore. It's either taken by hft

Is HFT the replacement for old school human market making? This isnt clear to me

1/4/18

For bid ask spreads yes.

There were a few guys which is market making Like and taking advantage of algos but that got banned.

Mean reversion trading intraday is sort of like market making but it's not bid/ask dominated and involves inventory. Scalping bid asks spreads is all hft

Array
1/3/18

Ya that's what I thought but how often does that actually happen?

Also, just a quick example. Lets say as a trader you take on 100 shares of apple. Now what do you do? Is your job to get rid of it as quickly as possible? Or can you hold on to it if you choose to?

1/4/18

Assuming you're not in prop, the trades moving against/for you will be normally distributed meaning your P/L will be close to what you made in gross commission over the course of a year.

I don't know... Yeah. Almost definitely yes.

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1/4/18

Thanks for the reply. As a trader, are you constantly calculating the bid ask by yourself? Or is there something that does it for you?

1/4/18

You are asking if I am constantly calculating what all the other traders in the market think my position is worth? No.

I don't know... Yeah. Almost definitely yes.

1/4/18

then how do you determine your bid ask?

1/4/18

I only have an internship under my belt, but from my experience you determine it off of the markets bid/ask, as well as your opinion of if you'd rather be selling or buying this position, which breaks down into your current inventory and the direction you think it's moving.

1/4/18

if you look at the DOM (depth of market) for any security (a ladder of prices, with bids on the left and offer on the right)...the distance in price between the highest bid, and the lowest offer is the "market bid/ask spread". For example, looking at crude oil futures, the bid/ask spread is typically very tight and keeps the minimum for that market of 1 cent. However, in securities that are not super liquid and don't have lots of trading activity (most stocks, and a few commodities), the bid/ask spread can be much wider (and changes as market volatility changes)...so there is no set rule, other than the minimum increment set by the exchange.

crude oil DOM

Then we get to the off screen institutions trading (most all securities can trade "off screen" for sufficiently large size...this is mostly how customers trade with the dealer banks)...if you look closely at the DOM, you will see the actual volumes on the bid and offer are small...but what if you are in the dealer seat at GS, and a customer asks you to bid on 5000 contracts (and the market bid/ask market is 30 contracts at 35 contracts with a 1 cent bid/ask spread...which you will need to use to get out of the position)? Would you show that same tight market for such a large size? No, you would normally back off the market price and show something with a little more room.
In this case, you would probably bid 5-10 cents below the market bid for 5k contracts. Otherwise, how do you plan to get out of the position without losing money? You generally assume that your customers trading large size are going to be correct (they usually are in the short term), and so you want to get out as soon as possible. THIS is the job of being an institutional market maker...determining how aggressive you can be in quoting a bid/ask spread for large size without losing money.

1/4/18

Lol 5-10c off mids for a 5000 lot trade. wrong.

1/4/18

all depends on your view of the market and the customer.

1/4/18

lol ok.

1/4/18

on avg, during daytime trading hours, 5k CL contracts trade every 5 min..and the avg price range for 5min is about 10 cents. So while i agree that 10 cents below market is an aggressive bid, its not totally unreasonable. how wide would you go for 5k contracts in crude oil? 20 cents?

also consider that if the dealer quotes a market that is too wide, the customer will just put you in comp with other dealers....and this is bad going forward as the information leakage will kill you

1/4/18

I trade oil. I would bet that on a 100 lot trade you give up 5-10c.

Do you realize how dumb your analysis is? you think a bank is going to take 100% of the market one way for 5 mins? First of all, you wont find a guy that will take that much risk on a spot trade of 5k lots...you might see it from time to time on some of those huge ETF roll programs, but even then its unlikely.

If you tried to get 5k lots off in one clip thats probably a dollar at the very least.

With respect to the dealer making that wide of a market, If i had somebody come to me with a 5k lot order, i know they have some serious wood to chop and they are feeling pain - they have a lot more to go. they probably dont have that many people they can go to and they cannot dump that volume on the screen without likely hitting some massive position limits and daily moves.

1/5/18

5k contracts trade every 5 min...with a 10 cent range on average, so what you are saying makes zero sense.

1/5/18

LOL you have no idea how a market works. So you're saying 5k lots trades in 5 mins, across every single market player in the entire world...do you really think that a bank would be able to all of a sudden come in and give a price better than the entire world that also wants to trade at the same time, so now there would be the entire world + the bank's 5k lots on one side of the trade...you think that the market will trade in a 10 cent range with twice the volume on one side? You cannot look at it like its a 5 minute holding period to dump whatever the market volume is. What if you gave up 10 cents because you thought you could do this and the market moved 15 cents that time...what if you couldnt get out for 20 mins and you had 4 consecutive moves of a 10 cent average, and now youre out 40 cents on your 10 cent give.

Correct me where you know better if what I am saying makes no sense.

1/5/18

1 - i didn't say that 5k lots trade every 5 min....i said that TOTAL TRADING VOLUME avgs 5k per 5 min...and on avg...the avg range for CL in any avg 5min period is 10 cents.

2 - you are misunderstanding why the ibanks will make markets for large size to their customers in the first place. Its all about prop trading...not making the bid ask spread (for such large size, there is no bid ask spread...its all prop trading).

ibanks that do block trades with customers (usually 1-on-1 swaps so the volume never appears on the actual exchange) are playing repeat game theory...and the game is information. Having the knowledge that there is a buyer of 5k contracts is immensely helpful to a prop trader. The market makers at the big banks are really prop traders in disguise. These market makers compete with each other to see the big flow trades, and they want to see them not in comp (so, only one dealer sees the inquiry...otherwise information leakage occurs). They will offer tighter spreads than they can get themselves in the screens at first glance because the information is more valuable for their own prop trading. This is true in most every market. So what if it takes a total of 20 cents to unload the 5k contracts in our example? about half will be at a profit, and about half will be at a loss = a scratch on the flow trade...but the information is free. ONLY YOU know what the size of the trade was. If you want to trigger a stop run, this is a great way to do it. And since you know why the stop run was triggered, you can control the market. This is how you trade large size. Your example of 100 contracts taking 5-10 cents tells me that you have no idea how trading large size works. Time to put on your big boy pants.

You can see from this 1 minute footprint chart how much volume trades at each price within each minute. There is a lot more trading than you see when you are just looking at the DOM and a standard candle chart.

1/5/18
  1. ok so lets walk through this again...5k lots trade on average every 5 mins, thats what i said above...we agree on this, right? Thats every person in the entire world trading whatever volume they have....tons of people trading. Not everybody is always buying or selling, right? So at any point, whether the bank is there or not, 5k lots would probably trade, thats what youre saying, right? Like lots of people would be in the market trading their little bits over the entire five minutes, right? So now for one second, or a tenth of a second or whatever it takes for the algos to see that there is a 5k lot trade on one side of the trade that you could sweep the entire market without moving 10 cents? Go look at the trades where andurand blew out the market running stops....there were was a 10k lot trade that i think blew the market out $1.50 at once....
  2. I know how the markets work...my counterparties are ibanks as well. I have actual pricing from them and know how the OTC market works...most of my trading works this way for longer dated trading because of the tax treatment vs the screen. I dont need to be lectured on how the block trading works. The point I made before is that if i had somebody coming at me with a 5k lot trade, its because they have serious wood to chop and they are going to have to take a price...thats the free knowledge. The other piece you are missing in all of this is the credit issues that banks run into with counterparties...that you have not even bothered to bring this up blows my mind as you claim to be an expert. Tell me how many times during your internship you saw a 5k lot trade across your desk. You didnt, which is how i know youre talking out of your ass.

This is what I do....trading 100 lot clips on a total size of 5,000,000 barrels is perfectly reasonable if youre trying to get in or out of a trade without moving the market, especially in longer dated crude.

1/5/18

1 - i was a market maker on a desk that traded top 10 market share. i (ok, my boss) WAS the market maker. I've seen more volume than you could possibly imagine.
2 - on avg, CL has a little under 100 contracts on the bid/ask....so ANYBODY can just click 100 BUY and get 100 contracts with a 1 cent bid/ask spread. THIS is why your 100 lot 5-10cent spread comment was ludicrous.
3 - when a customer does an OTC trade with a dealer (not in comp), NOBODY else (besides the dealer and the customer) knows about it. The dealer will then use icebergs and hidden size, progrmatically breaking up the trade into 500 10 -lots for execution, to hide the actual size as it moves thru the actual futures market. Dealers have spent a lot of money on automated execution strategies to hide from the algos. I should know...i helped code a few myself.

4-the best traders at GS, MS and the other ibanks who make the big money..500mm-1bln are not from making the bid ask spread...but from prop trading with the information advantage from repeatedly trading large size with their large customers. I'm talking about the very large funds...who trade in minimum clips of 1000-2000 contracts. These market makers will show tighter markets than you would expect if the REPEATEDLY want to see your business. But they don;t give a rats ass about your 100 lot. they just don;t care. They spend all their time and energy and money courting the VERY large traders...and they do it so they can see the most concentrated volume. Not every bank has a trader who will do this...but some do. When you are only trading 5k contracts at a clip, the world becomes a very small place.

1/5/18

dude if you take that 1c bid/ask on the screen you have to put up margin...thats not free. There is a cost of capital component to this, which is why credit matters at the bank and how they manage their cost of capital as well.

I know what the lot sizing is, i look at it all day. The entire point of this conversation is that you cannot get off a 5k lot trade 10c off the mid, which i think you just got to understanding. Your iceberg clips of 10 lots will take more than 5 mins to trade considering youre competing with everybody else also trying to sell into that 5k lot average over time.

Ok, so get your boss on here and tell me, or anybody with that little star up by their name that they are a trader, to tell me that you're right. Tell me that somebody would give a market 10c off the mid for 5k lots. Not gonna happen.

You have seen a small piece of this business, which is good, but there is so much more to it that you will learn as you gain more experience.

1/6/18

initial margin for CL crude oil futures is $2500/contract

5000 contracts = 5000 * 2500 = 12.5mm initial margin

this is pocket change for the billion dollar funds that my desk traded with.
you must have a MINIMUM 1-2 billion to have an ISDA to trade swaps.

are you at a sub billion dollar firm? then you have no idea about trading real size.

1/7/18
want2trade:

initial margin for CL crude oil futures is $2500/contract

5000 contracts = 5000 * 2500 = 12.5mm initial margin

this is pocket change for the billion dollar funds that my desk traded with.
you must have a MINIMUM 1-2 billion to have an ISDA to trade swaps.

are you at a sub billion dollar firm? then you have no idea about trading real size.

lol i'm holding my breath for their response. this was a great exchange, i learned a bit.

If the glove don't fit, you must acquit!

1/7/18

PM me if you're actually interested in what I do. I just made it clear that my counterparties are the banks, and yes I am trading swaps. You can work back to what kind of volume.

You're right that the IM is not big for somebody of that size, but you're trading against people that don't have that. You're not trading against people that have that volume to move, so you need to realize that the other side of the market on the screen just cannot take a 5k trade...that's what I meant by the not free trading of size on the screen. The point is that the bank desk cannot do that either.

Additionally, none of this even matters. You know you are wrong that you can get a 5k lot trade off 10c off the mid. You were talking out of your ass and its apparent that you had some good internship and saw some shit, but have no idea how the market actually trades. I am sure you can email one of your old coworkers to ask him what he thinks about that as well, but I can assure you he would laugh at you for suggesting he'd only give up 10c on a 2 way

1/7/18

I will add this on your IM comment. You missed my point on the cost to trade and cost of capital, so I will expand since I think its different and informative.

When you put up that margin, its risked capital. You cannot make that available for other trades, so you need to look at it like its a cost at whatever the hurdle rate is for the fun, in addition to the total value at risk.

If you have an 8% cost of capital, which I would bet is on the low side for most of the funds, they have an effective cost from the mid of 7c. Banks know this as well, as it frees capital for trading on the exchange since there is no cash exchanged until a settlement for counterparties like mine that have large lines of credit with the banks. Banks have to charge the clients credit costs to hold that inventory and manage the risk on that end since its effectively a loan that they will have to make whole.

So, unless you're trading just to trade and not actually generate good ideas and allocate capital to the best ideas, you better be damned sure you have the fund diversified and balanced enough to manage those costs of trading. The point is the bank makes up for the cash cost upfront by taking a credit charge on the spread.

1/10/18

I'm going to assume they are not constantly offering that size or two sided markets. But if they get inquiry and want the risks they will take it. Or if they have a block in the other side will facilitate.

There's are reasons both sides of the market wouldn't want to do a 5k lot on the screens and compete with hft.

Array
1/5/18

Simply speaking the trading day begins with a pre-opening process. Here the exchange or the specialist runs an opening auction process to determine the opening price. Its purely algorithmic and no discretion is applied.

The trading price is set to maximise volume. The filled volume at any particular price is given by Min(Supply, Demand) where buy orders form the demand function and sell orders form the supply function. All buy orders at or above this price and all sell orders at or below this price is filled.

Generally there will be a situation where the volume maximising price does not have equal supply and demand. In this case the earliest submitted orders will be filled.

After the opening period the order book will contain bids below the current market price and offers above it.

The difference between the best bid and best offer is known as the bid ask spread.

"The markets are always changing, and they are always the same."

1/4/18

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1/7/18