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If you have a profitable system, will brokers sabotage you? 61 replies

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After you are profitable - Now what?

Quoting andrewnair

I am just wondering how the great traders who started with a few thousand manage to amass billions.
Speculating with other people's money, either as a job and then progressing up the food chain or managing private funds.

There is an awful lot of money out there looking for a decent return, especially now when yields on more traditional investments are so poor.

Don't think about doing it, just do it....today! You're trading anyway so it's no extra work to have your live performance tracked, in a year from now you'll be wondering why you didn't do it sooner
  •  zykas
  • | Joined Oct 2008 | Status: ... measure thrice, but cut once | 196 Posts
Enough trouble trading ones account . Combineit with other peoples money and something went wrong, you have some things to explain. I think trading your own account and compounding it is ok by me. Keep within your reach or what is greed ? imo
I like the Big Dogs because I trade like them
Quoting pipmutt
Speculating with other people's money, either as a job and then progressing up the food chain or managing private funds.

There is an awful lot of money out there looking for a decent return, especially now when yields on more traditional investments are so poor.

Don't think about doing it, just do it....today! You're trading anyway so it's no extra work to have your live performance tracked, in a year from now you'll be wondering why you didn't do it sooner

Are you talking from experience pipmutt?

Some other people are suggesting the opposite and it does sound reasonable what they are saying.
I mean has the suggestion you made to Andrew worked for yourself?
Be like a post stamp! Stick to it until you get there!
"After you are profitable - Now what? "
Learn to be TRULY rich.
Most people don't understand what being rich is. Search the web for 'Think and grow rich' and read. (audio book versions can also be found)
Answer the question, what do you want out of life? I believe the best answer is "freedom to do what I like when I like". Hidden within that answer is the minor element, money.
Do you have freedom when you have a job, no! Not total freedom, there is a boss or a commitment that has a piece of you. Manage other peoples money and again they all have a piece of you.
Learn to live life to the full with what you have. On the money front, keep it simple and use compounding. Do what you do well in trading as before but this time press a different key to trade more lots; that does not take any extra effort or risk if as always your trade size is a percentage of account size.

ps. Another good principle can be found within "4 hour work week", (T. Ferris) and knowing how to trade cuts out even more work
Quoting Mary Pippins
Are you talking from experience pipmutt?

Some other people are suggesting the opposite and it does sound reasonable what they are saying.
I mean has the suggestion you made to Andrew worked for yourself?
Compounding isn't an option for the OP as he's using all his monthly returns for living expenses, his investment is actually decreasing in value due to inflation.

If he can't raise additional trading capital from elsewhere then managing a fund seems the only other viable option. He doesn't have the money available to invest in assets which might produce a better return than he's already getting from his trading activities. The property market isn't really a safe investment for the inexperienced property speculator at the moment, if it was perhaps he could use his capital to purchase property and raise trading capital against it by means of a loan or mortgage, and then turn it around, repay the loan, and realize a profit, rinse and repeat. Automating his strategy isn't going to help, neither is spending more time with his family, or spending his profits, or increasing his risk, or learning how to be 'truly rich'!!

Managing funds can be an enjoyable and mutually beneficial experience, or it can be a burden and a responsibility, that's why I say it's important to have the right kind of clients who are experienced investors and who understand and accept the risks and are comfortable leaving their manager to do what he does best, making money for them.

Do I speak from experience? Yes, I've had both good and bad clients. The bad ones made my life a misery with constant emails asking why we had a 0.5% losing trade or why I didn't trade on a particular day or why I only made 0.3% one day, or the 'helpful' clients who read something in the NYT and suddenly they're experts and want to tell their manager how to trade! Eventually I weeded out the PITA's and life became much easier. Now my clients aren't bothered about what I do or when I do it, as long as they see an overall return they're happy.

Using the OP's numbers of a 500k fund, a 5% monthly return, and a 20% HWM commission. If his clients compound then within 18 months his 500k fund has turned into 1m, and if he carries on using the gains on his personal account for living expenses and compounds his commissions and trades them it's not hard to see how this can snowball.

That's assuming he's consistent and that he has reasonable risk parameters, and it's assuming he doesn't get more client and funds to trade. This is obviously scaleable only up to the point where he starts having liquidity issues, but if/when he gets to that stage then I doubt it's going to be a 'problem' he'll mind having
  • Post #26
  • Quote
  • Edited 10:25am Jul 23, 2009 10:20am | Edited 10:25am
As far as earning more money goes, I'd like to post an excerpt from Andrew Lahde, a hedge fund manager who closed up shop and retired from managing money (except his own) after an 866% return in one year. He's approximately 40 years old.

Of course this is only relevant if you are at a place where your income and livelihood is not in danger, as Pipmutt pointed out it may not be where the OP is at right now... nonetheless

"I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life."
smittens4212,
nice trivia & excerpt.



Quote
For me the next step would be to automate the strategy you are using (if that's possible) - that way you will still have the profits you need but much more free time.
mikkom,
i failed to mention this. thanks for "reminding" me.
Definitely on my to-do list once i "get there".
exactly my point... by taking huge risk on a few trades to build account... ridiculous risk for ridiculous return... of course you REALLY have to know what your doing :nerd:


Quoting andrewnair
hey guys, thanks for the reply, about taking more risk, that's not the way to trade in my personal view, it goes against my trading rules to take more position size and increase my sop losses.

i think managing funds is a way to increase your account by not taking the profits out of the trading account and use the com from the profit to cover life's expenses. Allow me to give you an example:

Account size : 50,000
Manage ac size : 500,000
profit for the mth: 5%
My com on the profit (high water mark) is 20%

The person account will make 2,500...
Quoting mofuniverse
exactly my point... by taking huge risk on a few trades to build account... ridiculous risk for ridiculous return... of course you REALLY have to know what your doing :nerd:
.....talking of ridiculous, that's about the most ridiculous advice I've ever heard! Fortunately the OP seems to have more sense than to do what you're suggesting!

You'd be better off going to a casino if you want to gamble, the odds are probably better and at least you'll get a free drink served by a hot waitress!

Sheeeeesh.....
Good one, thanks for understanding, sometimes all you need is someone who understands.

we all want to grow and not really leave a mark, but...... to make all this worth while, all the effort, the late nights, the long hours.....

thanks again brother in arms

andrew


Quoting pipmutt
Compounding isn't an option for the OP as he's using all his monthly returns for living expenses, his investment is actually decreasing in value due to inflation.

If he can't raise additional trading capital from elsewhere then managing a fund seems the only other viable option. He doesn't have the money available to invest in assets which might produce a better return than he's already getting from his trading activities. The property market isn't really a safe investment for the inexperienced property speculator at the moment, if it was...
increasing the risk is not the way too go imho, have to keep a cool head. by increasing the risk all you need is a bad run and......the account goes bye bye... and most will not recover. object of the game is not too lose money; to trade another day




Quoting mofuniverse
exactly my point... by taking huge risk on a few trades to build account... ridiculous risk for ridiculous return... of course you REALLY have to know what your doing :nerd:
of course 95-97 % of people would disagree with me


Quoting andrewnair
increasing the risk is not the way too go imho, have to keep a cool head. by increasing the risk all you need is a bad run and......the account goes bye bye... and most will not recover. object of the game is not too lose money; to trade another day
Quoting pipmutt
...That's assuming he's consistent and that he has reasonable risk parameters, and it's assuming he doesn't get more client and funds to trade. This is obviously scaleable only up to the point where he starts having liquidity issues, but if/when he gets to that stage then I doubt it's going to be a 'problem' he'll mind having

Thanks, that answers it
Be like a post stamp! Stick to it until you get there!
Quoting mofuniverse
of course 95-97 % of people would disagree with me
95-97% of people who don't live in padded cells do you mean
Quoting andrewnair
Good one, thanks for understanding, sometimes all you need is someone who understands.

we all want to grow and not really leave a mark, but...... to make all this worth while, all the effort, the late nights, the long hours.....

thanks again brother in arms

andrew
Hey no problem, I hope it works out for you!
hmmmm........ok because 95-97% pple fail in trading? i have had this conversation with some other money managers, the "gurus" (self claimed or otherwise) before the oct 08 mkt "crash". they said i was too careful not willing to risk more because they were hitting 20-40% profit and i was averaging 10% or so.

when the "crash" hit, i lost abt 5% of my account and the managed funds, they lost 70-90%, so......... got to trade to live another day, tats what the greats are doing. IMHO no offence man.




Quoting mofuniverse
of course 95-97 % of people would disagree with me
You show a valid point about managing funds. But the idea of being a trader is being filthy rich and having the lifestyle to match. working for others doesn't promote this. It infact pulls you back, down. You work for others, you have to consider what they want as well as what you want and its a way to increase stress levels.

Its fine for additional funding whilst small, I never said "Dont do it" its just a step back from the true goal.

As I mentioned earlier the only reason to trade for a firm is for additional capital. The people who trade at banks weren't trained as traders, they just worked their way up a ladder to get where they are. They do earn alot, but have absolutely no freedom and are often alcoholics/drug addicts who enjoy nothing but those 2 things + prostitutes. Of course there are exceptions, but this isn't freedom.. Hitting a point where you are raking it in from your own account. Spending as you want, travelling the world and trading on wireless from hotspots, is the point where you should be aiming for. That or expanding in a business outside of FX for stable residual income.

You won't find any major business that deals in only spot FX. Infact most firms are futures firms due to regulation and have spot on the side if they can find a good network and have the funds to go towards it.

SpotFX is known as a scam market by most futures traders, but futures are so under leveraged in comparison to FX that to make as much money you have to have 10x the capital. (estimate not serious calculation here).

If you have been trading freely for yourself, and can move on up with that. Thats where you want to be. Managing funds is fine, but the world class traders are not doing that. And probably never will. The fund managers that I have met (i am friends with a few) in spot FX and equities (the futures ones seem to be a bit different) are 2nd class traders, and have 5 winning months a yr max. The best of the most of them is doing 30% a yr in wealth management on fx. Its on big funds though, but he hedges himeslf with a shipping company and hedges that with property development and retail stores.

I hope you see what I'm saying. But I would never dream of being a fund manager unless you failed to trade for yourself but have an ability to turn a small profit.

Let me put something into perspective. When I was younger, I had money in a superfund with woolworths. I worked as a produce manager for them during high school. My super fund last 8 months was -42%. Sure it was on a relatively aggressive option as I dont care for the 20k that is in it. But for a professional fund manager to be -42% is dispicable. I requested that guy be fired. Unfortunately, he still has a job. Because he is apparnently "one of the best in the industry". The fact is, that the majority of people working for these funds, are built to make little for the client. They have salary + bonus jobs, not comission. So they only need to hit targets equal to the ASX index/yr. And their bonus is 100-200% of salary. ITs a cushy job sure, but the guys who are in it are finance grads who have jack fuck all idea of what they are doing.

You can imagine now the reputation that fund managers have in the corporate arena. I will always hesitate to shake the hand of one, because they are snakes. They don't deserve the money they have, and belong on the service desk at mcdonalds.

Who would want that reputation?

Sry again to rant.
Quoting Takisd
You show a valid point about managing funds. But the idea of being a trader is being filthy rich and having the lifestyle to match. working for others doesn't promote this. It infact pulls you back, down. You work for others, you have to consider what they want as well as what you want and its a way to increase stress levels.
Well I guess it depends on how profitable you are as a trader, if you're only marginally profitable then it's obviously harder for you to attract clients to invest with you and the ones you do manage to get would need to be kept happy.

However a fund manager who is good at his job and produces decent returns is most definitely not 'working for others', in fact he tends to be very selective about who he takes on as a client, like I said before - bad clients can make your life a misery. The last thing a client wants to do is upset the fund manager who is making him a good return on his investment!

Let's weigh up the pros and cons here.....

On the one hand a trader can trade his own money, take all the profit for himself and assume the risk. He has the freedom to trade when and where he wants. Let's say he has a generous $1million in trading capital and returns 5% per month, $50k, and has a maximum risk to equity of 10%, $100k.

On the other hand a trader can trade other peoples money, take a percentage of profits and have no exposure to risk. He also has the freedom to trade when and where he wants. Let's say his fund is a conservative $5million and it returns the same 5% per month, $250k. His commission is 20%, $50k. None of his own money is exposed to risk.

I guess the bottom line is how a fund manager sees himself, and more importantly how his clients see him. A consistently profitable trader who produces good returns can dictate his own terms, at the end of the day he's providing a valuable service and making people money.
Quoting Takisd
....Hitting a point where you are raking it in from your own account. Spending as you want, travelling the world and trading on wireless from hotspots, is the point where you should be aiming for. That or expanding in a business outside of FX for stable residual income....
There it is, in a nutshell, what we're all aiming for when we start out and push on when the going gets tough.

Very recently I started to slowly transcend towards more consistent trading which started to show in my P/L. Now, looking ahead, I'm starting to check out options available to me of making a living of it.
The reality is that I'm hopelessly undercapitalised and I'd need additional funds to be able to make my skill work for me.

I looked at a few prop houses here in London and I can confirm what Taksid says that the fewest deal with spot FX and if they do then only as a small sidekick.
Heard some of the guys saying that FX is not trading it's gambling, you can't make money in retail because of the spread etc. because they'd deal only with instruments traded through exchanges.

However, they'd often promte their low trading cost per entry, their 3D tape reading software and that during their training they want you to make so many trades on a tick chart until you're "blue in your face".

When I then spoke and checked out what some of the guys where doing that where going through that "training" I saw them having only a tick chart that showed them the last 30 minutes of price activity of some bond & futures instruments. Thats it no additional TFs or anything, also they had not been trained in any basic method, no stoplosses, no position sizing zilch... that trainee guy, who was there in his second month, seemed oblivious to those concept but he rhapsodised about a pro there who'd apparently have up to 9 positons open in the same time.

It seems all was geared towards making loads of entries to maintain their bulk discount and when you've burned your £2500 in losses then the dream is over and they'll say: "Thank you for keeping our costs low".
And hey, if a good trader comes out of it even the better, no harm in trying at zero cost for us.

I left that place quietly bceause I dont think they'd be happy for me to make my 0-4 trades a day and apart form that they had no clear comission structure and with how much liquidity they'll back me up.


But what would you recommend a somebody like me as the next step?
Be like a post stamp! Stick to it until you get there!
Having previously worked for a bank's trading floor and with no offence, managing a 50k is not going to make you rich. Banks do consolidate their positions with no warning, usually outside of normal economic/news indicators.

Forex is not just a question of finding/developing a strategy or methodology, automatic or manual. You can account for around 80% of what the market will do in either direction but this will still leave you short when it comes to being correct all the time.

It doesnt matter if you a trading forex, futures, commodities or a horse in the 3.00 pm at Lingfield. You are gambling on an outcome. Some people are good at it but most are not. Sometimes luck does play are big part.

How many bookmakers or brokers do you know who go bust compared to the individual punter/trader ?

bookmakers have the overround% and brokers have the spread/opposite trade.

The odds are very much stacked against you as a relatively small retail forex trader.

if, however, you are one of the lucky ones then arrange to see some large trading floors and show them your consistence results for > 6 months, if you are lucky then they will give you a short contract. I can assure you that you will learn a great deal and not just looking at charts. You will also, if successful have a large equity trading base.
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