What makes a trader?

The best traders, will never be famous;

If you try to make too much, you’ll end up with nothing.

I’m writing this week having just received a message on Linkedin from a trader I used to know. It said ‘thank you for all the support after ‘Armageddon’ last year. We have started a new fund, and will be up and running soon’. I had to read it twice just to make sure I was seeing it correctly.

Now, the reason this surprised me is that I know this trader blew up (technical term for losing everything), yet another proprietary trading firm last year after losing 10’s of millions of dollars. As far as I can remember, this was his 3rd. Yes, in the interim, he had made these companies a lot of money over the years, but anyone who can’t see the pattern is blinded by greed, and sadly, most financial institutions are blinded by greed.

He is very well known in the market as he throws big money around and takes on large size positions. A loud minority in the business love this, as it befits their high risk, high reward nature. However, what they seemingly fail to understand is how he makes these big returns. Well, having seen his trading book on more than one occasion, I can tell you: he takes way too much risk when the economic climate is steady in a bid to make more and more money. Then when a black swan event happens, he will bankrupt the company. I remember him doing this during the sub-prime, and now again last year. All his ‘competitors’ like myself remember it, but nobody remembers the traders who didn’t go under that year! The quiet majority who are responsible, and go about their business in a sensible, profitable and lasting manor.

The sign of a good trader, is one who understands risk, and knows what to do when the climate shifts. It isn’t as exciting, and it won’t make you famous, but it will make you a solid return, year on year. On top of this, a good trader will make double during a black swan event, not lose everything. Sadly however, most people who hire him, and people like him, don’t understand this, or even worse, don’t care as the short termism surrounding the industry is what creates a majority of the crashes themselves.

If someone makes huge amounts of money for 5 years, he or she is getting paid a large bonus at the end of each year. When the company goes under, they have already been paid so it doesn’t really matter to them. Move on and start again. Some banks have tried to combat this by postponing bonuses to the following year; this means they are aware of the issue, but sadly, this won’t stop it, only slow it down.

Someone will always hire him because of the amount of money he ‘could’ make, using the excuse when he loses everything that there was nothing he could do, the market dropped 30% and it was ‘Armageddon’. The fact is, the market dropped 30% for all of us and we’re still here. In fact, the average performance on The Portfolio Platform last year was 49%!

At TPP, we have sought out traders who know better, because we know better. We represent the quiet majority who aren’t after fame, but want to make our users a regular, market beating return. We look at our traders’ performances from February/March 2020 and take it into account. We want a good performance, but we are aware that someone who makes 100% in a month, isn’t necessarily a good trader, he is a risk taker. If you continually perform this well, at some point that number will say -100% and that is everything gone, so previous wins all become irrelevant.

We are traders ourselves, and we built this Platform because we believe everyone should have access to derivatives and margin, to increase returns; but we don’t believe that unnecessary risk should be taken with capital invested. We look for the best traders from all over the world, who mitigate risk and make money regardless of market climate. This won’t be possible every year, but avoiding a big loss should be.

There will always be black swan events. I’ve traded through many since 2001 and have only ever had good years during these crashes. Not by taking too much risk, but by being in a position to take the opportunity when it presents itself. If your position is too big when it hits, you’re out. That is what really separates a good trader from a bad one.

It is also important to preserve capital. We get numerous emails when a trader is not in the market. It’s usually the investor wondering what the team are doing and why they aren’t trading. Well, I can tell you now: they are waiting for the next opportunity. Would you rather they were losing money, or that they weren’t in the market? This is a major problem with retail traders. Without patience and understanding, you won’t make money.

Actively trading a book isn’t about sitting on a position forever and hoping it gradually increases in value over time; that’s a job for Investment Managers and IFA’s. It’s also not about taking the 50/50 chance. Up or down? If you don’t have an opinion, the best thing to do, is nothing. Wait until the tide turns and you are 75% sure the trade will make money. If you watch and wait long enough, these moments come along regularly. Not losing money is just as important as making money. Keep making a little, and at the end of the year, you’ve made a lot.

One of the main reasons that hedge funds, and prop funds do blow up, is the constant pressure to perform. Some days, the trader who makes the most (or loses the least), is the one who did nothing. We’ve all had many days where the best thing to have done, would have been to stay at home and take the day off. No trader makes money every day, nobody has a crystal ball so it’s important to accept this and move on from your losses. Over time, good traders will perform, knowing whether they will perform tomorrow, is just not possible.

If you’re at a fund, and you don’t trade, pressure will be applied as in their eyes, you aren’t ‘performing’. The high-powered names that run the industry don’t want a trader sitting there wasting time. It’s almost as if they would rather lose money, than do nothing. And herein, is another issue. Those who love the game, more than the drive to increase a return for their clients, should not be in charge of anything. This is another sign of a dangerous trader and another thing we try to eliminate from The Portfolio Platform.

If we feel that a trader isn’t being responsible, we will not showcase their strategy. Our platform has been built for one purpose, and one purpose only, to make its users money. We have selected our traders to make ‘risk taking’ a safer environment. Most trading platforms just want your money, they don’t care whether you make money, we do, and that is what stands us apart.

To browse our latest strategy performance, click here: The Portfolio Platform.

To schedule a call with our team to discuss your portfolio- click here.