Equities vs. Derivatives

[wsam29 10]

Now my brief stink as proprietary day trader in NSADAQ stocks lasted a whole 1 month if I recall.

 

I did not share the same market trading methology as the manager of the firm but I did have a great learning experiance from it. He wanted his traders to scalp for pennies risking 1:1 and trade all day long. Proprietary trading firms which are part of the ECN network get what are called "credits" if they provide liquidity to any ECN they place their order through.

 

Example about providing liquidity, trader A bids 35.98 for 1000 shares of ABCD stock, his order gets filled, he gets a credit by XYZ ECN of 0.002 cents per share. Trader B sold 1000 shares @ 35.98 of ABCD stock on XYZ ECN, he pays XYZ ECN 0.003 cents per share. Trader B took liquidity out of the market so therefore needs to pay up.

 

That was off topic but the manager wanted us to follow the ES for market direction as a reason to enter a long position or even confirmation that our trade will work out. (He could not trade for a net profit day if his life depended on it)

 

So what I'm trying to get at is everyone is looking at everyone for confirmation in a trade to work out or at least put the probabilities in it working out in our favour.

 

When Louis Borsellino used to trade mainly from the SP pit, new traders were told to watch what he did and just follow in his footsteps. Who's to say that his trade will work out?

 

Collectively we should focus on the net order flow to get a sense of direction and confirmation to our trades.

[torero 10]

That's very interesting, I've always been curious about prop firms and their policies. Any experience you can share will be greatly appreciated. I assume your experience with this firm, there was no freedom to trade your style or methodology?

[wsam29 10]

Since you asked.

 

The deal with that specific prop. firm was start small trading real money, 100 shares or 1 lot after a 2 day "theory of trading" training session by the manager who has no clue how to trade.

 

Show you can make a profit of $100 per day either by credits or scalping. That is a lot of trading for the course of 1 trading session. What was hand tying was their risk management policy, limit trading loss per trade to 0.02, the ideal loss was 0.01 per share.

 

Once you proved you were a profitable hyper scalper, you were given more capital to trade more size. Your account would always start with what you are given as trading capital. If you hit your loss target, your account would lock up. They had a central system that showed everyone P&L for the day.

 

Now here's the interesting part. At the time I was there, they had this one trader who was either +/-$1000 on any given day and he'd either hit either target within the first 30 minutes of trading. Either way he would stop trading for the day and hang around the office, he pretty much kept to himself. his style of trading...he would find a thinly traded stock and manipulate the price, it would either work or it would not. You need to be very proficient in your hot key order entry since there are many ECN's for you to place your order. Some guys would trade 1 block (10,000 shares) of a highly liquid stock and scalp it for 0.01

 

Some were credit traders, placing a bid or offer to get filled of a sideways moving stock under $5.00, they would be shaving to get in front of the level 2.

 

Either way it was a room full of traders just like us, but some of them looked like they were trading without the slightest clue about market direction, shorting a strong up trending day and getting steamrolled. It was a video game to them, short 10,000 of ORCL just like that and they would do it over and over again because the cost of trading was fractions of a penny.

 

That is where all the volume comes from those NASDAQ stocks, trading firms like that.

 

There I was trying to practice patience and the way they traded was the complete opposite. I did not respect the manager because here this guy was, teaching others how to trade when he could barely do it himself. I was watching him one day trade. Sitting there, left hand, right hand on the keyboard, placing trade after trade after trade, like a robot without emotion. He'd be losing and he'd still continue.

 

The plus side was I did meet this one trader who said to me "Change your way of thinking." I had no idea what he meant at the time, but now I do.

 

In case you are wondering which prop. firm this is...it's Swift Trade.

 

Don't get me wrong some of their traders make nice money, but you need capital to trade 20,000 shares of anything, even on margin. They do how ever retain their traders because of that.

 

One firm I know does futures, ES, NQ and they lose traders after they realize they can trade with as little as $5000 and keep all the net profits.

 

The way they compensate was in tiers.

 

70/30

60/40

50/50

 

The more you make, the more you get to keep. If you were making $1000 every two weeks, you'd get like 30% of net profits. It was not much in the lower bracket so your goal was to be trading size to reap the benefits of the 50/50 spilt.

 

 

In some ways they were tape reading, but have you seen the speed at which some NASDAQ stocks print???

 

It was a good experiance none the less.

[torero 10]

So how do they recruit traders? There is no criteria to filter the potentials from the wannabes (or the will-never-bes)?

[wsam29 10]

The criteria is make money within 2 months, if you are doing that, they keep you, if not they let you go.

 

Don't ask how some get it in 2 months because if that were the case, I'd be a millionaire by now.

 

Either way, it was not the way I wanted to play the game like bingo, long here, short here, all for what, a 1 tick scalp?

 

Then again, not all prop. trading firms opperate that way, so I can't bad mouth them all.

[The Bear 10]

I heard about this place...they are in richmond hill right? An aquaintance I knew said he wanted to get into the stock market. And at the time, I remember I heard about this company...swift trade, so I referred him to the website.

 

It was nuts, within 1 week he said he was already trading, they literally take people off the street. He ended up in some dark room near china town or something..with a bunch of computers and people eating food at their stations.

 

Anyways, it sounded bizarre. I should call this guy up to see if he's still there. I'm curious if he was able to stay on the 2 months.

 

I remember he told me in the training session, they simply told the applicants that, if you can play video games really well, you can do this.

[torero 10]

wow. the horror of it all!

[TradingMan 10]

To wsam28 not all swifts trading offices are like that anymore, well not to the degree you mention at the office I'm at anyhow. They hire you as an indepentent contractor (no trading experience necessary). After 2 days of theory and a short test, you get moved to the computer doing simulation for 2-3 more days before you get to trade live.

 

The office I'm at didn't mention anything about credit trading and no one I know of does it there, I think thats because its too risky nowadays. And from everyone else I've talked with no one is scalping at 10,000 shares (yet its still a fairly new office though). The highest are a few guys at a 1000. They still start you trading at a 100 and allow for a 3 cent trading loss now. Although it's really frowned upon if it happens, especially if you hit anything over this. The office I'm at also doesn't churn you to make hundreds of trades. I average around 40-50 aday because I'm still a beginner and you make mistakes and should learn from them. The number of trades should be decreased over time as you get better reading the markets and with your entry points. I think its about quality over quantity.

 

You also have up to 5 months to make $2000 dollars if you want to advance from student to trader (they call it graduating) before you start getting paid. But I think if you're not cutting it after 3 months, you get let go. The commisions are similar to the scale you mention but it also depends on where your office is located as I know they have offices in China, Phillipines, Malaysia etc.

 

Anyway I've been with Swift for almost a month and so far the experience I've gained as a trader has been quite valuable. It's allowed me to learn the basics of day trading and learning from my mistakes without having to invest any of my own money. Although you can look at the oppurtunity cost of not getting paid for 5-6 months over having a full-time job elsewhere. But I don't have any major expenses to woory about at the moment so the opportunity to learn how to day trade is perfect for me. I supplement my living by having a part time job tutoring so it helps with the minor bills.

[torero 10]

That's very enlightening to hear tradingman. I checked out the website. I assume they are looking for college-age recruits only right since most do not currently have high expenses required to have a full time job.

 

Do they trade stocks only? Do they trade futures too? I assume the drop out rate is quite high, considering the 3 cent stop loss is extremely small unless it's the purpose to teach hitting stops every time.