Arcades - sanity check please

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Arcadian

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Hi all,

I've talked to/visited a few arcades in and around London over the last week with a view to settling down at one of them. First time I've done the rounds like this, so I thought I'd double-check a few things with the good folks here:

1 None of the guys I met looked me in the eye when talking to me. Is that normal? Does it mean what I think it means?

2 All the guys I met claimed to have excellent retention ratios: "We've only ever lost one trader."; "A total of two guys have left, I forgot when."; "Who we take on, we keep - we have a great community here." How true is that? (Draw your own conclusions from the fact that I'm asking ;-)

3 They are all dead keen on traders doing volume, volume, volume - unsurprisingly. They also all want it done in LIFFE Euribor - they're not keen on Short Sterling, Eurex Euribor, Globex Eurodollar etc. I suspect that's because LIFFE Euribor is a deep and liquid market with tight spreads and to make any money there one really has to do huge volume - in the other short term interest rates the spread is often larger and the profit/volume ratio should be better, which is against the arcades' interest - is that correct or am I missing something?

4 Some hold funds in segregated accounts, some in non-segregated ones. Does the difference matter in practice? (Yes, I know it depends on the, erm, quality of their risk management, but are there other pitfalls ?)

5 What expectancy should one have for trading STIR spreads? Round turn costs for butterflies (four contracts each) vary from GBP3.20 to GBP7.20(!) between the folks I talked to, so assuming a 50% win/loss rate there isn't much potential when going for half ticks, right?

6 Is PATS really better than the rest? Does it have limitations regarding the number of orders like some other ISVs' software?

7 What's better psychologically, no capital backing and 100% payout or capital backing with a profit split?
 
I have insufficient experience of "trading with others" for 5 of your 7 paragraphs, but can offer my opinion on 2 of them:-

Arcadian said:
1 None of the guys I met looked me in the eye when talking to me. Is that normal?
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No; it's _pathologically_ abnormal, and absolutely bizarre if _none_ of them did! That should ring _extreme_ alarm-bells.

Arcadian said:
Does it mean what I think it means?
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If you think it means you're widely being lied to, then probably; yes. I make this observation as a point of behavioural psychology only - not because I have any first-hand experience of trading arcades.

Arcadian said:
7 What's better psychologically, no capital backing and 100% payout or capital backing with a profit split?
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If you're good enough, then the former is financially better, obviously. But that wasn't what you asked. Wisely, you asked which is psychologically better, and that must definitely be the latter, as a sign of mutual confidence and trust.
 
Roberto,

Thanks for your reply. Good point about profit split and part-backing being a mutual thing, it's obvious but I hadn't thought of it ;-)

What I'm trying to do, since all those I visited had good points and bad ones, is to set up a side-by-side blow-by-blow comparison, score them, and then go for the one with the highest score. Bit like buying a house, really.

Everyone,

Any other replies, particularly from people trading in arcades at present would be appreciated - I'll summarize and report back after a few days.
 
There is nothing wrong with trading/scalping spreads, it offer the best risk reward return. This is how most self funded locals make their money in the market. Why? because It works consistently. Generally the methods taught in the arcades are those used by the people running them. Last thing you want is to sponsor people who will lose you money.
Everybody develops an individual style they are comfortable with after a time either that or they drop out.
 
the most money is made on outrights - but it also needs real experience - whereas trading spreads offers a learnable low risk strategy - albeit with a limited profit potential

and there is a difference between controlled losses as part of a profitable trading strategy and someone just losing as part of a non-profitable strategy!
 
This is what I've been arguing about for a long time. Most arcades are only really interested in doing more and more volume because that's where their bread & butter is. It's far easier to create volume rather than actual trading profits.

Better for them to employ somebody who does thousands of round trips a week but breaks even rather than somebody who does 250 lots but makes great money. There are after all only so many seats in an office and each seat is a profit centre.
 
i would not be so bold as to speculate how they do it
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You are correct, I should have added " in my experience" or " most people I know".

I have seen a direct correlation between traded volume and net profit/loss. Doing 250 lots a week will not make you lots of money unless you are taking a large risk by using a strategy such as trend following.
Trading outrights you will end up in spreads a lot of the times unless you are blinkering yourself. Legging spreads can often end up with outright trades as you execute a leg and it immediately goes your way but it is always very good to have a spread in mind.

At the end of the day it comes down to the individual and what they want from their career
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Absolutely. Those who succeed wouldn't want it any other way, those who do not decide they are being ripped off.
 
Part and parcel of learning to trade is loosing money, it goes hand in hand, I fail to see how you cannot sponsor somebody without this basic premise in mind.
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I am talking a bit longer term than you suggest. Of course people will lose initially but in my experience this is only for the first 4-6 months. It is hard to tell before that who is likely to get anywhere. Of course there are always the occasional loonies who get through the screening and need to be taken out earlier.
 
That's why I asked about the retention ratio - people who trade at breakeven or worse will leave after a while ;-) but anyone who makes a decent profit will stay, whether with 250 or 25,000 lots per week.

Any arcade traders here who'd care to comment?

anley said:
This is what I've been arguing about for a long time. Most arcades are only really interested in doing more and more volume because that's where their bread & butter is. It's far easier to create volume rather than actual trading profits.

Better for them to employ somebody who does thousands of round trips a week but breaks even rather than somebody who does 250 lots but makes great money. There are after all only so many seats in an office and each seat is a profit centre.
Click to expand...
 
Arcadian said:
What I'm trying to do, since all those I visited had good points and bad ones, is to set up a side-by-side blow-by-blow comparison, score them, and then go for the one with the highest score. Bit like buying a house, really.
Click to expand...
A bit like the way _you_ would buy a house, you mean! Most people are not nearly so rational, logical or reasonable, about house-buying or indeed trading. Methinks the gentleman might do rather well ... :)
 
prop firms are skum t'earth & should be avoided like the plague. If not you've only got yourself to blame..................unless you think you can beat them. If so I would suggest trading for yourself. If you have the ability to trade well at a prop firm you have the ability to trade flaming hot coals in hell & still do well - you can therefore trade for yourself. In my HO.
 
What are the specific pitfalls you would worry about?

Tubbs said:
prop firms are skum t'earth & should be avoided like the plague. If not you've only got yourself to blame..................unless you think you can beat them. If so I would suggest trading for yourself. If you have the ability to trade well at a prop firm you have the ability to trade flaming hot coals in hell & still do well - you can therefore trade for yourself. In my HO.
Click to expand...
 
What's more satisfying than a profit?

tsuntzu said:
I would look for an arcade thats gives you support to develop a trading style of your own, and learn to trade out-rights. More bang for your buck and, I find personally more satisfying.
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1 None of the guys I met looked me in the eye when talking to me. Is that normal? Does it mean what I think it means?
Click to expand...

Don't be too hard on yourself I am sure you are not that ugly?

2 All the guys I met claimed to have excellent retention ratios: "We've only ever lost one trader."; "A total of two guys have left, I forgot when."; "Who we take on, we keep - we have a great community here." How true is that? (Draw your own conclusions from the fact that I'm asking ;-)
Click to expand...

Depends where you went, varies hugely. Shouldn't make a difference to you. If you are not good, better you know about it sooner rather than later. I think it is reasonable to give most people 6 months before deciding one way or another unless they are obviously a "wrong un".

3 They are all dead keen on traders doing volume, volume, volume - unsurprisingly. They also all want it done in LIFFE Euribor - they're not keen on Short Sterling, Eurex Euribor, Globex Eurodollar etc. I suspect that's because LIFFE Euribor is a deep and liquid market with tight spreads and to make any money there one really has to do huge volume - in the other short term interest rates the spread is often larger and the profit/volume ratio should be better, which is against the arcades' interest - is that correct or am I missing something?
Click to expand...

LIFFE Euribor is best place to tart for low risk spread trading, it is the most liquid contract on Liffe and has more friendly characteristics than Sterling or Swissy. Some places only trade Eurex bund/bobl/schatz as transaction charges are cheaper on Eurex. As for Eurodollar this is starting to look possible on CME but not liquid enough on Liffe. As I said before, it is about getting stuck in, volume has a relationship to PnL. You also will get rebates from the exchange if you make volume, I would hope most places pay that to the trading account and don't take it for themselves.

4 Some hold funds in segregated accounts, some in non-segregated ones. Does the difference matter in practice? (Yes, I know it depends on the, erm, quality of their risk management, but are there other pitfalls ?)
Click to expand...

It should not concern you if you are funded, the risk is with the company.

5 What expectancy should one have for trading STIR spreads? Round turn costs for butterflies (four contracts each) vary from GBP3.20 to GBP7.20(!) between the folks I talked to, so assuming a 50% win/loss rate there isn't much potential when going for half ticks, right?
Click to expand...

I would think as a funded trader you should expect upto ~£4 for a fly is OK. The costs should decline as your volume increases. You do not need to fly up all the time.

6 Is PATS really better than the rest? Does it have limitations regarding the number of orders like some other ISVs' software?
Click to expand...

Definitely not. IMO TT and easyscreen are the best systems. Most people use TT but for calendar spreads it is hard to say which has the edge.

7 What's better psychologically, no capital backing and 100% payout or capital backing with a profit split?
Click to expand...

The first is better as you will earn more due to no split and cheaper costs but you need to have the capital to put up. The latter is better for people starting out as they may struggle initially but by the end of 18months-2 years if they survive they will have learnt how to make a sustainable living with great upside and freedom.
 
a couple of points:

- it seems that arcades are just bucket shops which want " traders" to scalp in volume so they earn their comms .

that is the reason why you risk your own cap first before theirs comes into play , which I feel is more theorectical than real , since they can boot you out before then .

this is not an efficient way to trade as your profit margin will be razorslim , after the broker's comm and what you bucket shop takes from you , hence the need for VOLUME !

scalping is a perverted term these days and conceals a lot of hidden costs . to begin with , the best kind of scalping is when you are a local with direct access to one of the big exchange contracts - eg ) s&p , nekkei .

here your costs would only be exchange fees and discounted comms for locals , so effectively you could scalp all day and make money .

BUT before you even get to that , you have to buy a local's seat and that can set you back US 100k + .
yeah , so you are in the red already before you even start .

and don't forget just because you are scalping doesn't mean you can't lose , there are always big price gaps , false bids and offers and when you trade size, a few points slippage can mean losing A LOT .

- the best $ for $ traders, taking set up costs in account are swing traders with good risk control

kind of disappointing when someone pulls the wool back away from the old eyes , isn' it ?
 
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