Prop Options Firms in London

[Maverick74]

I currently run a regional office in Chicago for a San Francisco based prop firm. Our firm specialises in derivatives, but we trade every product in the world.

What I would like to know is if there is an opportunity in London for a firm like ours. Keep in mind we are not a bucket shop type arcade looking for guys to come in scalp futures all day long to generate commissions. We focus more on longer term trading and risk management. I would particularly like to go after guys interested in trading US equity and index options as well as European equity and index options with risk based haircuts.

The idea is also to groom guys from within to help introduce them to capital and incubate hedge funds in house.

We would not be charging the outrageous 2k to 6k a month desk fees. But we also would expect you to come in with a minimal amount of capital.

Since I live in Chicago, I'm really not up to date on what the trading environment is in London right now. I would like to think we could fill a very special niche there in London. I would appreciate some feedback on what everyone thinks. Thanks.

 

[jas-105]

Maverick,

From what I can gather, there are only a handful of independent options traders in London now as most of the trading in options is traded over the phone between the brokers and bigger options groups and then crossed up on the screen. Both Eurex and Liffe seem to facilitate this in the way they are set up, but I can't imagine it does much good for price transparency.

Maybe trading options from a longer view standpoint, as you mention, would make things easier. Do you generally just trade volatility or outrights ?

 

[Maverick74]

I'm a market neutral trader. I trade primarily volatility (both implied and spot) and soft deltas.

Well, we could bring electronic access to US equity and index options as well as access to European and Asian markets, both electronic and broker access.

 

[jas-105]

I think what you are proposing could be a great idea, would you train options traders from scratch or do you look for people with some experience and capital ?

 

[Maverick74]

I think what you are proposing could be a great idea, would you train options traders from scratch or do you look for people with some experience and capital ?

Well, to start, I would like to find guys that are currently trading options and want to take their trading to a higher level. The idea would be to take marginally profitable traders, get them to become more consistent and less volatile, give them risk based haircuts to extend their capital, then help them raise money.

The problem I have with training guys with zero experience trading or with zero options knowledge, is the learning curve is so steep and it takes a long time. Maybe a few years after an office is established with a good core group of traders, then we could afford to have a training program and bring guys in fresh. But that is not a good formula to use when you are starting a new office. You really need to hit the ground running. Especially with the high overhead costs associated with London.

 

[jas-105]

Do you have a website for the prop trading offices that you represent in the US ?

 

[Maverick74]

Do you have a website for the prop trading offices that you represent in the US ?

Yes we do.

www.vtradergroup.com

 

[jas-105]

Thanks Maverick, it all looks very professional !

The trading platforms that you offer seem to cater more for futures traders, which ones would you offer for the options ?

 

[Maverick74]

Thanks Maverick, it all looks very professional !

The trading platforms that you offer seem to cater more for futures traders, which ones would you offer for the options ?

Actually, we really need to update our web site. We actually have about 12 total platforms. For options trading we have about 7. We use Preferred, Brisk (pax clearing product), ML Pro (Merril product), Liquid, Tradespeed, NCompass (product we built in house), and Microhedge.

We really have quite a lineup of software to choose from. We have a JBO with Merril Pro and very close business partnerships with Fimat/Preferred and Man Financial.

 

[jas-105]

Blimey, I never realised there were so many ISV's to choose from. With regards to trading options electronically on the US exchanges are there many restrictions with putting in and pulling orders ? I have heard that one exchange over there actually charges you a fee for pulling an order, is that right ?

 

[Maverick74]

Blimey, I never realised there were so many ISV's to choose from. With regards to trading options electronically on the US exchanges are there many restrictions with putting in and pulling orders ? I have heard that one exchange over there actually charges you a fee for pulling an order, is that right ?

All the exchanges charge cancel fees for retail traders. One of the benefits of being a profesional trader is no cancel fees and you can bid and offer at the same time on the same strike. That's also not allowed for retail traders. So pull all the orders you want.

 

[jas-105]

what is the difference between retail and profesional traders ? do the market-makers have any additional benefits apart from cheaper fees like they get on Eurex and Liffe ?

 

[Maverick74]

what is the difference between retail and profesional traders ? do the market-makers have any additional benefits apart from cheaper fees like they get on Eurex and Liffe ?

Well aside from the no cancel fees and being able to bid and offer on the same strikes, the biggest advantage are the risk-based haircuts. This is huge!

This is a night and day difference. A risk based haircut means you are only putting up risk capital, not notional value like in a margin account. This means a guy that comes in with 10k in capital is really trading the retail equivalent of 150k or so. Granted depending on the strategy used the leverage factor could be more or less. The greatest leverage advantage will be with long gamma traders. But even short gamma traders can notice significant advantages. Of course, another huge advantage with haircuts is the use of synthetics which are cost prohibitive in retail accounts.

 

[jas-105]

Ok, so does this mean that anyone trading through your group automatically becomes a profesional trader as far as registration is concerned ? What is a retail trader ?

 

[Maverick74]

Ok, so does this mean that anyone trading through your group automatically becomes a profesional trader as far as registration is concerned ? What is a retail trader ?

Yes, but you need to become a member of the PCX and get a series 7 license. Then you will be a professional trader. It's later over here. I'll answer any any more questions you have later this afternoon for you.

Cheers.

 

[Maverick74]

So far, all the e-mails I have received from traders in London tell me there is a huge opportunity for a firm like ours. What I would like to do is start getting traders to trade remotely from London. Then, one of our guys from our Chicago office is planning to move to London next year. We can secure some space either from Merril, Man Financial or Fimat since we have relationships with all of them. Then I can come over and help this other guy out and get the office up and running. What do you guys think the interest would be to start getting remote traders on board?

 

[apples10]

So far, all the e-mails I have received from traders in London tell me there is a huge opportunity for a firm like ours. What I would like to do is start getting traders to trade remotely from London. Then, one of our guys from our Chicago office is planning to move to London next year. We can secure some space either from Merril, Man Financial or Fimat since we have relationships with all of them. Then I can come over and help this other guy out and get the office up and running. What do you guys think the interest would be to start getting remote traders on board?

You shouldn't find too much trouble. Bear in mind though that you'll be in competition for the staff from IB's and from other more established 'Option Trading Houses' such as LiquidCapital.

Theres a few firms doing what you are proposing, but there should easily be enough room for another player.

I think overall you'll be surprised by the activity over here in option land.

 

[Maverick74]

You shouldn't find too much trouble. Bear in mind though that you'll be in competition for the staff from IB's and from other more established 'Option Trading Houses' such as LiquidCapital.

There's a few firms doing what you are proposing, but there should easily be enough room for another player.

I think overall you'll be surprised by the activity over here in option land.

I will look into LiquidCapital. I think our firm offers a very unique model in that not only do we trade all the worlds markets, not only do we use 12 different front end platforms, not only do we focus on options and long term trading, but the assistance we offer to help traders start hedge funds and get backed by private investors. This is a very unique model that I believe can truly flourish in London.

 

[Parky]

We have option market makers in our trading room, both self financing and backed traders. Very few Prop shops in London provide access for options traders simply because there is still not an ISV on the market with an adequate risk management tool.
Risk management is also a problem with most clearers tending to be very conservative in terms of leverage and capital requirements using 5 or more standard deviations to calculate risk.
There are also very few ISV's on offer with competent Options trading tools and in London RTS probably has the largest market share.
I think there is plenty of room for a new player in the options markets in London especially if you can bring new trading and risk management tools.

 

[Maverick74]

We have option market makers in our trading room, both self financing and backed traders. Very few Prop shops in London provide access for options traders simply because there is still not an ISV on the market with an adequate risk management tool.
Risk management is also a problem with most clearers tending to be very conservative in terms of leverage and capital requirements using 5 or more standard deviations to calculate risk.
There are also very few ISV's on offer with competent Options trading tools and in London RTS probably has the largest market share.
I think there is plenty of room for a new player in the options markets in London especially if you can bring new trading and risk management tools.

Yes, I agree. It's the same problem here in the US. Very few firms have the risk management in place to manage the risk of option traders. We clear through Pax which is owned by Merril Pro and we have no such issues. We also have a great risk management team and terrific software to manage such risk.

It amazes me a city the size of London, arguably the financial capital of the world, does not have more to offer in the way of prop firms. But we intend to change that. We will bring US equity and index options to London with great front end software, great risk management, and with the focus on trading long term positions, not scalping futures all day.

We will start by offering traders in London remote access where they can trade from home. Then when we set up office there, we can bring in some of the remote traders into the office.

If anyone is interested in trading remote, please send me a PM. You will need to pass the series 7 or create an entity that has someone in it with a series 7, and you will need to get a US tax ID number. I am still looking into the tax id number issue.