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SleepingGiant
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Joined: October 22nd, 2003, 7:19 pm

Question for the traders out there...

January 5th, 2007, 5:02 pm

Could someone tell me what is meant by the term "book size"? So a trader has a "book of size $10 million" or it is said that they are "trading a $10 million book". What exactly does that mean? That isn't the same as position size, right? How is that number (book size) calculated?Also, what is considered to be a small book and what amount is considered large?Thanks!
Last edited by SleepingGiant on January 4th, 2007, 11:00 pm, edited 1 time in total.
 
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NorthernJohn
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Question for the traders out there...

January 5th, 2007, 9:52 pm

I have never really heard the phrase used as in the first way, but I assume that it refers to annual P+L.You need to distinguish, after that, between two real classes of book. Some "big" books, that do a lot of business, and are very necessary. They might make no money at all, but need to be kept alive to service customers' needs.If, though, we talk about books that exist solely to make money, I'd say that $3m is at the very bottom end. $10m is respectable, but you want to be in the $40 - $100m range to be making a name for yourself.Once you get over $200M a year, consistently, then that is very respectable. I know of very few people who make much over $400m a year.
 
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SleepingGiant
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Joined: October 22nd, 2003, 7:19 pm

Question for the traders out there...

January 5th, 2007, 10:37 pm

The way that I heard it used was something like this:- Trader #1: I made $10 million last year.- Trader #2: Oh yeah? How big was your book?I thought it might have something to do with total cash available to trade (ie., the cash put up in a margin account). Based on conversations I have heard, it seemed like making $1 million on a $10 million book was worse than $1 million on a $20 million book.Oh, the other way I have heard it used is for a trader to say "I ran a $10 million book".I'm confused. What exactly does this all mean? What book?
Last edited by SleepingGiant on January 4th, 2007, 11:00 pm, edited 1 time in total.
 
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NorthernJohn
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Question for the traders out there...

January 6th, 2007, 1:00 am

Seems to make no sense to me. It might mean "how much did the customers bring in". i.e. how much was the amount the book would make a lone, and how much was added value.What products were they trading? If it was bonds, they could be asking what size inventory was held. If you buy a shedload of credit, and just sit on it, you make lots of money. In that case, to work out how impressive it was, you need to know the size of the book.Bigges I know of personally is 140 billion euros of cash positions held.Sadly, for the bank, they were not exactly marked correctly.
 
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apine
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Joined: July 14th, 2002, 3:00 am

Question for the traders out there...

January 6th, 2007, 2:07 am

the book is not the pnl. as you surmised, the book represents the amount of money traded. this is usually on the sell side and the "book" refers back to the old days of a ledger. which leads to the title "bookie." on the buy side, it would refer to the size of the fund or portfolio. different asset classes would have books of various sizes meaning different things. for instance, running a $100M cash fixed income book is relatively small, but $100M of pure volatility or futures can have much more impact. this is also where measuring the size of the book means different things and i don't think that you will get one answer for all asset classes. if you think about it, this will make sense. so when the first guy said he made $10M, the second trader wanted to know whether the guy earned 10% or 100%. if trader 1 made $10M on $200M book that's awful. he underperformed libor.
 
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flairplay
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Joined: September 26th, 2006, 1:34 pm

Question for the traders out there...

January 6th, 2007, 6:23 am

"Book size" is just loose vernacular, the meaning of which is apparent only in context. There is no unique meaning or description.Examples:1) When you issue a structured note, there is a period of "book building", the subscription period. So for a particular issue it's just the notional. 2) The size of the book (portfolio) in terms of risk. You cant just compare notionals or cash flows from one type of book to another.And don't forget, "size" is also a relative term, even in its purest form.
 
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jfl
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Joined: October 20th, 2005, 8:50 pm

Question for the traders out there...

January 6th, 2007, 8:17 am

"Book Size" needs two sides, unless the book is long (or short) only. An USD XX book contains assets worth USD XX marked to market. apine is correct - earning USD 10mm on a USD 200mm book is 10/200 - 5% return. If that was USD 10mm on a USD 20mm book then the next question would generally be about earnings quality ....
 
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Lepperbe
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Question for the traders out there...

January 6th, 2007, 11:13 am

book size for a trader as i understand it would refer to the trading limits a bank sets for a trader.usually banks charge their traders a capital cost (libor) on their book size.so if you make $10 on a $200m book, you have earned 5% over libor.whether that's good or not depends on what kind of product you trade (emerging markets equity is quite different from US short term interest rates) on what kind of risks you took and how much capital you actually used vs the limit max.
 
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NorthernJohn
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Question for the traders out there...

January 6th, 2007, 9:26 pm

QuoteOriginally posted by: apinethe book is not the pnl. as you surmised, the book represents the amount of money traded. this is usually on the sell side and the "book" refers back to the old days of a ledger. which leads to the title "bookie." on the buy side, it would refer to the size of the fund or portfolio. different asset classes would have books of various sizes meaning different things. for instance, running a $100M cash fixed income book is relatively small, but $100M of pure volatility or futures can have much more impact. this is also where measuring the size of the book means different things and i don't think that you will get one answer for all asset classes. if you think about it, this will make sense. so when the first guy said he made $10M, the second trader wanted to know whether the guy earned 10% or 100%. if trader 1 made $10M on $200M book that's awful. he underperformed libor.This makes no sense for most traders nowadays, though. Most of us trade derivatives, we carry small risks, and you just cannot assign a portfolio "value".As you describe it, it is like a fund management term.If I trade a yard of 10 year swaps, how much money have I traded? If I trade a yard of 3*6 spot, is this the same amount of "money"?You simply cannot give such a definition for the range of products we trade today.
 
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apine
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Joined: July 14th, 2002, 3:00 am

Question for the traders out there...

January 6th, 2007, 9:56 pm

this is neither a multiple choice or essay question. it is a definition, albeit a rather loose one. one's book is the purview of assets that is traded. that might refer to the government bond options book or the biotech listed options book. the size of that book represents the notional amount, capital charge, risk assessment or balance sheet allocated to the trader. as i stated before that amount is not directly comparable between asset classes. it certainly is not the best metric for risk or profitability. but that is a different discussion.
 
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NorthernJohn
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Question for the traders out there...

January 7th, 2007, 10:08 am

It is loose enough that I know of no traders who would ever use the term in the way that you did.I mean, really, have you ever heard a government bond trader refer to hs book this way? Mine never have, and I never used the term when describing a book to them.How many of your books have you ever referred to in this way? I am genuinely interested to know. Mine, and my staff's, if they have ever been referred to as having a "size", would only ever use this phrase with respect to P+L, but it would be rarely used.Maybe 15 years ago it might have meant what you say, but it is not nowadays in my world.
Last edited by NorthernJohn on January 6th, 2007, 11:00 pm, edited 1 time in total.
 
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apine
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Joined: July 14th, 2002, 3:00 am

Question for the traders out there...

January 7th, 2007, 3:16 pm

i mean, really, did you even read what you wrote?have you ever heard a government bond trader refer to hs book this way?sleepinggiant did and he/she asked the question. although it was probably not a govy trader.How many of your books have you ever referred to in this way? I am genuinely interested to know. Mine, and my staff's, if they have ever been referred to as having a "size", would only ever use this phrase with respect to P+L, but it would be rarely used.this does not make any sense. how would you know whether they were doing well or not. as discussed previously, making $10M on $100M is different than making $10M on $1B. of course, as also discussed, notional amount is not necessarily the best way to measure book size. but clearly there must be some way to differentiate book size. i would have to presume that there are different risk limits or capital allocations between traders, even at YOUR firm. but it is clearly possible that a junior trader with small risk limits made more money in a given time period than a more senior one with larger limits. and that would not reflect the size of the book but the profitability of the book. two distinct terms. so even if you disagree with the idea of using notional as the best theoretical measure (which i agree with and said so previously), there must be some metric or group of metrics to qualify and quantify the size of a trader's book.
Last edited by apine on January 6th, 2007, 11:00 pm, edited 1 time in total.
 
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IceQueen
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Joined: September 28th, 2006, 8:33 pm

Question for the traders out there...

January 7th, 2007, 3:29 pm

It is almost always a refernce to the total net MtM for that desk/trader. Bond trader's book size is the obvious example: Total (net) book MtM.
 
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NorthernJohn
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Question for the traders out there...

January 7th, 2007, 6:44 pm

Deleted.We have some ignorant speculation on here. I will not argue with people who think that they know my job better than me, but whom I suspect have never traded a book in their life.
Last edited by NorthernJohn on January 6th, 2007, 11:00 pm, edited 1 time in total.
 
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apine
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Joined: July 14th, 2002, 3:00 am

Question for the traders out there...

January 7th, 2007, 9:15 pm

yes we do. and it is a testament to your ignorance that you resort to insults in a vain attempt to conceal it.