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StatTrader
Posts: 168
Joined: January 19th, 2007, 3:57 pm

Salaries in Options Market Making

February 5th, 2007, 6:44 pm

QuoteOriginally posted by: bouncerNorthern John, thanks for your enlightening feedback on the art of flow trading. A clarification of my last sentence:A prop shop trades their own money not that of their clients - perhaps I am mistaken, but I don't believe so. I deduce therefore that a prop trader works at a prop shop. Hedge funds play with clients' money. In that sense I am a bit confused of the notion that prop traders trade at hedge funds. Is the P/L of the hedge fund trader (the P/L from which his pay is determined) the real return that the trader makes to the fund ( (P/L - costs)*management fee ; the rest goes to the client, I guess) or the total return he makes on the portfolio he manages ( P/L - costs)I would also call hedge fund traders prop traders. I think of it this way:a) prop trading - your P\L is generated from your own trading ideas. e.g. hedge funds, IB prop desks.b) flow trading - your P\L is generated from earning the spread. e.g. market making.c) brokerage - you're P\L comes from executing customer trades. e.g. customer execution.I can give you one data point for the hedge fund payout (2% mgmt fee, 20% incentive fee in my case):Lets say managing a $100MM fund XYZ I make a 10% return.The hedge fund (my employer) gets 20% x 10% x $100MM = $2MM and the remaining $8MM goes to the client.The portfolio management team typically gets around 50% of the incentive fee income which in this example would be $1MM.Some firms will also pay the PM a percentage of the mgmt fee (25% from my experience), and in such instances, would also allocate costs to the PM for services such as IT\Ops\legal provided by other members of the firm. ST
 
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bouncer
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Joined: October 20th, 2002, 12:45 am

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February 5th, 2007, 8:43 pm

StatTrader, I appreciate your detailed feedback. Thank you.
 
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NorthernJohn
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Joined: June 2nd, 2003, 9:07 am

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February 5th, 2007, 8:55 pm

QuoteOriginally posted by: bouncerNorthern John, thanks for your enlightening feedback on the art of flow trading. A clarification of my last sentence:A prop shop trades their own money not that of their clients - perhaps I am mistaken, but I don't believe so. I deduce therefore that a prop trader works at a prop shop. Yes, you already posted that. Your deduction is wrong. Prop just means that they take positions, principally, as opposed to principally trading flow.I apologise for giving you a correct simple answer, and will not bother you any further.
 
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BlackSwan2
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Joined: November 23rd, 2007, 2:34 pm

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February 24th, 2008, 10:19 pm

QuoteI think of it this way:a) prop trading - your P\L is generated from your own trading ideas. e.g. hedge funds, IB prop desks.b) flow trading - your P\L is generated from earning the spread. e.g. market making.c) brokerage - you're P\L comes from executing customer trades. e.g. customer execution.STWhat I heard is a bit different. b) is maket maker. c) is flow trader.
 
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PDiCarterY
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Joined: March 15th, 2005, 7:46 pm

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February 24th, 2008, 10:46 pm

You are absolutely correct, BlackSwan2. At least that's the way I understand it.I sent you a message.
 
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jax26
Posts: 32
Joined: August 19th, 2004, 12:22 pm

Salaries in Options Market Making

February 26th, 2008, 11:38 am

flow trading = market makingif you are executing trades for a clients book (ie brokerage) you are an execution trader
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