[quote]Gettnitdone wrote:
My bad I compounded 365 days. But yeah, you’re right, thinking in absolutes would be a better way to think of profits for people actually day trading.
Out of curiosity, what do you mean by people who make $750k and have $100k in a trading account?[/quote]
When your a member of an exchange, you keep your money in an account held by a clearing member. A clearing member is typically a small regional firm who specializes in guaranteeing small traders and retail investors. A lot of the firms you’ve never heard of…RJ O’Brian, Vision, Peregrine, Refco, Shepherd, First Options, etc. The large NY based firms like Goldman, JPM, Morgan Stanley et al only handle institutional business or clients with more than $5MM in liquid, tradeable assets.
So, a local trader (locals were called locals because they lived in the general vicinity of the exchange and had a physical presence on the floor) would deposit $100k with their clearing house. The clearing house would guarantee the locals trades to the exchange. If I had $100k on deposit with my clearing house and lost $200k, the exchange would demand that the clearing house come up with the shortfall. The clearing house would then have to come after me to get the money. So, you can see that not only do they hold my money, keep my books, and generate a statement every day, but they also act as a short term lender to me.
For our examples sake, I’ve got $100k on deposit. This would allow me to trade 4 emini SP futures with a notional value of about $1MM. But, that’s only if I keep the contracts overnight. During the day, I might have a couple hundred eminis on with a notional value of $10,000,000. As you can see, as an exchange member I have nearly infinite leverage…or did for many, many years until EDF Man went bankrupt. Then, clearing houses started paying much closer attention to the intraday positions their traders were carrying.
Back to the original question, I knew lots of guys (20 - 30) who keep $100k -$200k in their trading accounts who take home $750k and up a year. There’s probably a dozen guys in the ag pits right now who have $100k - $250k swings in their positions every NIGHT. Like, they go home to their wife and kids and the market went $500k against them today. And these aren’t funds, they’re not banks, they’re individual traders. It’s crazy to even think about and I saw it first hand every day for years.