What kind of trader become a hedge fund manager?
The question of relative "value" isn't determined by your opinion, or any other person's opinion, but by market forces. But to illustrate the point, let's continue with your line of questioning: Who's more valuable, an NBA all-star or a teacher? A Hollywood celebrity or airline pilot (after all, the pilot is responsible for the lives of hundreds of people every day), a teacher or a stay-at-home mom? And who's values are to be used in assigning values to various professions? If a teacher doesn't earn enough in their chosen profession, then let them choose to be a professional athlete, or a movie star, or even a top-ranked hedge fund manager or CEO. What's that you say? They can't just choose one of those multimillion dollar careers? Why not? This is a free country isn't it? You see, not everyone has the same mix of intelligence, business acumen, looks, athletic ability, acting skills or just plain work ethic. Rare skills are like rare gems - their scarcity makes them valuable. If everyone could play like Lebron James, do you think he'd be making $15,000,000 per year? The truth of the matter is that there are far more teachers thnt NBA stars, Hollywood celebrities, brain surgeons and hedge fund managers. Life isn't fair - get over it.
How can a day trader ever become a hedge fund manager?
There is only one way. Find someone dumb enough to hire them. Day traders have not the faintest clue how to make money managing a fund. I encountered many day traders when I was in the hedge fund business. They crop up during sustained bull runs. I was asked questions constantly in the late 90s by day traders and was amazed by the spread between their confidence and their abilities (which I wound describe as knowing how to click the buy and sell buttons as well as parrot a few worthless unproven technical mumbo jumbo.What these people don't realize is that most of them were simply making money by being long beta in volatile upward trending markets. Most of these people would have been better to own indexes and certisnly wildly more tax efficient. This is why day traders disappear in down markets. If they actually added any value they would make money in all markets.Here is an example. Let's say you are in and out daily and making .25 percent a day (simple compounding). So over 100 days you are up 25 percent. The problem is that in order to measure value add you have to pick an appropriate benchmark and risk adjust it (if you are in higher beta stocks you need to demand more than the market rate of return. While in a large sample set there will always be people besting the market through luck, most day traders likely make less getting a return this way than buying indexes and going to the beach.Most day traders also forego the "free" (according to finance theory and CAPM) diversification) benefit. This is almost certainly the wrong way to approach investing. It also has materially higher transaction costs -- so much so that it could impact returns by double digits over a year.Of the dozens of people who approached me about day trading, zero still do it. Despite a total Immersion in the markets for over a decade I have never met someone who makes a consistent living this way. I don't believe it can be done by non professional individuals (who have no value add or proprietary information flow or trading flow).In short - don't do it.
How do investment managers/prop traders/hedge fund analysts respond to the abysmal statistics that compare active money management to indices?
Most investment managers are rain dancers. They dance, some money rains on them, they say hey I can manage a fund, raise a bunch of cash and the rain stops. When they dance again and all they get is a blizzard. This happens during every market cycle, and was self-evident during the dotcom bubble when upper-class college grads started their own venture funds.Some investment managers are scientists. They model things, and then make predictions. For example, if I know what you are going to buy next, I can trade ahead of you. That's HFT. If I know that decreased access to capital is going to jack up corporate interest rates, I can short junk bonds. That's fixed income. If I know that a company is going to create a product that can totally monopolize an entirely new market, I can invest in it. That's VC.Saying that it's all random is both useful and useless at the very same time. It is all random most of the time. But given the current situation you are in, and the current situation others are in, you can use past experience to model future events and arbitrage the difference between the model and reality in doing so. That's real edge, it can be created, and there's no taking it away.
What do successful day traders and hedge fund managers read daily?
What do successful day traders and hedge fund managers read daily? I read the Wall Street Journal, Financial Times, and news on Bloomberg. However, the real focus of my daily reading is always primary source material such as SEC filings. I explain that approach here:How Do Seeking Alpha Stock Picks Measure Up?With +10,000+ contributors to Seeking Alpha, how do I sort out what is worth reading?I try to read about investing from money makers with flexible mandates and proximity to information.After that, it is all a matter of their performance. Here is how I find the top performers.ProximitySerious, thoughtful research across any discipline requires the writer to immerse himself in primary source data. For investors, that typically demands reading of SEC filings, fundamental analysis of a security's intrinsic value, and interviews of key decision makers. If you want to analyze analysis, you can go to an investing conference to hear stock pitches. But if you want to analyze facts, you can instead go to industry conferences to understand what vendors, competitors, customers, and service providers know about a given company. If writers are immersed in primary sources, they are closer to the facts and have a fighting chance of analyzing them intelligently. If they are not, then it will be a dangerous, expensive, and silly game of telephone.
How are hedge fund traders paid?
It depends on the fund.In some funds the portfolio decisions are made by portfolio managers or computers, and the instructions passed along to traders. Depending on the type of trading, efficient execution can depend more or less on the trader. For example, if orders are broken down by an algorithm and sent electronically to an exchange, the trader is doing quality control oversight; but if the manager is trying to assemble a large position in a bond that rarely trades, execution can take a lot of specialized knowledge and skill.In other funds, the traders make the decisions.In the first case, the trader will be paid based on her skill and experience, likely with some performance bonus based on her execution quality, and perhaps with some profit sharing based on the fund’s performance.In the second case, in many funds the trader is paid an agreed fraction of his profits. If he loses money, more than a preset amount, he’s fired. This is called “eat what you kill.”But in many other funds, the trader is working on a number of strategies, with support from other people in the firm, and supporting other people, and running joint strategies. In this case the trader’s bonus is likely to depend on overall contribution to the firm, including trading profits, of course, but also including other positive contributions; and the share of trading profits paid to the trader is likely to be smaller because it has to be shared with other staff. A trader who loses money might find her limits cut, or even find herself moved out of trading into research or some other job, but should keep a job as long as she is productive for the overall firm.Even the traders with the least discretion command good salaries, because the job has to be done virtually without error (and with absolutely no big errors) and can be stressful. Generally speaking, the more discretion the trader has, the more she can earn if she uses the discretion profitably, but the more liable she is to being fired for using it unprofitably.
Are there manual traders at hedge funds and are they good?
Yes, there are still execution traders on the buyside. Less and less every day, but of course they still exist. Do you mean on the floor, paper waving floor traders? Almost none. Are these buyside traders any good? The fact that they're hanging on to their seats says they can't be terrible, as those folks were the first to get trimmed. As for being “good” it depends on what we are quantifying. Just trading purely or other skills that add value? The ones I know, that are not under terrible pressure currently, all do possess other skills that add to their value to their firms. Whether they be quasi-analysts or COO minded people, they're not just traders. Wall Street, as we have seen in all other businesses in the last decade or so, is also beginning to see the impact of the exchangification of everything, aka virtual marketplaces, quantitative modeling and algorithmic trading. Here comes AI and ML too. Net net, these all disrupt relationships and brokers and in the end, the manual traders were relationship Guys and brokers.
Are there any stock brokers who allow traders to hedge?
I assume you are talking about derivatives here. Since being long and short on a stock will result in no gain. I believe E-Trade now offers derivative trading, check them out.
Do hedge fund managers trade options? do really rich investors?
Some hedge funds do options and some don't. If someone put in bids on a lot of illiquid options, yes, the price would go up, but so what? The fund would be holding a lot of illiquid options. Going to sell them would drive the price back down resulting in no profit. If you strongly believe that a stock is going to move, then the additional leverage of options would magnify your profit. It would also give you a 100% loss if you were wrong and the option expired worthless. I'm currently sitting on a Dry Ships put option that has quadrupled in value in the last six weeks. You can't do that with stock. Many people trade options daily. With greater risk, there is greater reward. This is a different strategy than buying an option and holding it for a big move like I was talking about in the previous paragraph.
Day trader vs. Hedge fund trader?
The assertion approximately maximum fund managers slightly beating the index is in keeping with mutual fund managers the place there are reporting standards. There are no precise comments on how nicely investors or hedge fund managers do. there is greater documents on hedge fund managers to suspect that they do grant a return on the money yet as there is not any requirement to document there are no definitive information as to their overall performance. As to investors, what you hear are regularly enormous fish memories and any independent tries to confirm what returns investors comprehend have pronounced a internet loss or harm even, to be the median and that the memories of spectacular fulfillment are many times accompanied via a blowout. occupation possibilities are greater useful for fund managers because of the fact boasting and fable does not easily propose effects.
Are there any top traders at IBs or hedge funds that started as independent traders?
My answer is yes but that could just of an outliner. However, as far as I know, Griffin is not the only one who self-made his fortune and later on started their own fund.“In 1986, Griffin started to invest during his freshman year at Harvard University after reading a Forbes magazine article.During his second year at Harvard, he started a hedge fund focused on convertible bond arbitrage. The fund was capitalized with $265,000 from friends and family, including money from his grandmother. …. In 1990, Griffin founded Citadel with $4.6 million” Kenneth C. Griffin