How the Pro's do it!

[0007]

How (some of) the Pro's do it!

Trouble with your drawdowns Sir? - try this one for size!

This might be an interesting listen next Sunday morning. http://www.bbc.co.uk/programmes/b0132026

 

[Black Swan]

Trouble with your drawdowns Sir? - try this one for size!

This might be an interesting listen next Sunday morning. http://www.bbc.co.uk/programmes/b0132026

Good find, amazing to think that is chump change for an IB now, also noted that NR produced latest figures this morning, always wondered if their revelations had come out later than others perhaps their belated rescue could have been handled a lot better given how relatively small they were..going to the BoE for help first wasn't the wisest move on reflection..

 

[glyder]

Good find, amazing to think that is chump change for an IB now, also noted that NR produced latest figures this morning, always wondered if their revelations had come out later than others perhaps their belated rescue could have been handled a lot better given how relatively small they were..going to the BoE for help first wasn't the wisest move on reflection..

But where else could they go when no one else would lend to them but the lender of last resort?

 

[0007]

Recording here if you missed it.

I liked the comment when his boss says one of the reasons he had problems was that he was trader AND risk manager. Isn't that what private traders do all the time and isn't that the cause of some people's problems?

 

[jthetrader]

Leeson proves that it is worth the risk when it comes to securities fraud. The place where you make the most money and get into the least trouble, you go to a cushy Category C prison, in the UK, or a minimum security federal prison, in the US, with a bunch of other non-violent White men.

Not that Leeson would have made much had he got away with it (considering his escapade cost £800mn and he was only eligible for a six figure bonus), what perplexes me is that he was reporting the profits back to Barings HQ in London. This seems odd for two reasons, firstly his huge profits were considerably more than an arbitrageur should have been making thereby drawing suspicion to himself when reporting them, secondly if he was meant to be making $1 million a month and he was actually, due to his use of leverage and his directional bets, making $100 millon why not just claim the $1 million and keep the remainder when he liqudiated his position? Perhaps it was more about pride and status than money itself.

 

[jthetrader]

Recording here if you missed it.

I liked the comment when his boss says one of the reasons he had problems was that he was trader AND risk manager. Isn't that what private traders do all the time and isn't that the cause of some people's problems?

Doesn't a trader have to be a risk manager to some extent, don't the roles overlap? If you're a prop trader and you're given a set amount of money with which to trade your parameters are what securities you can deal in and position size limits.

If traders weren't risk managers then how would they differ from brokers?

 

[0007]

Doesn't a trader have to be a risk manager to some extent, don't the roles overlap? If you're a prop trader and you're given a set amount of money with which to trade your parameters are what securities you can deal in and position size limits.

If traders weren't risk managers then how would they differ from brokers?

That's my point -for a private trader. Can't speak for the Pro's but from what I've heard (which may of course may be total cr@p) I thought the idea of management in the pro world was to keep the traders on a length of lead according to your management parameters. Perhaps someone can explain how it works for real (we have Nick Leeson's account for starters ).

 

[jthetrader]

That's my point -for a private trader. Can't speak for the Pro's but from what I've heard (which may of course may be total cr@p) I thought the idea of management in the pro world was to keep the traders on a length of lead according to your management parameters. Perhaps someone can explain how it works for real (we have Nick Leeson's account for starters ).

True, and in Leeson's case he was given control of the front and back offices because he generated massive returns because he was taking massive risks. So the people with abnormally high returns, which are usually generated by taking abnormally high risks, are rewarded with even less supervision than usual. And we can see what this cycle results in.

I think they generally make their assessments of prop traders early on, before they are hired even, and then give them a lot of freedom. They know that it is very difficult to lose 100% unless you are operating with leverage. And the powers that be have access to real-time data, so presumably if someone was really messing up they could get rid of them or force them to change course.

As for how hedge funds etc do it, who knows? They are strategy based in most cases though, so perhaps traders are given freedom to operate within that strategy (e.g. only allowed to take positions based on major news, or natural disasters, or when the market drops to or rises to a certain level).

I too would love to know how it actually works in these banks and funds we hear some much about.

 

[Bint_Crusher]

Doesn't a trader have to be a risk manager to some extent, don't the roles overlap? If you're a prop trader and you're given a set amount of money with which to trade your parameters are what securities you can deal in and position size limits.

If traders weren't risk managers then how would they differ from brokers?

A trader cannot be both. how on earth can you expect someone to take that level of risk and then manage it afterwards. It is like cutting your wrists and watching the blood flow before it either stops(clots) or the ambulance arrives.