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How One Goldman Sachs Trader Made More Than $100M

wsj.com

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Re: How One Goldman Sachs Trader Made More Than $100M

#61

Post by bogomipz »

jhulla wrote: post #23
lordnacho wrote: post #18

Like the article says, it's very hard to distinguish between market making and prop trading. Especially in illiquid stuff like corporate bonds, the MM needs to hold positions for extended durations, so they have a valid excuse to not be closed down entirely by Volcker. The real reason they make all that money is flow. The guy on a desk like that knows what customers are calling, what they're concerned about, roughly…

Market making is inherently prop trading - the firm's capital is at risk - unless trades are paired or hedged immediately. For thinly traded stuff that may take a while to unload, it is just prop trading. I personally think Banks should be incredibly boring utilities. But that ship sailed a long time ago. Lots of great stuff was thrown out the window in January. My winning bet for the year was to start buying EWC (is…

Would you mind explaining what prop trading is? I am not familiar with this term.

From what I know of market making however is that you match a buyer and a seller of an asset, correct?

If I do have this correct about market making. Are they playing ask buy spread? Whose best interests is the market maker supposed to look out for? The buyers? The seller? Some combination therein?

Re: How One Goldman Sachs Trader Made More Than $100M

#62

Post by Retric »

smallnamespace wrote: post #56
Retric wrote: post #53

Earlier quoted context omitted.

Volatility can be highly valuable in the long term to keep markets honest. Without that there is a tendency to add leverage until something far more significant breaks down.

Generally not this sort of volatility though: https://en.wikipedia.org/wiki/2010_Flash_Crash

The S&P 500 erased all losses within a week, but selling soon took over again and the indices reached lower depths within two weeks.

So, arguably the rebound is what was odd not the dip. There is a bias when looking at stock markets that says up is good and down is bad. However, accuracy is vastly i more important for the overall economy.

Re: How One Goldman Sachs Trader Made More Than $100M

#63

Post by branchless »

jhulla wrote: post #23
lordnacho wrote: post #18

Like the article says, it's very hard to distinguish between market making and prop trading. Especially in illiquid stuff like corporate bonds, the MM needs to hold positions for extended durations, so they have a valid excuse to not be closed down entirely by Volcker. The real reason they make all that money is flow. The guy on a desk like that knows what customers are calling, what they're concerned about, roughly…

Market making is inherently prop trading - the firm's capital is at risk - unless trades are paired or hedged immediately. For thinly traded stuff that may take a while to unload, it is just prop trading. I personally think Banks should be incredibly boring utilities. But that ship sailed a long time ago. Lots of great stuff was thrown out the window in January. My winning bet for the year was to start buying EWC (is…

> I personally think Banks should be incredibly boring utilities. But that ship sailed a long time ago.

We can drag them back to harbour any time we want. Let's keep fighting.

Re: How One Goldman Sachs Trader Made More Than $100M

#64

Post by notyourwork »

kafkaesq wrote: post #55
brianwawok wrote: post #50

Earlier quoted context omitted.

Your quote is about honesty. OPs quote was about unhedged rusk. They have little to no relation. You can be both a dishonest trader AND a smart one.

Actually the comment I was responding to was about "running a tight shop" -- which is about operational integrity in general (not just on the matter of unhedged risk). In the, you know, "would you buy a used car from these guys?" sense.

Perhaps a difference of definition but I don't consider a tight shop to have anything to do with morals or integrity. Tight shops I always considered efficient and optimized. Car dealerships are shady, but they can run a tight shop.

Re: How One Goldman Sachs Trader Made More Than $100M

#65

Post by branchless »

bogomipz wrote: post #61
jhulla wrote: post #23

Earlier quoted context omitted.

Market making is inherently prop trading - the firm's capital is at risk - unless trades are paired or hedged immediately. For thinly traded stuff that may take a while to unload, it is just prop trading. I personally think Banks should be incredibly boring utilities. But that ship sailed a long time ago. Lots of great stuff was thrown out the window in January. My winning bet for the year was to start buying EWC (is…

Would you mind explaining what prop trading is? I am not familiar with this term. From what I know of market making however is that you match a buyer and a seller of an asset, correct? If I do have this correct about market making. Are they playing ask buy spread? Whose best interests is the market maker supposed to look out for? The buyers? The seller? Some combination therein?

Market making you provide a buy and a sell price and keep the spread for your "service".

Prop trading: you buy or sell based on a guess which way things will go and hold that position then exit at (you hope) a profit.

Normally the big book of banking says market makers "provide liquidity" which in my experience is enough to make most people in banking stop right there as providing liquidity is to them akin to passing bread to orphans.

Re: How One Goldman Sachs Trader Made More Than $100M

#66

Post by alfalfasprout »

polskibus wrote: post #16

Did he make 100 m in profits for the company or did he earn 100 m for himself from GS as renumeration?

He'll likely get something in the ballpark of 5-10% as bonus. That's the typical rate at a desk where he's primarily making money from flow.

Re: How One Goldman Sachs Trader Made More Than $100M

#67

Post by branchless »

kafkaesq wrote: post #48
qaq wrote: post #22

Earlier quoted context omitted.

GS seams to run fairly tight shop I doubt they take very large unhedged positions.

Really now? Goldman Sachs will pay $5.06bn for its role in the 2008 financial crisis, the US Department of Justice said on Monday. The settlement, over the sale of mortgage-backed securities from 2005 to 2007, was first announced in January. “This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew tha…

Actually they hedged there by lying and selling their crap on instead of holding the baby.

Re: How One Goldman Sachs Trader Made More Than $100M

#68

Post by kafkaesq »

notyourwork wrote: post #64
kafkaesq wrote: post #55

Earlier quoted context omitted.

Actually the comment I was responding to was about "running a tight shop" -- which is about operational integrity in general (not just on the matter of unhedged risk). In the, you know, "would you buy a used car from these guys?" sense.

Perhaps a difference of definition but I don't consider a tight shop to have anything to do with morals or integrity. Tight shops I always considered efficient and optimized. Car dealerships are shady, but they can run a tight shop.

Until they get caught (and heavily fined). Whereupon management suddenly decides that maybe those practices weren't so "tight" after all.

Re: How One Goldman Sachs Trader Made More Than $100M

#69

Post by notyourwork »

kafkaesq wrote: post #68
notyourwork wrote: post #64

Earlier quoted context omitted.

Perhaps a difference of definition but I don't consider a tight shop to have anything to do with morals or integrity. Tight shops I always considered efficient and optimized. Car dealerships are shady, but they can run a tight shop.

Until they get caught (and heavily fined). Whereupon management suddenly decides that maybe those practices weren't so "tight" after all.

Absolutely right! Its usually context specific.

Re: How One Goldman Sachs Trader Made More Than $100M

#70

Post by bogomipz »

branchless wrote: post #65
bogomipz wrote: post #61

Earlier quoted context omitted.

Would you mind explaining what prop trading is? I am not familiar with this term. From what I know of market making however is that you match a buyer and a seller of an asset, correct? If I do have this correct about market making. Are they playing ask buy spread? Whose best interests is the market maker supposed to look out for? The buyers? The seller? Some combination therein?

Market making you provide a buy and a sell price and keep the spread for your "service". Prop trading: you buy or sell based on a guess which way things will go and hold that position then exit at (you hope) a profit. Normally the big book of banking says market makers "provide liquidity" which in my experience is enough to make most people in banking stop right there as providing liquidity is to them akin to passing…

Thanks, question:

"as providing liquidity is to them akin to passing bread to orphans."

I'm not following your meaning there. Meaning?

Also, is every brokerage also a market maker?

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