Ask mrbaseball about trading for a living

[DcifrThs]

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Can you please clear up this mathematical inconsistancy i cant figure out. I used to work in the settlements area for goldman sachs. Institutional Fixed income trading office. All the traders traded with the SAME counterparts and other traders from competing firms for the most part day in day out.

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did they only trade with those counterparts?

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For every trade there is usually one winner and loser. If thats the case in the long run should HALF of all those traders be losers? How can they all be employed for so much $$ if only half likely to make $$$? Or if thats not the case, how can more than Half turn profits?

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i dont' think they only trade with each other, but if it is the closed community you state, then there are 50% winners and 50% losers assuming all trades are the same size. further, you have to assume that it isn't 1 guy takin a huuuuuuuuuge loss and the rest cleaning up etc.

so there are explanations ... just depends on what exactly was going on

Barron

[fanmail]

Obviously there are losers. How else could anyone profit from trading?

Sorry, I clearly didn't answer the question. But honestly were there really no trades done outside this small circle of traders?

[stephenNUTS]

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Obviously there are losers. How else could anyone profit from trading?

Sorry, I clearly didn't answer the question. But honestly were there really no trades done outside this small circle of traders?

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I'm abit confused as to the question also..
Plz explain it in more detail?


SF [img]/images/graemlins/smile.gif[/img]

[kimchi]

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Can you please clear up this mathematical inconsistancy i cant figure out. I used to work in the settlements area for goldman sachs. Institutional Fixed income trading office. All the traders traded with the SAME counterparts and other traders from competing firms for the most part day in day out.

For every trade there is usually one winner and loser. If thats the case in the long run should HALF of all those traders be losers? How can they all be employed for so much $$ if only half likely to make $$$? Or if thats not the case, how can more than Half turn profits?

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I suspect there were other players that donated to the group of traders you were talking about.

Besides, trading isn't zero-sum due to costs - but this means there should be more losers than winners. You also need to consider what the traders' objectives are. I remember reading an article about a trader who cleared $250k per month day trading for a large investment bank. This seems decent until you consider he had practically limitless access to capital and his results represented less than T-bond yield rates as an annual return on this account.

The trader earned huge bonuses since his objectives were to create a huge turnover in trades while trying to limit losses (they expected a loss). He'd get a bonus for basically breaking even. The bank just wanted a large presence in the market to attract accounts from other private and institutional investors which was obviously highly lucrative for them. This particular trading was therefore (expected to be) a loss-leader.

[mrbaseball]

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Like have you seen a fist fight, etc.

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Oh yeah. Although they are frowned upon (10K fine). Lots and lots of shoving matches. I have been in a few of those [img]/images/graemlins/smile.gif[/img] There was always lots of very juvenille and sophmoric behavior like throwing cards and gum at people, taping "kick me" or "I'm a [censored]" notes to someones back, going over to stand in front of someone and letting one rip. Lots of junior high type antics.

[mrbaseball]

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All the traders traded with the SAME counterparts and other traders from competing firms for the most part day in day out.


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Don't know exactly but they probably have different goals and timeframes. One may be scalping while one may be taking a longer term position and one may be hedging. There are lots of reasons to make a trade and guys with different goals, strategies and timeframes can often trade with each other and still have things work out well for them.

[PokerPaul]

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All the traders traded with the SAME counterparts and other traders from competing firms for the most part day in day out.



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Don't know exactly but they probably have different goals and timeframes. One may be scalping while one may be taking a longer term position and one may be hedging. There are lots of reasons to make a trade and guys with different goals, strategies and timeframes can often trade with each other and still have things work out well for them.

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Seems my question may have been a little confusing so i'll try to clear some of it up.

Our floor was strictly institutional Bond and T-Bills trading. So our traders only traded with the other institutional trading firms and their traders there such as Merryl Lynch, cantor fitzgerald, TD securities, Deutsche Bank, solomon brothers, etc.

I monitored, cleared and settled all of those trades on a daily basis. Average trade between them was for about 5 million face value bonds. And each trader i'd say made about 14-30 trades on average per day. So when you think about it quite a fair chunk of capital flowed in and out of our office on a daily basis. Biggest single trade i ever cleared through was a T-bill one for half a billion. Most of the clients we had were for big mutual funds, or just straight new bond offerings coming onto the markets from governments, provinces and states, and some corporations.

Quite a few trades were obviously done on behalf of clients, who would then obviously take the win/loss as the values of the bonds changed. But quite a few of the traders were out there trading on their own as well to make profit for Goldman, just the same as many of their counterparts at other firms.

So all things being equal, given that their trading circles only extended to maybe 7 or 8 other traders to trade with, shouldnt at least half of them take losses?

With bonds obviously everyone can make profits as interest rates go down, but that would be counter balanced by the increased losses for when rates go up.

I remeber the rough average compensation some of those traders made, and it came in around $320K (this was like 13 years ago).

Maybe i myself am missing something, but how can all these guys be so well compensated when statistically there should be a very high percentage of losers?

[fanmail]

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Quite a few trades were obviously done on behalf of clients, who would then obviously take the win/loss as the values of the bonds changed. But quite a few of the traders were out there trading on their own as well to make profit for Goldman, just the same as many of their counterparts at other firms.


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That should be your answer right there. On behalf of others means they are brokers, no? So, obviously they aren't losing money, their clients might be though.

[edwardo]

I have a mathematics degree, am a programmer, started trading options 7 months ago while keeping my full time job, have written programs to run my technical analysis algorithms on equities, read books religiously, and have had incredible success so far this year. Yet I can find absolutely no way to break into the trading industry. Prop firms suck. Can't move to NY...looks like the only option for people like me is to trade on your own, learn great capital preservation, and try hard to survive over time as you have...would you agree or are there other ways to break into the industry? Thanks, and great thread.

[PokerPaul]

I am not nearly an authority on the subject such as OP or some of the others here but i can tell you this:

When i was at goldman sachs, the competition to get one of those institutional bond trading posiitons was enormous. They get tons of resumes from top universities, top of the class type individuals. on our florr we had about 14 traders. Of all of them, only 1 of them had worked his way through the organization to that spot. He had started in the mail room, then got to settlements cage, then to junior trader, and finally lead trader on T-bills i think. He was also a total kizass, but at least it got him somewhere and i can respect that somewhat, even though he was a jerk to all those 'under' him, ie. the very same people in the positions he started out from.

There was also just ONE other guy who was hired straight from school and went through the interview process. As for ALL the others, and i mean ALL of them, its funny becuase everyone either had a father or uncle already working in the company somewhere, or were related to some bigshot politician, or some other high standing member in the wall street community.

Its all about who you know....

Funny thing is...the BEST traders were the very two who worked their way to get there....