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How One Goldman Sachs Trader Made More Than $100M

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

#71

Post by tedunangst »

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?

The currency booth at the airport is a market maker. I give them dollars, they give me euros. They don't make me stand around and wait for a European to complete the trade, though. (That would be more classified as an exchange.) They are always willing to buy or sell at some price. The currency desk is mostly looking out for their own interest, but when I step off the plane, I want somebdoy to be there to sell me euros.

When George Soros decides to sell a billion British pounds, that's a prop trade. He's not hanging out letting the trades come to him.

(I say currency booth, not exchange, just to avoid confusion. We usually say exchange, because that's what happens, but it's not an exchange in the market sense.)

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

#72

Post by qaq »

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.

The only reason GS is still around is because they did what they did. They protected their shareholders the fine is trivial (less than 10%) compared to the losses they would have taken if they followed the course of action that everyone else did.

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

#73

Post by bogomipz »

tedunangst wrote: post #71
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?

The currency booth at the airport is a market maker. I give them dollars, they give me euros. They don't make me stand around and wait for a European to complete the trade, though. (That would be more classified as an exchange.) They are always willing to buy or sell at some price. The currency desk is mostly looking out for their own interest, but when I step off the plane, I want somebdoy to be there to sell me eur…

Great explanation, thanks. Exchange does seem to be a of a misnomer, agreed.

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

#74

Post by [deleted] »

tedunangst wrote: post #71
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?

The currency booth at the airport is a market maker. I give them dollars, they give me euros. They don't make me stand around and wait for a European to complete the trade, though. (That would be more classified as an exchange.) They are always willing to buy or sell at some price. The currency desk is mostly looking out for their own interest, but when I step off the plane, I want somebdoy to be there to sell me eur…

[deleted]

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

#75

Post by nerdponx »

bogomipz wrote: post #70
branchless wrote: post #65

Earlier quoted context omitted.

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?

Providing liquidity is a service, so institutions expect to be paid for that service

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

#76

Post by chris11 »

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…

Also, prop traders use the firms money to trade, they don't use client money. So the firm is responsible for the loss and gets the benefit of the profit.

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

#77

Post by andrewbinstock »

ChadMoran wrote: post #9
temuze wrote: post #6

How to get around the WSJ paywall: - Copy the URL - Paste the URL into the Facebook textbox where you would create a post - Click on the preview, so the referrer url is Facebook Could probably make a Chrome extension for this...

CTRL+SHIFT+N Opens a new incognito window. Paste. Done.

Nope. Doesn't work on Windows 7 running Chrome, nor I expect on many other system/browser combos.

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

#78

Post by kafkaesq »

qaq wrote: post #72
kafkaesq wrote: post #68

Earlier quoted context omitted.

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

The only reason GS is still around is because they did what they did. They protected their shareholders the fine is trivial (less than 10%) compared to the losses they would have taken if they followed the course of action that everyone else did.

A $13b bailout on suspiciously favorable terms had something to do with it, also.

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

#80

Post by jhulla »

smallnamespace wrote: post #42
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…

If you prevent banks from doing the riskier forms of market making, then that responsibility will move to firms that don't have access to customer deposits. Because their capital base is less stable, they will be more prone to stop making markets precisely when you need them most. That will probably make extreme volatility events like flash crashes much more likely. This is already happening today to some extent: [1]…

There is always a market for your asset. You might not like the price. Market makers that are not tied to TBTF banks would actually be more responsible because there is no safety net.

Aggressive traders who understand market structure can and will profit.

I remember flash crash days - my trading platform stopped responding - I could not get quotes and I could not do trades. I desperately wanted get a fill at the flash sale prices. No dice for me. Some friends who had stops in place found out that their broker had automatically sold their positions at deep discounts. Aggressive traders (with working platforms) benefitted for sure.

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