I want to start trading, how to proceed?

[BeNice]

Hi everyone.

Maybe I should have clicked search or something before posting this but I figured that I could be more active in my own thread. It may not even be the right forum for this! Maybe I'm just selfish. hahaha

Anyway, this isn't a short post and I'm not sure you need to read the whole thing to give useful advice, so here's some pre-emptive cliffs...(scroll to complete bottom of this bloated post for the actual questions I want to ask)

Summary

-Math/Stat (honours)
-Didn't like risk mgmt
-Winning online poker player (my mindset fits trading well)
-Enjoy pursuits primarily concerned with imperfect information/logic/analysis to find edges
-Want to know more about the trading world.
-Came to forum full of experts, hoping you will all pity me

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The long version:

Anyway, I'm Math/Stat trained and I tried to take that to financial risk etc but I just didn't enjoy what I was doing (or the path that lay ahead) for a variety of reasons. I found it dull (even when based on what my superiors were doing) and lacked the level of engagement I require. I have a pretty large hole in my resume that was filled with online poker and the occasional sports/racing arbitrage/betting (although I was pretty risk averse with sports, I doubt I was good enough to beat it with the amount of knowledge I had so I only took the best spots).

I'm a large long term winner at poker and also seemed to enjoy finding some arbs in the sports betting world. Basically, I have mid 6-figs in savings from poker now but I'm looking at moving away from full time poker and I like the idea of moving towards the markets. Poker is becoming a worry with regard to its long term viability. The poker economy seems to be winding down a bit and I see trading as an area that will "always" be fruitful/liquid for those that can beat it.

Part of me knows that with some work, I have enough capital and natural ability to get off to a start which will see me making a "decent amount" based on some fixed ROI in the "I'm not sure how distant" future but I know that it will take work/study and some time as a loser to get there. I'm being realistic.

I have some idea about trading and have done an honours level thesis on the topic of options pricing. I am highly competent w.r.t analytics and I feel like this is an area that I want to forge a career in.

And on to the questions...

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Q's

1. Should I look at the big trading houses (I know of Tibra and Optiver) for career stability/potential to swap over to analytics?
2. Should I consider Prop houses (recommmendations?) as a way to leverage some % of my existing bankroll and potentially get training?
3. Should I get into it with 100% my own money and learn from the ground up (would probably feel comfortable using ~100k for this purpose)?
4. Are the bigger firms offering salary+bonus as opposed to drawings etc (which basically amounts to a staking deal and seems to be heavily in the firm's favour)?

I feel like a hopeless case at the moment, I don't have any particular background in this area and I'm asking questions which I think may attract some criticism. That said, I'm am analytically/numerically/logically very skilled and I come from a background of working in an extremely volatile environment and thriving on it. I feel like this (trading) is where I need to be and I would appreciate any advice that you are kind enough to throw my way.

Sorry about this long-winded, gas-baggy post, I hope I don't come across as a douche, I just want the best advice possible before I throw myself into a new life path.

Thanks in advance...and please be gentle.

 

[Trembling Hand]

Lots of junior trading jobs going, thou lots of competition for them. I would say for a smaller firm your poker experience would be a plus. A bank would probably not look at it so favourably

http://seek.com.au/JobSearch/index.ascx?catindustry=1203&DateRange=999&Keywords=trader

As far as Prop Shops you could look at Propex Or Aliom.

 

[BeNice]

TY for the response, I assumed that a bank wouldn't be so accommodating lol

Thanks for the link too, I have looked there but my question is more a matter of who is good to work for, thanks for the recommendations, I'll be looking into them.

Should I be looking to leverage my existing bankroll or invest none of my own capital? Will this be dependent on the "type" of firm at all?

Part of me would love to simply take a "salary" and continue to use my existing bankroll for poker since there is still money to be made there.

 

[Trembling Hand]

Should I be looking to leverage my existing bankroll or invest none of my own capital? Will this be dependent on the "type" of firm at all?

Part of me would love to simply take a "salary" and continue to use my existing bankroll for poker since there is still money to be made there.

Very few start on their own and end up being Old traders. There's two good reason for that. Firstly most blow their own capital before they know whats going on and never get back to what they see as a bad set back financially. And probably rightly too.

The second and IMHO the more important one is that a trader sitting at home isolated trying to get a good & broad understanding of the markets has little hope. What ends up happening is they get, to some degree, physiologically damaged and confused. They end up learning bad habits and shell shock. You see it throughout most forums with all the conspiracy theories of Algo trading & confusion of market moves, denial & anger.

Get a job and learn the markets first. Then you can start to learn how to trade.

By the way with a prop shop you trade their capital not yours. (if you have some great live off it while they teach you ow to trade with their money its a great way to go )

 

[bilo83]

Congrats on the poker success to date, I was hoping to one day tap the poker economy myself!

Any of the ETO market makers such as Tibra, Optiver, Timber Hill, Susqehanna would be the beez knees for you given the options thesis. If you have any programming skills and/or very quick on your feet you might have a shot. Without much trading experience, I’d take anything in trading/broking I could get if I were you. Learn with other people's money - thats the way to go.

 

[Sir Osisofliver]

Hi everyone.

*snip*

The long version:

*SNIP*

And on to the questions...

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Q's

1. Should I look at the big trading houses (I know of Tibra and Optiver) for career stability/potential to swap over to analytics?

Speaking as an ex full service broker who worked at several large firms... The analysis boffins tend to try and stake out a particular segment of the market to become "expert" in it. They need to get cosy with the management of the companies within that segment - simply so those management will answer their calls ahead of other analysts and brokers when stuff happens. There is a fair bit of schmoosing as an analyst and long boring hours of running numbers through models. Most analysts are restricted from owning or trading in the shares that they cover. I haven't yet met a analyst from one of the big firms who I would classify as a "trader", primarily because most analysts are all about the fundamental analysis and ignore the technicals. (Which if you have been reading these forums you will understand is a big no-no for a trader). On the plus side you'll likely get an expense account and get to go places for site visits.

2. Should I consider Prop houses (recommmendations?) as a way to leverage some % of my existing bankroll and potentially get training?

IMO - no. Most research notes, tip sheets and the like that are forward looking is basically just someone's opinion, only the aggregate opinion will matter and the way to get a handle on what will happen there is through price action.

3. Should I get into it with 100% my own money and learn from the ground up (would probably feel comfortable using ~100k for this purpose)?

How do you feel about losing that $100,000.00? There are a couple of good threads on here - becoming an expert at anything springs to mind, about the kind of time it will take to get consistent profits from trading. First thing is you need is a plan, without a plan you are planning to fail, and determine what your edge is - where you are better skilled than the majority of your competition. Is it speed, accuracy, sourcing leads, designing systems etc. Currently you are ignorant of all the ways that the market can hurt you.

4. Are the bigger firms offering salary+bonus as opposed to drawings etc (which basically amounts to a staking deal and seems to be heavily in the firm's favour)?

Yes larger firms offer a variety of differing pay structures, most of which are bent in the firms favour. Until you've been an analyst for a while and have attracted a reputation for success in your chosen area, you will be a price taker of whatever they think you are worth.

I feel like a hopeless case at the moment, *snip* I hope I don't come across as a douche, I just want the best advice possible before I throw myself into a new life path.

Thanks in advance...and please be gentle.

We all started somewhere BeNice, I hope I was gentle... P.S. Go read my newbie thread.

Cheers

Sir O

 

[Trembling Hand]

Sir O

Speaking as an ex full service broker who worked at several large firms... The analysis boffins tend to try and stake out a particular segment of the market to become "expert" in it.

I didn't think the OP was talking about being an Analysis. Thats not trading!

IMO - no. Most research notes, tip sheets and the like that are forward looking is basically just someone's opinion, only the aggregate opinion will matter and the way to get a handle on what will happen there is through price action.

Sir O I don't see how your above comment has anything to do with trading with a prop house like propex. I couldn't think of ANY better way to start a trading career. Could you elaborate on what your point is?

 

[mazzatelli]

With your strong maths/stats and understand of option pricing - maybe you could consider a pricing analyst role at the large banks.

It is not trading, but when you are competent, you can move towards trading exotics [barriers, lookbacks etc] which is highly rewarding monetary wise.

Or you can choose the MM option, which I feel is inferior to the above option, but is still a starting point...

Also have you thought about algorithmic trading and arbs [risk, stat, dispersion, Delta 1 trading desks]?

 

[BeNice]

Very few start on their own and end up being Old traders. There's two good reason for that. Firstly most blow their own capital before they know whats going on and never get back to what they see as a bad set back financially. And probably rightly too.

The second and IMHO the more important one is that a trader sitting at home isolated trying to get a good & broad understanding of the markets has little hope. What ends up happening is they get, to some degree, physiologically damaged and confused. They end up learning bad habits and shell shock. You see it throughout most forums with all the conspiracy theories of Algo trading & confusion of market moves, denial & anger.

Get a job and learn the markets first. Then you can start to learn how to trade.

By the way with a prop shop you trade their capital not yours. (if you have some great live off it while they teach you ow to trade with their money its a great way to go )

Thanks a lot, this was a very helpful post, you addressed much of what I am looking to find out, I'll probably start looking at a few prop houses, thanks again!

 

[Sir Osisofliver]

Sir O I didn't think the OP was talking about being an Analysis. Thats not trading!

He used the word career - which to me implies a job working for someone as an analyst...If I'm wrong please disregard

Sir O I don't see how your above comment has anything to do with trading with a prop house like propex. I couldn't think of ANY better way to start a trading career. Could you elaborate on what your point is?

No need I didn't recognise the term - Hey I learnt something! I was under the impression that he'd made a typo and seized on the word recommendations thinking it was tip sheets and the like. Now I'm curious about Proprietary trading houses

Cheers

Sir O

 

[BeNice]

Congrats on the poker success to date, I was hoping to one day tap the poker economy myself!

Any of the ETO market makers such as Tibra, Optiver, Timber Hill, Susqehanna would be the beez knees for you given the options thesis. If you have any programming skills and/or very quick on your feet you might have a shot. Without much trading experience, I’d take anything in trading/broking I could get if I were you. Learn with other people's money - thats the way to go.

I hate to say it, but you've likely missed the gravy train. Still doable but not "printing money" these days. I missed 2005/2006 myself so I didn't get the best of it either, very tough these days. The learning curve has steepened exponentially over the last two years and I only see it getting worse. If you want to play, learn Pot Limit Omaha instead of holdem.

I hadn't heard of a couple of those places, cheers! I'll be looking into it.

 

[BeNice]

@mazzatelli:

Thanks, I will look into some pricing analyst roles as well. I'll look into some of the market maker roles too, I might as well cast the nets as wide as possible at the moment.

W.R.T arbs and algorithmic trading, I was sort of under the impression that it could not possibly be lucrative enough for a skilled trader (I imagine diminishing returns and I'm always confident that I can attain a very high level of competency at an endeavour that requires my skill set). Am I wrong?

@Sir Osisofliver:

I was sort of quick to dismiss your first post due to it's seemingly condescending and passive-aggressive nature but now I see that we just had our wires crossed. Your input is greatly appreciated. I don't think that I'm completely ignorant either, somewhat ignorant but not completely. You can more than likely put some actual content to me without me being overwhelmed.

Also, I was referring to "analyst" in the sense of providing statistical/mathematical information to traders, not trading itself but also not a "business analyst" like you seem to describe. I have a friend who does this for Tibra, it would just be a nice contingency plan in case my psychological profile changes over the years and I no longer want to be a trader.

Thanks again everyone! Keep the opinions coming!

 

[Mr J]

-Came to forum full of experts, hoping you will all pity me

Some are, most are not. Financial markets follow the same food chain structure as poker. Most have no idea, some have a clue, and few are very good.

I'll be the devil in the ear suggesting you to trade for yourself, but then I am completely biased, so it may not be wise to consider it as advice .

Your gambling experience is probably far more beneficial than you realise, or at least more than you state here.

 

[mazzatelli]

Merger arb can be lucrative [from observation of a hf trader] - especially with combined use of vanilla ops for bets on vol &/or gamma. Though I'm not sure whether it is an active area for the ASX universe.

I mentioned algo & arbs, mainly to use it as a stepping stone to enter the hedge fund industry, if you desire/interested.
I agree with what TH says about working for others initially, because you have the opportunity to meet traders who far surpass your skills of which you can learn from, rather than trade on your own with your own money.

btw all the best and good luck!!!

 

[Trembling Hand]

Now I'm curious about Proprietary trading houses

Cheers

Sir O

Just to clarify a Prop Shop (Proprietary trading firm) is a company that "contracts" traders to trade the companies funds for a profit split, normally starting around the 50/50 mark. They usually don't pay a wage its eat what you kill (or half of it anyway And there are no funds put up by the trader.

They are mostly setup to trade Futures and on a short term basis. Some take experienced traders with a profitable record others will take novices and train them like Propex.

It should be the way to learn how to trade. But unfortunately in Asia & Aus there is not that many.


PS There may be another Asian one being set-up this year. Just quietly

 

[Trembling Hand]

Actually there is two more that I know of. Silk Road Capital and Transmarket.

Also a thread on Oz prop shops here,

https://www.aussiestockforums.com/forums/showthread.php?t=11988

 

[MRC & Co]

PS There may be another Asian one being set-up this year. Just quietly

ha ha, wouldn't be in HK would it?

 

[Trembling Hand]

ha ha, wouldn't be in HK would it?

As the saying goes ....................... Stay Tuned for further updates

 

[BeNice]

Trembling Hand, you have been incredibly useful thus far, thank you for basically everything you have written!

One thing I would like clarified:

With the Prop Shops, I have heard about the profit splitting arrangement, it is almost perfectly analogous to a poker staking deal. I have staked plenty of players in my time and I understand it pretty well, I also understand how much I expect as the backer given I shoulder 100% of the risk for 50% of the profit. Am I correct in assuming the following:

- If I start trading; lose $20k and draw $5k from my account ("salary" I suppose) I am in the red for $25k
- If I then make $55k trading, I repay the $25k negative balance and then get $15k for myself ((55-25)/2)?

I hope that this is correct, it was explained to me that many prop houses offer drawings up to $x p/w as a wage from your personal account. Is this true? If so, is the above scenario a decent picture of how your account balance is maintained? Also, what sort of range is x going to take? That is, what sort of drawings/wage is "standard" in these houses?

Thank you for your patience. I just want a complete picture of how the industry works.

 

[Trembling Hand]

No profit = no money.

I haven't hear of a prop shop allowing you to take money that you haven't earned. Especially not a new trader.

Oh and you will also have to pay monthly desk costs (just like office rent) and other costs depending on what software & data you use.