Girl: I didn’t trade AAPL but I wanted to! I was kind of scared… it moves so fast! Did you trade it?
Me: I did. I got short at $591 and covered for 10 points on that afternoon wipeout to $578.
Girl: Ohmygosh, you must be an amazing trader. Nobody on our desk knows how to trade the tech stocks. Maybe… you can teach me how to trade it?
Me: Why don’t you join me at the River Cafe and I’ll explain how it all works? I have a reservation. Their steak tartare is simply exquisite, you must try it.
Ding. Doors open. I snap out of my fantasy. I hadn’t said anything. She leaves.
Next time I tell myself. After I cross six figs in profits and can afford the River Cafe.
(continued from Apple)
I make a note of where Mystery Girl is going. In my ten months in NYC, I’ve barely spoken to any women. I wish there were women our desk… wish there were more female traders in general. For whatever reason, prop trading just does not attract women and trading desks are overflowing with unchecked testosterone. Most women on the Y5 floor were in non-trading roles such as compliance and operations. We had an office manager, Rhonda, who was aggressively Long Island–excessively sarcastic with no filter. Perhaps that was her work persona to deal with a 90% male workforce. Jimmy, a Staten-Islander–the cousin of Long-Islanders, would pass by Rhonda and ask how’d her date go last night. None o’ ya facking business Jimmy 🖕. Then they both walk away, smiling and satisfied at this hostile interaction. I don’t get New Yorkers.
Mystery Girl makes a right and takes the third door. Oh no. It’s one of those firms.
One of those SCAM firms.
This particular firm was run by a balding, bespectacled man, always sporting a beige dad’s cap, who spent a lot of his mornings in the hallway greeting people. He’d say Good Morning! to Tuco and get ignored. I asked him what beef he had with that guy and he replies he hates anyone who runs those scam firms. Bro, I can’t respect people like him. These firms had a tried and true business model: Burn and Churn. 1. Recruit absolutely anyone willing to commit capital to trade 2. Train them to “scalp” by front running orders of size on the tape 3. Profit off marked-up commissions–a “skim rate” above Y5’s base rate–as their traders implement ineffective high volume strategies.
I don’t know how Mystery Girl ended up at that godforsaken place but then it hit me. My fantasy could become real–I’d teach her how to trade and rescue her from eternal unprofitability. That’ll be the story of how we met and what we tell our kids.
I’m such a loser, I know. Now an important tangent.
In the late 2000’s of the prop trading industry, the broker dealer (BD) model became the dominant business model over the hedge fund model. Y5 went on a run of acquisitions, swallowing up many of the smaller, no-name BD firms. The prestige trading firms played the trading profits game–make money with talented traders who crushed the markets. Y5’s goal was to play the volume game–make money by having as many traders as possible. They consolidated the industry, including many of these less scrupulous firms, and everyone shared the 25th floor. This isn’t to say they didn’t have some big swinging dicks of their own, like Spark Merling—an 8 figure whale trader who’d swing breakouts on high beta stocks.
MBC initially started as a hedge fund but had to later transition to the broker-dealer model–trading under the Y5 BD to cut costs. Dealing with Y5 became a daily annoyance. $100 charge for the Series 57 study guide. Overbilling for the charting platform. Antagonistic interrogations through e-mail before approving a blog post. Admins being hours late to approve stock locates. Fines for odd-lot trading. Fines for more than 1 outside brokerage account. Fines for not completing the annual affirmation on time. So many fines. We despised Y5’s nickel and dimeing. The year before I arrived, Tuco sent the head of compliance a black rubber dildo for Christmas. I understood his message. They were not our friends.
Us MBC guys mostly stuck to our own and those of us foraging through the tough times became friends. Indeed, we all felt that same cognitive dissonance of seeing the MBC desk grind out comparative pennies while the MBC Education Machine rampaged to new highs in sales volume. Then we’d all joke about that shit to cope with our disillusionment–If I fail as a trader, I can always be a full time MBC Remote Mentor and make more! And our bond became stronger for it. My social circle became almost entirely MBC traders.
Jimmy and I would go to his hometown and shoot pool. He’d school me with defense at a time when I wanted to shoot every ball in and then he’d goad me into doubling every bet after I lost. Jimmy mentored many remote traders, and it was hard to tell if he was truly invested in anyone’s success or if it was purely a side hustle for the cash. But the longer I stuck around, the more he treated me less like some cash gig and more like a peer, often asking me for promising setups whenever he needed one of his patented “back-to-breakeven” trades. I think he rooted for me to succeed even if he wouldn’t say it.
Then there’s me and Clockwork. He sat on my right in our trainee cubbies. He’d copy all of my trades and then ask me what to do, like a lost little puppy. They slot him on my right again after we go live. We’d get into these piker setups, scalping for 10c, and he’d sell before I did, taking the shares I needed. So annoying. Even after Tuco’s weekend meeting, he still finds these same setups on the MBC scanner and has to let me know about it. PETE! DO YOU SEE THIS CHART? RISK ONE CENT! LOL. Then I’d say PASS, stop bringing up that nonsense. Then he gabbles on, in heavy Taiwanese accent and all —PETE… imagine we short this held seller with 5000 shares!?!? Hahaha. Then the seller lifts and sprays up a point higher and then we’re down $5000. Victor says we’re fired!!! We can go home! Hahahahaha. Are you serious? You’re giggling uncontrollably about losing our jobs you sick fuck, please just shut up already. We’re a comedy duo. I love him.
He was mostly my work buddy, he would get drinks with us but he married young and went home early by my second drink. I befriended the traders these 3 traders who would still be there on my sixth and seventh drinks–the amount of drinks for when the social anxiety died off and I’d let loose on things I never talk about to anyone else: my anxieties in trading, my fear of failure, my trepidation in approaching women.
Coulsen was in his mid 20’s and part of the 2010 class. He transitioned into trading from the sell-side because he got tired of cold calling. He had this bit that would always make me laugh: he’d pretend we were in that scene from the Matrix when Neo was learning martial arts through download. I know how to trade GOOG and AMZN. Show me. It sounds dumb writing it out. Guess you had to be there. He was also one of the rare New Yorkers with non-obnoxious sports opinions, maybe from the learned humility growing up a Jets fan. He’d give us Rex Ryan quotes at a time when levity was needed. Let’s go eat a goddamn snack.
Mesut was a top MBC candidate similiar to me and Reid–he checked all the boxes like college trading club and retail account. He was with me and Billy when we did our presentation in Scholarship, but decided to join the desk later in October. He was the trader on the desk most curious about the little things like market plumbing. He would often send me links from Eric Hunsader’s Nanex, the biggest source back in 2012 for how algos impacted the market in events like the Flash Crash. He’d be on Reddit scouring for obscure stock info. He was the first person to ever mention cryptocurrencies to me, which would later change my life (future chapter alert).
Tommy was a fresh graduate who also started in October. He was a pop-culture nerd who’d hook me into all the prestige TV shows like True Detective and Game of Thrones. When I got down on myself, it was often Tommy cheering me up. He’d destroy a 20oz beer in 10 seconds, slam it down and then tell me: You’re great P-To! You’ll be the greatest trader ever. Don’t sweat it! He liked to call me by my MBC platform tag (P-TO) and then that became a thing where everyone called me that.
These were my friends. They all believed in me. Even when I often didn’t believe in myself. We all advanced from negative profitability to the maddening stage of marginal or inconsistent profitability. It’s that stage where the 90-10 fail/sucess rate moved closer to 50-50. That’s where all of us were.
I often get asked: why should I trade on a prop desk? I simplified it to an equation… does the benefits from strategy, mentoring, technology, capital, and cost outweigh the value sacrifice from the profit split? But as I’m writing this, I realize the thing I miss most about prop trading is the camaraderie. The people who grow with you, start from square 1 like you, and come to understand and vibe with you. Why, because we all want the same thing: to be great traders who make lots of $.
We weren’t here because we accidently stumbled upon a “Traders Wanted” Craigslist ad like the many lost souls in the Y5 hallways. Most of us traded on our own early on and we would eat, sleep, and breathe markets. We knew what we’re getting into. We had a respect for the market and all the millions of ways it could play out on any given day, and because of that, we were highly disciplined and ultra risk-conscious. Those are good things! We just didn’t know how to go on the offensive and earn above subsistence levels. That was the next level.
But not everyone had breakthroughs. It’s just not possible. MBC was slowly establishing a core group of traders with improving results but not everyone felt included.
Imran, business owner and slayer of the demo platform, dropped out. He had his fun in NYC and felt great about the training program but his plan was to head back to Texas to run his businesses while trading on the side.
Billy, who did the presentation with me and Mesut and then paid $5k in “tuition”, couldn’t take the step from consistently negative to marginally positive and now struggled to pay rent. It wasn’t for a lack of trying, as he often e-mailed me to go over his trades and find areas of improvement. He dropped out and took a non-finance job. It was now 6 of us.
I’m approaching our desk and I hear Victor yelling in his office again. One of ours delivering him the bad news, says our floor manager. Another trader leaving for greener pastures, even though we had started doing well. I look to the middle of our desk and I see a notable absence. Eagle’s seat was empty. My heart sank. Seriously, anyone but him. On a personal level, we weren’t super close but we enjoyed talking about hip-hop and NBA. We were rooting for LeBron to win his first ring at a time when he was the most hated athlete in America. BTW, anytime I heard any NBA talk in the common areas, it would always devolve into LeBron bashing–once I saw Rhonda the office manager, completely out of the blue, force herself into a conversation by shouting “I facking hate LeBron!” What is it with New Yorkers and their shitty sports opinions? Anyway I got off-topic. It would kill us if Eagle left because we all knew he’d be a great trader. I admired his ability to stay cool under fire. He wasn’t a robot by any means, he’d get upset too. Then he takes one deep breath, quickly regains composure, and boom–he’s firing away like the day just started. Compare that to me feeling like the world had ended while rotting on a park bench. I’d like to think the respect was mutual. He appreciated some of my value-add; I’d find new things for the desk, like introducing everyone to Tradervue and pushing micro-cap strategies into the desk’s collective consciousness.
Speaking of micro-cap strategies, I finally cracked one that day.
Galena (GALE) had gained 700% year-to-date — trading from .50 to $3.50. In the middle of March, the uptrend sped up into a parabolic move. Volume had ramped up big time and there was unconfirmed chatter in micro-cap circles that GALE’s recent climb was due to stock promotion. I posted GALE in the morning ideas sheet, noting that it was overextended and due for a strong correction. I attacked it like the desk had on AAPL–waiting for opening weakness, anticipating the gap fill and then price going negative. I imagined a nasty red engulfing candle where early accumulators would dump onto all the buyers who chased into the parabolic, as I had so witnessed so often before on previous micro-cap reversals. That’s exactly how it played out.
I had great initial entries, shorting 3.50 and adding lower. GALE washes out and completes my gap fill target by 10am and I cover in the 2.80s to make $500, my best individual trade on the MBC books.
I play way it too safe. GALE sells off into oblivion in the afternoon, hitting a low of 2.10. Tuco made closer to $3000 and thanked me for the callout, then suggested that next time, I hang on for the bigger move. Nonetheless I made a huge call and it felt amazing. My worlds were colliding–penny stock bandit Pete and pro trader Pete were teaming up together in a combined universe.
Victor told me to draft up some talking points on my GALE trade, as I would be doing the MBC Tradecast that afternoon. That was my first time up there with everyone listening to me like I was this expert on shorting penny stocks. I still have my notes from Tradervue that I used during the presentation.
After GALE, other traders would ask me about every single penny stock and small biotech. Pete, what do you think of this [bullshit stock here]? I didn’t know a heck of lot, I just read Adam Feuerstein and @johnwelshtrades on twitter and deferred to their takes.
Later that evening, the 2011 summer class of traders went out for a special happy hour. It turns out it was Terrance who is leaving. Chimera supposedly offered him more capital and a chance to run his algo, despite the fact that he was never profitable. Now he’s inviting us to the bar to say our goodbyes. 6 of us had turned into 5 of us. I decided to be a good sport and join in, mostly just nodding my head as Terrance had his moment in the spotlight. Then when we were about to disperse, he tapped my shoulder and said something I did not expect.
Hey Pete. I know you and I have had our differences but I really respect you as a trader. We good?
And then he offered a handshake. I instantly felt awful about being such a jerk. Admittedly, these “differences” kinda went in a one way street. I shook his hand and wished him well. We’re good.
Victor summons me and Clockwork into his office. He’s on edge after Chimera poached yet another one of his traders. It now became imperative for him to retain talent and maintain stability at MBC. Still a few months short of a year’s experience, he raises our profit split and risk limits. We were the top two trainees from the 2011 summer class and we are now freshly minted Junior Traders. He emphasized that we are MBC’s two best trading prospects and he expected us to take a big leap in PnL soon like Eagle (who just took a sick day). He also mentioned he was starting to work on his second book, the supposed sequel to Two Great Positions— and that we would be in it.
Neither of us had netted $10,000 in our entire prop trading careers and now we’re going to be written in pen as two of MBC’s market wizards. Jesus Christ.
(to be continued in Facebook IPO)