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Brokers and Banks as an Institutional Trader 4 replies

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Is anyone here an institutional trader?

Quoting JacobFordFX
{quote} My risk and drawdown wasn't determined in pct points, it was an absolute USD amount. They gave limits based on the volatility and liquidity of the books (products and currency pairs) you managed. I don't that really answers your question. If I understand your question, I had a soft drawdown of my own for my overall p/l in order to keep on track to make or exceed my budget.
So were you given say, 10million and then asked to make so much money off of that? How much leverage did they allow you to use, did they place those kind of parameters on traders? Thanks again for talking with us, I have always wondered what trading for a bank would be like. Doesn't sound like we are missing much.
If you are good at something, never do it for free--Joker
Quoting jmn5611
JacobFordfx Thanks for giving us the absolute values in terms of drawdown allowed in your trading account at the bank. What does that translate to in percentage terms. Were you allowed 1% a day, 3% a month? How did that work for you, very interesting stuff here!
Standards I worked with were no more than 1% loss per trade at risk and a Maximum of 5% per week on cut off...

15% net loss on any account and you no longer had funds to manage.

Net increase per month depending on percentage gains and draws allowed for more funds and additional accounts to be provided..

Depending on Brokers, they will line up accounts with set parameters for the risk. Some may allow a little more risk but the expectations on gains were higher.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
Quoting jmn5611
{quote} So were you given say, 10million and then asked to make so much money off of that? How much leverage did they allow you to use, did they place those kind of parameters on traders? Thanks again for talking with us, I have always wondered what trading for a bank would be like. Doesn't sound like we are missing much.
As far capital, I don't believe my bank or any bank for that matter had issues with capital (2008 crisis aside). I was never told to cut positions because the bank was running low on money. So I was never given a fix amount of capital because capital is not a problem for a bank. Whether they have it or they go out and issue paper or borrow, etc. I couldn't tell you if it was bank capital or borrowed or leveraged.

I think I mention in a earlier post how dealers budgets increase, they always increase every year regardless of trading conditions. Every year the Bank's CEO and Board wanted to make x% more to show the shareholders the bank was growing so that puts the burden on the profit centers in the banks. And every year it was the same argument from traders "You expect me to make that?!?!?! wtf, we have no customers (flow). Chief Dealer would say the same thing "I don't give a flying F**K, just do it." Of course I'm paraphrasing but that's pretty much how it goes. I have never ever heard a dealer at my bank or any other have their budget lower from the pervious year.
Quoting Magix
{quote} Standards I worked with were no more than 1% loss per trade at risk and a Maximum of 5% per week on cut off... 15% net loss on any account and you no longer had funds to manage. Net increase per month depending on percentage gains and draws allowed for more funds and additional accounts to be provided.. Depending on Brokers, they will line up accounts with set parameters for the risk. Some may allow a little more risk but the expectations on gains were higher.
Thanks Magix, I forgot you were an institutional guy too. I just wanted to make sure that my risk profile made sense. What I do is if my floating DD exceeds 3% then I will trim positions until we get underneath that number, I try to keep that DD static while I accumulate positions.

It looks like this is what the big boys do too, and that is something I have wanted to know for quite some time.
If you are good at something, never do it for free--Joker
Quoting jmn5611
{quote} Thanks Magix, I forgot you were an institutional guy too. I just wanted to make sure that my risk profile made sense. What I do is if my floating DD exceeds 3% then I will trim positions until we get underneath that number, I try to keep that DD static while I accumulate positions. It looks like this is what the big boys do too, and that is something I have wanted to know for quite some time.

Institutional...No...

Account Manager...Yes...

I don't want to take away from what Jacob is putting out...it's just that the expectations that were dictated to me were a fantastic guidance as to how to manage my own funds.

Keeping these levels in mind is where and how I adopted my trade practices...I just figured, if this is what investors were looking for as reasonable levels, these should be sufficient for my own growth.

Jacob and Skenobi have a lot more to offer on this subject...
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
Quoting JacobFordFX
{quote} As far capital, I don't believe my bank or any bank for that matter had issues with capital (2008 crisis aside). I was never told to cut positions because the bank was running low on money. So I was never given a fix amount of capital because capital is not a problem for a bank. Whether they have it or they go out and issue paper or borrow, etc. I couldn't tell you if it was bank capital or borrowed or leveraged. I think I mention in a earlier post how dealers budgets increase, they always increase every year regardless of trading conditions....
Well that's kind of shitty, what happens if the currency in your book trades in a tight range for many months? I'm glad we are not under that kind of stress.
If you are good at something, never do it for free--Joker
What Magix has said is right on the money. I would imagine those are the guidelines Funds and money mangers would use. The thing you have to realize trading for a bank is sometimes I have no control over my position because I am there to facilitate corporate and/or institutional (i.e real money funds and Hedge Funds) business. I may get positions dumped in my book(s) that are to big for me to get out of right away without driving the price against me. Usually when the market goes screaming up or down, as a market maker I am invariable on the wrong side of every customer trade. Those positions can sometimes show a big loss or gain until I neutralize the risk. So if this happens in say January I may have little to no p/l in my book(s) at the time so the percentage gains/losses are grossly over reported. Under that scenario I could easily have a DD over 20% or more. My boss would never tell me to get out of that position because I was down 20%, my job then becomes to manage the risk and see if I can make money on that position. Banks use risk guidelines like NOP (net open position) Value at Risk (VaR), DV01, etc.

Your question regarding what happens in tight ranges. I imagine its no different than for anyone else on this site that trades. You have to find a way. If my currencies are working out then I look at other products, or currencies. I still have to make my budget. Banks will say they don't want prop traders and its become a dirty word but we all were, we had to adapt to the fact that the bid/offer spreads dealers charged customers narrow to nothing almost to the point of deliberately losing money on business (mostly Hedge Funds) just so the bank can say they had an increase in customer revenues. So I traded anything and everything I though would help make my budget.
Thx for the answers.

I see that everything is very strict so my last question is:

how can things like "Jerome Kerviel - $7.1 Billion loss at Société Générale" happen?

Didn't the banks learn from the Nick Leeson case?
Quoting No-Luck
Thx for the answers. I see that everything is very strict so my last question is: how can things like "Jerome Kerviel - $7.1 Billion loss at Société Générale" happen? Didn't the banks learn from the Nick Leeson case?
That is a very good question, I have no idea. I would hate to have been a dealer who was having a great year only to screwed out of his/her bonus because of that.
I won't try to add anything much. A lot of ground has been covered quite well by JacobFordFX. There are differences of approach vis-a-vis risk management and risk measurement, which naturally varies between banks, but these nuances are not really important to know.

(Just a quick word about "not trying to pick tops or bottoms". It's ok to pick tops or bottoms... just as long you don't always associate the top or bottom with any trend reversal. )
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting JacobFordFX
What Magix has said is right on the money. I would imagine those are the guidelines Funds and money mangers would use. The thing you have to realize trading for a bank is sometimes I have no control over my position because I am there to facilitate corporate and/or institutional (i.e real money funds and Hedge Funds) business. I may get positions dumped in my book(s) that are to big for me to get out of right away without driving the price against me. Usually when the market goes screaming up or down, as a market maker I am invariable on the wrong...
Jacob, there is a perception in parts of the retail community that market makers intentionally drive price in the opposite direction of where they really want to go. For example if they really want to be long, they drive the price down to suck in liquidity and then run stops on the way back up.

Is there any truth to this, idea?
If you are good at something, never do it for free--Joker
Terrific thread, and a big thanks to all who have contributed. From an institutional trader's perspective, do you feel that Fibonacci retracements provide any useful insight to market direction? Over years of trading I have come to disregard most "indicators" but I have had success with Fibonacci (half-back setups), and often wonder what if any weight/importance the IT (or the hedge funds and other large speculators providing the order flow) attributes to these levels in regards to a directional bias. Lastly, do longer term fib levels carry more/less weight than short term?
Quoting jmn5611
{quote} Jacob, there is a perception in parts of the retail community that market makers intentionally drive price in the opposite direction of where they really want to go. For example if they really want to be long, they drive the price down to suck in liquidity and then run stops on the way back up. Is there any truth to this, idea?
Simplistically, yes.

Just remember that THAT's not always the entire story. There are so many things happening at the same time, some of which retail traders or even the Bank boys won't even know about.

My opinion: to me, market makers usually only "make markets"; they don't always have an opinion on where they "really want to go".

For instance, a counterparty asks a market maker for a bid/ask quote. The market maker looks at his charts, calls some interdealer brokers to "check levels", "feels" the markets, and then he makes his quote... all within say half a minute. The counterparty "hits" the market maker (or "takes" him, as the case may be), and the market maker winds up with a trade which he may or may not even want to have at that particular moment in time.

Sometimes it's not a matter of knowing where he "really wants to go" but also knowing where he DOESN'T want to go.

On a lighter note, for us Asians, sometimes it's just for pure superstition. We run the noob stops at the start of sessions because for us, the first couple of trades just HAVE to make money, otherwise it's just gonna be bad luck for us the rest of the day! LOL
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting NWSTrading
From an institutional trader's perspective, do you feel that Fibonacci retracements provide any useful insight to market direction?
I hate saying it, because it's not very scientific, but to me, the answer is yes.

Quoting NWSTrading
Lastly, do longer term fib levels carry more/less weight than short term?
To me, longer term fibs only have more weight if there's some confluence with short-term fibs.

Disclaimer: I only look at fibs because other institutionals use them for target settings i.e. a lot of orders tend to cluster around the fibs. Otherwise, I don't care much for them.
I'm not trying to convince anyone. I'm not in the "convincing" business.
@jACOBfx

Lots of good stuff there to add to our knowledge base. I tend to break some cardinal rules as I trade as I find the market, trends notwithstanding. My entry points are quite specific so I guess my method dictates what I do. However, your background into the trading business has been illuminating.
The road to pipland is arduous and fraught with challenge.
Quoting skenobi
{quote} Simplistically, yes. Just remember that THAT's not always the entire story. There are so many things happening at the same time, some of which retail traders or even the Bank boys won't even know about. My opinion: to me, market makers usually only "make markets"; they don't always have an opinion on where they "really want to go". For instance, a counterparty asks a market maker for a bid/ask quote. The market maker looks at his charts, calls some interdealer brokers to "check levels", "feels" the markets, and then he makes his quote......
Thanks skenobi, that information alone was worth joining the factory. I only recently stopped putting hard stops in the market and decided to trade smaller position size insted. It's good to hear it from a professional that stops do get run.
If you are good at something, never do it for free--Joker
Skenobi/Jacob... Out of all the traders you worked with professionally, what was the predominate trading style, length of trade, were you all the same? Was there any style the bank absolutely did not allow?
Quoting Ponzi Jr
Is anyone on this forum an institutional trader? If so, what are the main differences between retail trading and institutional trading? Do you have certain tools or information that gives you the upper hand? If not, what is it that means that you guys always have the edge? Also, would you recommend it as a career choice? I've loved learning to trade as a hobbyist, but I'm not considering trying to one day find a career as a professional trader (maybe that's a bit ambitious, I don't know). Thanks for any insight
I'm pretty sure it would go against some kind of professional code of ethics ethics to be a member of a public trading forum if you were an institutional trader?;

But it would seem that there are many members on here from other institutions, like prison, and psych wards =P
like totally failure brah
Quoting jmn5611
{quote} Jacob, there is a perception in parts of the retail community that market makers intentionally drive price in the opposite direction of where they really want to go. For example if they really want to be long, they drive the price down to suck in liquidity and then run stops on the way back up. Is there any truth to this, idea?
Skenobi explained it very well. I've never seen a spot major dealer sell down say eur/usd 20 or 30 pips just so he could get it cheaper. It would take a lot of capital to get it down that much and when and if he were able to accomplish that feat he would have to first cover his short and get long, just doesn't happen. But Skenobi said they do love to trigger stop loss orders, its easy picking for them.
Quoting NWSTrading
Terrific thread, and a big thanks to all who have contributed. From an institutional trader's perspective, do you feel that Fibonacci retracements provide any useful insight to market direction? Over years of trading I have come to disregard most "indicators" but I have had success with Fibonacci (half-back setups), and often wonder what if any weight/importance the IT (or the hedge funds and other large speculators providing the order flow) attributes to these levels in regards to a directional bias. Lastly, do longer term fib levels carry more/less...
I would say on the subject of indicators use the ones you like and feel work for you.

As far as fibbies, they are def on dealers, strategist, etc. radar screen. What you here most spot dealers talk about constantly are support/resistance levels, moving averages, fibbies not only amongst themselves and other product dealers but also customers. The other indicators do not get mentioned as much.
So if you are technical analysis non-believer just know that others do believe it and act on those things I mention above, it becomes a self-fulfilling prophecy. At the very least be aware of those things.

I also agree with Skenobi regarding longer-term fibs lining up with shorter-term fibs.
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