Question for prop firm stir traders

[Trader_0101]

I'm trying to do some research on what the training is like to work for a prop firm as a stir trader. I have spoken to a few stir traders and have also read Aiken's book on stir trading. They seem to describe stir trading as something you just need to practice doing over and over to get the hang of it. But then there are all these fixed income books out there, some 1200 pages thick that go into all sorts of details about every aspect of fixed income trading, Fabozi comes to mind.

Does one really need to read all those books before going into an interview or before they start their training? Or is stir trading one of those things where you just need to sit down and trade one lot spreads back and forth and learn as you go? I found Aiken's book to be very practical to trading, others seem to be more for quants. I appreciate the feedback.

 

[stir-trader]

I'm trying to do some research on what the training is like to work for a prop firm as a stir trader. I have spoken to a few stir traders and have also read Aiken's book on stir trading. They seem to describe stir trading as something you just need to practice doing over and over to get the hang of it. But then there are all these fixed income books out there, some 1200 pages thick that go into all sorts of details about every aspect of fixed income trading, Fabozi comes to mind.

Does one really need to read all those books before going into an interview or before they start their training? Or is stir trading one of those things where you just need to sit down and trade one lot spreads back and forth and learn as you go? I found Aiken's book to be very practical to trading, others seem to be more for quants. I appreciate the feedback.

I am a stir trader with many years experience. I am also run a group. There are many different ways to trade stirs and the following is only reflective of the way I and my group trade. When I recruit people I give them a book by Mark Douglas called "The Disciplined Trader: Developing Winning Attitudes " as I feel that the most important aspect to Stir Trading, and in fact any other type of trading, is to develop the right mental attitude. I also give them a document that I have developed that is a 101 on trading STIRS. It is 50 pages and all that I think a new trader should know.

In essence, interest rates are a tool used by central banks to manage the flow of money around the economy so as to promote steady growth. So getting an understanding of market fundamentals, general economics, particularly central bank economics, and market moving indicators is probably where any prospective trader should start. Understanding if an economic indicator is deflationary or inflationary is very important as the central bank maybe reactive to this data and make a decision on future interest rates based on this and could lead to an immediate repricing of the market.

As a prospective trader, there is not much point spending a huge amount of time reading heavy, technical FI books if all you end up doing is buying the front month, selling the second month and then selling the spread for a tick. Understanding the fundamentals of how and why the markets work will give you an advantage. Knowing that if NFP come in twice as good as everyone expected then the STIR market is going to dump.

Any group that you join as a graduate or trainee should have proven strategies that they should teach you that will get a new trader going. They will tell you the best literature to read once you have started.

Regards

 

[arabianights]

I'd like to echo STIR-trader; I wouldn't say that there's any need to read 1200 page books, no. I would read them *after* you've started trading though; in general there is no such thing as too much knowledge except when it's clouding your judgement, and when you're starting out it probably is. Likewise, reading too much in one go and being perpetually on the look out for someone hedging a 7yr builder swap will probably cloud your judgement no matter how long you've done it. But it *does* help to know what other market participants are up to.

By and large most STIR traders at prop firms are earning the spread by one means or another, either by outrights or (more commonly) matrix trading, and I don't believe that you need to know all that much to do that.

Although don't confuse that with me saying it's easy

 

[Trader_0101]

I am a stir trader with many years experience. I am also run a group. There are many different ways to trade stirs and the following is only reflective of the way I and my group trade. When I recruit people I give them a book by Mark Douglas called "The Disciplined Trader: Developing Winning Attitudes " as I feel that the most important aspect to Stir Trading, and in fact any other type of trading, is to develop the right mental attitude. I also give them a document that I have developed that is a 101 on trading STIRS. It is 50 pages and all that I think a new trader should know.

In essence, interest rates are a tool used by central banks to manage the flow of money around the economy so as to promote steady growth. So getting an understanding of market fundamentals, general economics, particularly central bank economics, and market moving indicators is probably where any prospective trader should start. Understanding if an economic indicator is deflationary or inflationary is very important as the central bank maybe reactive to this data and make a decision on future interest rates based on this and could lead to an immediate repricing of the market.

As a prospective trader, there is not much point spending a huge amount of time reading heavy, technical FI books if all you end up doing is buying the front month, selling the second month and then selling the spread for a tick. Understanding the fundamentals of how and why the markets work will give you an advantage. Knowing that if NFP come in twice as good as everyone expected then the STIR market is going to dump.

Any group that you join as a graduate or trainee should have proven strategies that they should teach you that will get a new trader going. They will tell you the best literature to read once you have started.

Regards

Thanks for your response. I'm curious which firm you work with? I understand if you wish to keep that private. Out of curousity, do most these prop firms that focus on stirs just trade futures, or do they also trade cash? With the futures I can see how Fabozi might be over kill, but when you start talking cash products and OTC swaps, the process seems to get much more complicated.

 

[Trader_0101]

I'd like to echo STIR-trader; I wouldn't say that there's any need to read 1200 page books, no. I would read them *after* you've started trading though; in general there is no such thing as too much knowledge except when it's clouding your judgement, and when you're starting out it probably is. Likewise, reading too much in one go and being perpetually on the look out for someone hedging a 7yr builder swap will probably cloud your judgement no matter how long you've done it. But it *does* help to know what other market participants are up to.

By and large most STIR traders at prop firms are earning the spread by one means or another, either by outrights or (more commonly) matrix trading, and I don't believe that you need to know all that much to do that.

Although don't confuse that with me saying it's easy

Yeah, after reading Aiken's book I kind of got the gist of what these guys do trying to capture the spreads via the implied in and implied out pricing and creatively combing calendars, flys, etc to work your way into a spread where you can capture a tick or half a tick.

Another question, after talking to a few guys, it seems that most traders hold on to positions (spreads) overnight and keep trying to work them days on end. I always thought it was, you got in, you got out, at least by days end. But it seems like this may not be the case. I suppose this is why some firms hire new recruits to come in and watch the overnight books of the larger traders?

 

[Trader_0101]

I have another question. Since stir trading has become highly quant driven and algorithmic and the number of arcades in London, Chicago and Australia have a lot of traders in the same spreads going after the same tick, is anyone worried this market is becoming too efficient or will become too efficient? It just seems like there are a large number of traders all doing the same thing with the same style. Is most of this edge coming off the paper of the treasuries?

 

[stir-trader]

The company that I work at and run is called Elocal Trading Ltd Elocal Trading. We have been established for 9 years and were founded by John Sussex, a LIFFE floor legend. I am the MD, a trader and an IT specialist.

With reference to your last post

I have another question. Since stir trading has become highly quant driven and algorithmic and the number of arcades in London, Chicago and Australia have a lot of traders in the same spreads going after the same tick, is anyone worried this market is becoming too efficient or will become too efficient? It just seems like there are a large number of traders all doing the same thing with the same style. Is most of this edge coming off the paper of the treasuries?

I am not worried that the markets will become too efficient as trading styles will adapt to the changes. Trading today is different from trading last/next week, month, year, decade etc etc, and the beautiful thing about traders is their ability to be able to adapt and survive be by learning to use the latest innovations in technology to give them edge, be it morse code, telephones or computers.

Edge these days comes in many ways. Paper hitting the market hard can cause havoc with the algorithms but can be edge for the scalper and vice versa. Understanding the correlations of all the markets and especially what effects your market gives you edge.

Comments made by Trichet or Bernanke can give a manual trader an edge because they can interpret the meaning of the comment/syntax and react quickly. There are not too many applications or algorithms out there that can do this, but they do exist.

There is always new technology coming to market all the time and this improves the efficiency of execution and participation. Since computers became a major part of trading, trading has become intertwined with Moore’s Law. Things will continue to get faster as processing power improves and one day the exchanges may all go quantum and that will prove to be a conundrum to the trader that has not kept pace with technology.

I think that it is too early too toll the death bell on manual traders but that time will not far away unless they are prepared to get involved with technology. Many traders I know are getting hooked up with applications that assist in their trading and other things are coming to market. There is a new version of a major front end that has gone into the beta phase recently that is going to make a significant impact on the market and those that trade spreads. This will help to improve the durability of the local traders against the algo traders and give them some edge... and really nice edge it will be to.

Some of the best traders I know are from a pure IT background; you can call them quants if you want. Personally I have amassed a lot of IT experience over the years and I am very technically proficient. This gives me edge… A big edge….

There is always edge… You just have to find it faster these days…………..And you will find it quicker if you can use a big array of Tesla cards to deal with your data....

 

[Trader_0101]

A few more questions. I read a lot about the rebate schemes that Liffe offers for liquidity providers, especially in the back months. I heard a lot of spread traders in the UK make a lot of their living off these rebates.

Does the CME also offer similar rebates in the states for Eurodollar or Treasury products. Or is this just a UK thing?

 

[arabianights]

CME do yeah. They also do a scheme for european guys (which I appreciate isn't you) for trading during european hours... I think it can go up to a 100% rebate in fact.

That said, living off rebates is a very boring life. Trading properly is better

 

[Trader_0101]

Boring perhaps, but a buddy of mine told me a guy he sat next to for a day at MET Traders earns over 100k a year on rebates. That must be a nice kicker on top of what he already makes trading.

 

[arabianights]

ah, I misunderstood you. Yeah there are plenty of guys making good money on rebates, but there are also plenty of guys who essentially make all their money from rebates. Being the former is better than the latter

Oh and don't forget MET have a market making operation etc etc too, getting paid for just being there...

 

[Trader_0101]

On the topic of rebates, I'm wondering if there are firms out there that keep the rebates for themselves or perhaps only give the trader a portion of them or are all of these firms pretty honest and pass through 100% of the rebates back to the trader?

 

[arabianights]

AFAIK all firms are honest in that they'll tell you if they're going to take the fees off you

When I started out, LIFFE gave free trading up to a certain number of lots a month for the first six months you were registereed as mnemonic... Did I get free trading? No. Did I signed up for it, and did my firm get them? Yes

However that's a bit different in that it were a grad thing. I've not heard of firms taking any kind of rebates for established traders. In fact they even alert you to them; for example the most recent piece of paper I had to sign was for some bizzare rebate for trading Euribor before 6am. There are only two circumstances in which I would do that: 1am on Monday if something had happened over the weekend that made it worth making the effort, or if I had a GTC left in that just happened to trade in very quiet times. Basically I'm expecting this to save me about a fiver a year. But any legit firm will help you out there...

(Note the having to sign things here. AFAIK for all these rebates - certainly LIFFE and Eurex - you have to sign things. So it would be hard for a firm to hide them from you, assuming you can read)

 

[red army]

The company that I work at and run is called Elocal Trading Ltd Elocal Trading. We have been established for 9 years and were founded by John Sussex, a LIFFE floor legend. I am the MD, a trader and an IT specialist.

With reference to your last post

I have another question. Since stir trading has become highly quant driven and algorithmic and the number of arcades in London, Chicago and Australia have a lot of traders in the same spreads going after the same tick, is anyone worried this market is becoming too efficient or will become too efficient? It just seems like there are a large number of traders all doing the same thing with the same style. Is most of this edge coming off the paper of the treasuries?

I am not worried that the markets will become too efficient as trading styles will adapt to the changes. Trading today is different from trading last/next week, month, year, decade etc etc, and the beautiful thing about traders is their ability to be able to adapt and survive be by learning to use the latest innovations in technology to give them edge, be it morse code, telephones or computers.

Edge these days comes in many ways. Paper hitting the market hard can cause havoc with the algorithms but can be edge for the scalper and vice versa. Understanding the correlations of all the markets and especially what effects your market gives you edge.

Comments made by Trichet or Bernanke can give a manual trader an edge because they can interpret the meaning of the comment/syntax and react quickly. There are not too many applications or algorithms out there that can do this, but they do exist.

There is always new technology coming to market all the time and this improves the efficiency of execution and participation. Since computers became a major part of trading, trading has become intertwined with Moore’s Law. Things will continue to get faster as processing power improves and one day the exchanges may all go quantum and that will prove to be a conundrum to the trader that has not kept pace with technology.

I think that it is too early too toll the death bell on manual traders but that time will not far away unless they are prepared to get involved with technology. Many traders I know are getting hooked up with applications that assist in their trading and other things are coming to market. There is a new version of a major front end that has gone into the beta phase recently that is going to make a significant impact on the market and those that trade spreads. This will help to improve the durability of the local traders against the algo traders and give them some edge... and really nice edge it will be to.

Some of the best traders I know are from a pure IT background; you can call them quants if you want. Personally I have amassed a lot of IT experience over the years and I am very technically proficient. This gives me edge… A big edge….

There is always edge… You just have to find it faster these days…………..And you will find it quicker if you can use a big array of Tesla cards to deal with your data....

Agree with some of your points but not all, the biggest edge a trader can have is discipline and market knowledge. Manual scalpers with these skills will always prosper...

 

[JT99]

ah, I misunderstood you. Yeah there are plenty of guys making good money on rebates, but there are also plenty of guys who essentially make all their money from rebates. Being the former is better than the latter

Oh and don't forget MET have a market making operation etc etc too, getting paid for just being there...

How is it possible for a trader to make money from rebates?

The only way I can understand it would be possible is if the trader pays a fixed amount for trading fees each month with no limit on the number of contracts they can buy/sell...

 

[cyrustajik]

How is it possible for a trader to make money from rebates?

The only way I can understand it would be possible is if the trader pays a fixed amount for trading fees each month with no limit on the number of contracts they can buy/sell...

buy the bid, sell the offer! end of the month your rebates are gonna be massive. As said before it is a boring strategy!

 

[JT99]

buy the bid, sell the offer! end of the month your rebates are gonna be massive. As said before it is a boring strategy!

I'm not sure if I undersatnd this but if you can buy the bid and sell the offer, that's half a tick gain, which is a lot more than you can make from any rebate...

 

[marcusant]

It depends,

if trader A does 50-60,000 roundturns a month but scratches his P&L he can still have a good month as the rebates would be about £20-25k.

But if trader B does only does 20,000 RT's his rebate would be about £10,000 but he makes £15,000 P&L

So you can make a living just from rebates, but if you can do size and make decent P&L then you should be doing alright.

 

[JT99]

It depends,

if trader A does 50-60,000 roundturns a month but scratches his P&L he can still have a good month as the rebates would be about £20-25k.

But if trader B does only does 20,000 RT's his rebate would be about £10,000 but he makes £15,000 P&L

So you can make a living just from rebates, but if you can do size and make decent P&L then you should be doing alright.

but the fees for 50-60,000 rounturns would be more than the rebates unless they are fixed

 

[cyrustajik]

but the fees for 50-60,000 rounturns would be more than the rebates unless they are fixed

no, it wont be.
This is how some people make their living!!!! its been going on for a while, welcome to the club!!