You know how these days, magazines that used to cost hundreds of dollars per year, or those that came from overseas sometimes cost over $1000 per year, are now free? If you’re a rational participant in business, you’d understand this “free” readership was so advertisers see a large circulation number. Sadly, they don’t care whether the circulation pays or not. They seem too stupid to realize those that don’t pay are HIGHLY unlikely to even open the magazine, let alone read a single article.

There’s this one trading magazine written and printed in Australia. They’ve sent me over 12 “this is your last issue” warnings, which all end in the trash, but the magazines just keep on coming, where it also ends up in the Recycling Bin (this is Cali. It’s law). I must admit though, I am curiously attracted to articles about  the late great WD Gann for reasons I couldn’t even begin to get into.   Back before the robots took over market-making, the magazine YTE, which stands for “Your Trading Edge”, was actually pretty cool. There was one ENORMOUS PROBLEM though, which they still have. By the time it reaches their American readers receiving it Gratis, it’s been in transit for weeks because they’re too cheap to pay for overnight delivery. (Hey, it’s free)

This results in all of their examples and articles  being “slightly” outdated. It’s cool though in a way to see how their predictions fared out by the time the magazine arrives.  Unless they go bankrupt first,  which seems to be a strong possibility suddenly with the direction their going. They’re trying to look more like “Active Trader” or the “Online Trading Expo”. You know, the magazine and convention for trader wannabes and failed 2nd careerers(no offense).  Or Technical Analysis of Stocks & Commodities (another one of those “this is your last free issue of TAS & C unless you send back this card” but they just won’t stop sending them no matter how many cards I trash!)

Getting to the point, be patient…..  I saw this name on the front page of the current edition. This guy, whose name I will not  mention for I will have to wash my mouth out with soap if I mention anything that identifies him or the firm he works for, owns, and is controlled by, but here’s a clue:  It’s  another one of those 3-letter trading companies out of NY, but their main office is in a building I’m familiar with, or so I saw, but one learns after being in this business for many years, that things are never what they seem.

Let’s back up a second, I’m not talking down on the magazine’s WD Gann expert that writes things like “without sharing the Gann Secrets” he says something like “Saturn is aligned with Jupiter, and the Virgo constellation is perpendicular to Orion’s belt so Corn is about to make a huge move”. Not kidding. Not entirely irrational either. I don’t understand the astronomy aspect of Gann’s work, but there are less sophisticated and easier to decipher parts of his work dealing with mathamatical formulas and Geometry.  Gann wrote in code, and as you learn this code, it’s like opening the door to the next level, and it keeps going  deeper and deeper until you become lost.  In the past, and even in the present to some, WD Gann is a market God or something.  We have become enlightened enough to know by now that planetary alignments affect gravity and light and solar storms and therefore the weather, and hence commodities. Simple logic.  We’ve pretty much accepted by now that a full moon and its proximity to Earth can cause massive gravitational disturbances on the planet as well as with people. It’s a fact that crime jumps during a full moon. 

What’s not a fact is the correlation. A great deal of Scientists go out of their way to try and  disprove this theory. Maybe they’re just Werewolves; or Vampires just keeping the Werewolves at bay. Whatever the supernatural aspect, or lack therof, we all have experienced  in our own selves how a full moon makes people a little less “rational”.  The sun and the moon rule the oceanic tides but the correlation with humans was pure folklore.  But every now and then when there’s a full moon, you’ll notice a big move in the markets. A move probably thriving off the irrationality of humans. But since black boxes have no concern for the cycle of the moon, good traders learn to fade these moves. As the market reverts to its’ mean depending on where that mean is, above or below, so starts a new Lunar cycle. 

I digress, just a tad.  As for the free magazine, the little article in the back that’s written by their in-house Gann voodooist, is actually the only part that’s “long cycle” enough, sometimes focusing on the Kondratiev Wave or “Grand Super Cycle”,  that makes the lag in transit irrelevant. WD Gann worked on this Super Cycle quite a bit. But I’m getting off subject again.

Back to this outdated magazine that arrives at my house on Friday or Saturday and low and behold, on the front page I see the name of this guy whose office is based in a building I’m, let’s just say familiar with. He runs one of the thousand or so 3 letter trading firms in NYand  works out of “a beautiful building with views of the Statue of Liberty” like a good view has any relavence on one’s performance. Nevertheless, this guy is the subject of an interview about Proprietary Trading, how it’s “evolved”, what’s “changed”, how to react to the various environments, andwhat to expect in the “future”, like he knew. The best hedge fund managers in the world are lost right now. And the head of a retail daytrading arcade knows?  Oh man.  That had me laughing for a while. I admit, I  actually read the interview. Aside from the two times I almost hurled, by the time I was done, my stomach felt like it was doing jumping jacks. 

As a “self-proclaimed”  child prodigy of the markets, I’ve seen em all after 10 years. But the things this guy says, and the representations he makes are borderline unnatural (note to self, avoid libel or slanderous terms). These “prop firms” with their multi thousand dollar training fees, software fees, over-rides disguised by intermediaries withAlien names like “Firm58″, are nothing more than modern versions of early 20th century bucket shops where people would sit and watch a blackboard with symbols and numbers being changed by a kid on a ladder and a real Wall Street ticker tape printing off trades done minutes or hours ago depending on where you were. Then came this guy that decided to monopolize the wires and invented Western Union, who then proceeded to ban bucket shops from using their service. If you really wanna know, just google the term ”bucket shop” or read this, on me: It’s a pre-req. Reminiscences of a Stock Operator    

The crooked ones would delay the public tape and get ahead of the trade by seeing the real tape a few minutes earlier, and would wipe their customer out by over-leveraging them and just cleaning up. Never even putting the trade through. That’s why it’s wise for all retail traders to check their confirms in order to check who or what the contra party was for the trade. It was either an ECN or another MMID, or it was  their own firm or a clearing house owned by the firm. For example, Fidelity owns National Financial. When you see this, it technically means your firm is taking the other side of your bets because it believe the odds are your gonna lose on that trade according to their multi-billion dollar super computers.  The firm never  takes your trade to market but always gives you the NBBO so you have no reason to complain.  But in reality, the firm is trading against you. Conflict of interest?  Maybe.  But remember the four cycles of a stock. If you don’t know what this means, you shouldn’t even be trading.  When you’re in a margin call, the firm closes you out as fast as possible and wipes out any remaining equity when a margin call is generated. Why? Because they were on the other side of the trade and were just licking their lips at their computers telling them which customer accounts are likely to blow up, so they can keep doing this for eternity, kind of like blood-sucking vampires (hey, that’s two mentions of the super-natural in one blog post, maybe I’m watching too many episodes of True Blood on HBO).  If I was you, I would stay away from any online trading firm that names itself after honesty (e.g. Fidelity) and is private (e.g. Fidelity). 

Let’s return to what’s written in the article.  And I’m writing this because it goes against everything I believe in and why I hate this business to the point where I’d rather go to Law School and return armed and ready with a passion to shut every single one of these blood thirsty, borderline legal firms down. They’ve hurt my friends, my cousin, myself, people who I never met that trusted me. These firms won’t stop until someone stops them. Seems the SEC is giving a crap recently but it will fade from the public and institutional memory and with it, the SEC’s investigation. Undermanned and broke, the agency is lucky to even be alive. With the SEC or not, I will take great pleasure in crushing every single one like the cockroaches they are.

Living and breeding on deception, the weaknesses of human beings, their ambitions, counting on their propensity to be ignorant and closed minded (otherwise know as tunnel visioned), especially the younger ones because  they could convince mommy or daddy to pay via credit card, promising to only give it the summer or just 1 year.  Their ignorance and naivety; sucking out the inspirations of the young and their ambitions, torturing them to waste their real Golden Years sitting in front of an array of monitors, in full hyper-tension, trying to make a couple bucks a day.  Instead of being out partying, hooking up with girls, learning, meeting the most amazing professors and just immersing themselves in something totally interesting to them, they instead end up with empty promises and bank accounts, having to work a cheap job without a college degree, then trying to do it again, until the gap in their education has gotten so big that their 4.0 gpa doesn’t even matter anymore.  They’re screwed, hook, line, and sinker.  A young mind is full of ambitions that will go to waste if they choose this path over a real education.  To me, that’s just plain wrong and writing crap that instigates and propagates this is wrong and the SEC is coming after them one by one.

Listen carefully now. If everything I’ve written to this point is a bunch of garbage, heed my advice on this one point:  If you still have money at any unregistered, non broker/dealer firm that is allowing you to trade firm capital and requiring a risk deposit to do so is breaking the law unless they are PROVIDING YOU WITH A SALARY, which would make you an employee of a hedge fund. If the firm is neither a hedge fund, nor a CBSX registered Broker/Dealer, and your are not licensed or getting your education FOR FREE,  or the firm is in fact structured as a hedge fund but doesn’t pay you a salary while at the same time dictating how you work, when you work, and provides the equipment for you to do that work on, and also makes you sign a non-compete/non-disclosure agreement, is an EMPLOYER. And you are an EMPLOYEE, which means at the VERY LEAST, you are owed minimum wage, and if you’re full time, they owe you health benefits.  Anything less and they’re breaking many laws. These firms want to have it both ways. Hopefully soon, they’ll all go down. The thing I love about New York law is that there is no corporate veil when fraud is involved. In other words, you can go after the owners personal assets. What a wonderful state!

In this YTE article, I read the kind of crapola that would inspire a 3.7 or 4.0 gpa student that just crushed his or her LSAT’s, GMAT, MCAT or GRE’s to skip school and try the short-cut to becoming rich. He mentions over and over that “with the proper training and mentors around you, you will succeed in our beautiful office overlooking the Statue of Liberty”, as if view has any relevance on your performance. In fact, after trading for 10 years, I’ve come to learn that the best environment to trade in is one that is totally dark, silent, perhaps you have your iPod on listening to music that pumps you up, standing up with at least 16 to 24 monitors surrounding you like a circle, and trading with a little device in your hand that goes from brain to trade in nanoseconds, like Nintendo WII.  And if I’m at home trading, no matter what area of the planet I’m on, I’m at my desk, showered, having just finished a healthy meal, and before me is AT LEAST TWO TO THREE hours before the US equity markets open. 

What happens overnight is more important than what happens during most of US trading hours.  Trades put on overnight are settled or closed in New York because that’s where they’ll find the liquidity. A currency trader can put on a Kiwi/Aussie trade, or a Yen/Kiwi trade overnight, but can only close that position in New York because of liquidity. The only time the US equity markets are relevant are during the first 40 minutes and the last 75 minutes. That’s it.  The rest is churning noise. Noise designed by very deep pockets via sophisticated algorithms to eat your equity a few hundred dollars at a time all day long, forcing you into a corner, where you have to make a high risk trade near the end of the day just to cover your equity loss because, like the rest of them you gotta eat too and unless you kill, you don’t eat, even though you’re making your full-time employer a fortune whether you profit or not. Eventually, if you enter a losing streak, guess what, under the guise of good “risk management”, an algo starts to trade against you, because the firm has placed your accuracy ratio at around 30%, which means that you’re wrong 70% of the time.

An algo with  a success ratio of 70% is printing money.  And if you start to make money again, the algo stops fading you because it wasn’t programmed to fade you, but to hedge against your trades on the basis that you were wrong 70% of the time. It’s not a conspiracy, but rather good risk management.   But you know what is devilish?  If you, as one of the firm’s full time traders, enter into a drawdown and their algorithm in-house starts to do what it was programmed to do and manage the risk of the firm, if you make money, they’ll lose money in a sick way. So say you get offered 70% of your profits and pay a commission of $6.50 per 1000 +/-.  The sooner you get into a hole, the sooner the firm can start paying you a fraction of that 70%.  Because until you come out of the hole, they’re not entitled to pay you a dime, but just to keep you hooked by a rope, they’ll give you 25% or 40% if you have a profitable month, they don’t care, they have a natural hedge as a prop firm, which is what made them such good businesses in the past. But not anymore.  If you’re a retail prop trader (you know you’re a retail prop trader when you have a daily stop loss limit under $25,000), you will constantly hit your limit and will never make a dime. It’s a behavioral thing. Again, for another article.

So back to the YTE article… As much as it was written to not appear like an advertisement which I assume would have been pretty expensive, it’s really written in a way where us “Yank’s” here in the US see it as nothing but an advertisement. The truth about the Proprietary Trading business in its present form is that there is none. The Volcker Rule has pretty much made it impossible to make money from proprietary trading without breaking the law or paying a huge amount of money for an infrastructure that abides by the law. So be very wary of those hole in the wall firms that are actually Hold Brother’s affiliates, offering you 99% or even 100% of the profits. Who offers you 100% of your profits? A firm that is assuming from day 1 that you won’t make a dime and all their revenue will come from your trading.  This is why the big boys are shutting down their Prop Desks, and I’m talking the top 10 banks in the world, which doesn’t mean there’s a huge new talent pool to choose from. Because the guy used to pulling the trigger on billion dollar trades because his trading line was a few hundred million, cannot and will not adapt to a trading line of $250,000 or $1mm or even $5mm.  They’re used to seeing equity swings that would cause a coronary for the owners on day two of this new traders employment. These are guys that manned desks and got paid 7 figure base salaries plus a huge bonus at the end of the year from their firms, not quite how the “other” prop side works is it?  They saw their “daily” equity, which they were trained not to watch, oscillate $200,000 for example.   

Nonetheless, this dude was pitching in this article that “kids out of high school, with the right training and education, would succeed”. WRONG. All they want is to be able to mark-up your commissions. Let me blow the roof wide open on this business since I’m safe in Cali and attending a Top 5 Law School. The company’s cost to trade is approximately $0.00027/share. That means, it costs 27 CENTS to execute a 1000 share order withtheir clearing firm, give or take a few cents. Their so called in-house traders are being charged around $.0065/share to trade, which equals about $6.50 cents to execute a 1000 share order. The mark-up is 2,500% per share and sometimes more, not to mention the huge chunk of your profits they take on top of that mark-up that costs you at least 5 figures a month, admit it. Then there are the pass thru’s for taking liquidity or getting paid for adding, but none of their training programs teach anything about the market’s micro structure.

For one thing, the partners are clueless themselves. Number two, the micro-structure is so fluid and dynamic that it’s pointless to try and teach an 18 year old kid, or a 24 year old young adult about it unless they’re studying it on their own. You can’t tell someone how to become a good trader, or teach someone how to find the right strategy. Or how to execute in the markets without leaving a trace; how to create baskets and customized algorithms that spray the NBBO and all the MMID’s on the inside to make sure you get your fill, even if it’s for 100 shares from each MMID; or that witha 2 second “fill or kill” instead of a market or IOC order, the trader can outsmart these automated market making algo’s and beat them at their own game.  Or how to use ”order remainder allocation” to go to the highest paying ECN for adding liquidity. Or when ECN’s flip and actually pay for liquidity like EDGE/X was doing. I don’t know if they still are.  Labor Day is today, and I won’t be returning to the markets for another few weeks.  This allows for order flow arbitrage if you’re fast enough. You take from the paying ECN and post on another paying ECN maybe at the same price. If both orders get hit, you make like 25 cents on that 1000 for playing “infrastructure arbitrage”.  This is all Chinese to the partners, to the teachers, to the traders. It’s quite sad really, and I only got to witness it because I ”did my time” in New York. If I ever trade from somewhere, it’ll be further east, like London, Spain, Italy, France, Montenegro, Croatia,  etc… The number of edges one gains is another article in an of itself. So we’ll leave it alone. But remember, the one with the most information wins. And sadly, those in NY have the least info in a 24 hour period. 

You can’t give someone a daily trade sheet, and expect them to trade off that sheet, unless you’re running a real hedge fund, like Stevie Cohen at SAC, or Millennium, where they love the term risk and being the one on the other side of any trade. Instead of spending even a penny on any seminars, trading schools, or online webinars, or anything of that sort, use your money to continue your education, get your MBA or PhD or JD, or JD/MBA, andthen get hired by one of the top 50 firms in the world. Don’t go working for one of the bottom feeders of this business just because you don’t want to go to school anymore. Think of school as a bridge to get to a more advanced, and significant trading arena, where you don’t have to worry about eating what you kill or starving to death. Remember that NY is a tough place, and not everyone can make it there, not even this writer. So use your wits, and avoid firms with either 3 letters in their name or the number 3.  But more importantly, remember there are no shortcuts in this world, and even a trader with the most impeccable track record that dates back 5 years, say without a single losing week, constantly earning an avg. of 50% per year, on a line of no more than $5 million, will NEVER get hired by the real big firms.  Because they START their traders with $25 or $50 million lines and expect them to produce immediately. A trader used to trading a few million is nothing but shark bait. Good luck and throw the article where it belongs.

Money people had earned working hard jobs only to put in a bank thinking it to be safely stored away in a savings account. A savings account that offered double digit rates of return is not really a savings account; it’s really the bank paying you a little less than what it pays to borrow from the central bank. And since there’s runaway inflation in this Banana Republic, the currency devalues by the minute, rates go up by 100 basis points every week, or so it seems. Then one day, the government imposes a limit on daily withdrawals and daily limits on the buying of US Dollars. This is followed by a total limit, riots in the streets, long lines at banks because there’s a bank run with nowhere for people to run. The head of the Banana Republic goes on national Television and says “we are creating the Super Peso, where every 1000 Peso note is now worth 100,000 Pesos and we have to do this to stay competitive with our corrupt and cheating neighbors dumping coffee or cocoa onto the markets below prices or above quotas agreed to at a prior meeting of the XYZ of Exporting Nations.”   Sound like anywhere familiar recently? Here’s a clue:  Country’s in South America

So, the people are instantly 100 times poorer than they were before the bait and switch. One generation has lost its savings while another generation starts building there’s, not realizing in about 40 years, the same will happen to them. Anyone who studied Economics or Geo-Politics knew this was the game so Peter Thiel founded PayPal to allow for a seamless and highly genius way for citizens of the world to avoid this sort of thing. But the big boys couldn’t have this. The “Group of Paris” lenders, the IMF, the World Bank, they would then lose their control over those countries if people were able to pull money out just like that and convert to Dollars or Euros at the push of a button, to be held at PayPal, for them to use as they wished. Enter eBay and their desire/mandate to keep control of how their buyers and sellers transacted.  In an odd way, PayPal’s biggest fortune, was in-fact its undoing. Once eBay had the company in its scopes, Thiel’s vision was dead in its tracks. Now it was survival of the fittest.  The world would have to wait.

Being the primary source for settling transactions on eBay was never the real goal for PayPal, or even an idea at first. When it started it seemed to be a viral phenomenon as things happen on the internet. But that pissed eBay management off because they were losing an important part of the buyer/seller experience (and revenue per transaction) to the control of an upstart. But when Elon Musk (the founder of Tesla Motors) came into the picture, he realized they couldn’t fight eBay to the death because they would lose so they went into negotiations. After the PayPal/eBay wars, both companies were tired, PayPal was hanging by a thread, and Whitman thought she hurt PayPal enough to bring the price tag down from $24 Billion (which is close to what Thiel would have parted for it without a war), to around $4.7 Billion, for which she spent about $5 Billion to do so by building their own little internal PayPal copy cat and sucking a huge source of revenue away from PayPal. Whitman and gang were still ahead by about $13 Billion. So she won and eBay bought PayPal for a song. It’s the buy or build strategy, but if you’re going to buy, beat on your target for a while, make them bloody and bruised, desperate for a lifeline, then throw them one, because they’ve lost the will to fight. And you’ve dropped about 80% of their enterprise value by making the analysts think you’re not going to stop until you’ve put them out of business.

They settled and Meg Whitman got PayPal, for what was thought at the time, a bargain $4.7 Billion. There’s no question that they’re (eBay Management) cleaning up and putting as much on circa Whitman as possible, and I think PayPal is one of them. PayPal is a cash cow for eBay. So much so in fact that it generates a huge percentage of eBay’s numbers, and it’s growing asymmetrically, in other words, PayPal is growing outside of eBay’s grasp in terms of revenue. When one of your affiliates or subsidiaries is making a lot more money than the parent company, there’s a big problem. There are large shareholders pushing for a spin-off of PayPal, so the free market could place its’ own valuation on PayPal, like 3com spinning off PALM. But will they? And if they do, what will the spin-off look like? Will they sell it as one piece to another conglomerate like Visa or Mastercard? Or will they distribute it to shareholders, or perhaps a secondary offering? Since they’ve recently started working with the new GE Capital, perhaps GE might buy PayPal in one big transaction? Well, let’s take taxes into account.

The spin-off would probably take the form of a tax free share distribution, with eBay keeping about 20%, or it’ll be a total divesture, fully taxable, with eBay not keeping a single share and conducting a 100% secondary offering (but I can’t imagine them taking this route for several reasons, the biggest being the tax hit). Either way, after dumping PayPal, eBay’s goal may be starting another war with PayPal. Here’s why I think that. Ever since Whitman left, I had a hunch they would divest of PayPal, because there’s just too much incest there and a great deal of potential users might be using alternative auction sites because they hate eBay. eBay merchants are “enticed” to use PayPal. Plus, the cash eBay might be able to generate with a divesture could help it go on either a shopping spree, or make one enormous game changing acquisition. If you haven’t seen eBay stock in the past year, it’s been volatile, but hasn’t really appreciated.  But if eBay has any plans of launching another in-house payment system after the PayPal divesture, the best thing for them to be doing right now, is really pissing off both merchants and buyers that use PayPal.

Any user of PayPal is going to experience a horrible, hyper-tension causing interaction with PayPal customer service very soon. Slowly, the PayPal brand will degrade for buyers using them to pay for internet shopping, but the merchants are still bound to it, so that’s the engine that keeps it going for the divesture. Meg Whitman paid $4.7 Billion at the top of the bubble. PayPal has grown immensely since the acquisition, but it never fulfilled its goal of becoming the solution for the masses to avoid controlled devaluations, especially after eBay. Maybe post eBay, Peter Thiele’s original vision will take shape. But my bet is on a write down of goodwill on the divesture, because they can due to the tremendous decline in US equities.  The last thing they need is a taxable event on a stock distribution. So I think somewhere around $3 Billion. It’s worth probably $6 to $8 Billion right now with a lot of room to grow without the eBay shackles. Imagine Google using PayPal instead of Google Checkout (which is dying a slow and painful death), or Amazon allowing members to pay with PayPal. As a hostage of eBay, none of these game changers are possible for the company. eBay wanted PayPal to be an internal technology, but it quite happen that way, thanks to Whitman’s handling of the matter. 

Try to get some customer service from PayPal now if you had gotten it before, around say a year ago. Entirely different experience. Then cancelling their “Plug-In”, which I thought was their coolest idea yet, and giving away these free credit card size random key generators as a way to improve fraud, is just plain smoke and mirrors. Because the fraud, if and when it takes place at all, takes place at the merchant’s end because they’re the one with your PayPal email address and can claim they have an online  merchant agreement with you, thus charging you arbitrarily whatever they wanted, and putting the impetus on you to fight for your money back. Even the credit card size, fancy auto key generator can’t prevent that. So they’re realizing, they’ve got a security mess on their hands, and a great deal of organized crime might be laundering money through PayPal, “The Fastest Way to Launder Your Money”. How’s that for a motto? Watch for the divesture soon, like in the next 4 to 12 months. And when it’s announced, I’ll bet eBay stock drops about $15 Billion in market cap.

Disclosures: NONE

Lightspeed Financial Acquires Exclusive License to Operate Anvil Professional Trading Platform. Deal Strengthens Lightspeed’s Competitive Position in Active Trading Market

NEW YORK, June 22, 2010 – Lightspeed Financial, Inc., a leading provider of ultra low latency direct market access (DMA) trading technology, risk management solutions, and brokerage services for retail active traders, professional trading groups, hedge funds, and algorithmic “black box” firms, today announced that subject to the satisfaction of certain conditions it has acquired a perpetual license to the Anvil trading software currently available only through Assent LLC.  The licensing agreement is part of an ongoing effort by Lightspeed to fortify its position as the active trading industry’s premier operator and the leading acquirer of trading businesses. Terms of the transaction were not disclosed.

Assent made public in April its plans to exit the professional-trading business and discontinue operating the Anvil trading platform.

“We continue to grow our business organically at a steady pace while at the same time assessing the competitive landscape to identify strategic combination’s, which can help us capture an even greater share of market as we build an enduring company and establish Lightspeed as the preeminent home for professional traders,” said Stephen Ehrlich, Chief Executive Officer, Lightspeed Financial, Inc. “The license to operate Anvil was a perfect fit for Lightspeed.  It enhances our ability to offer professional trading clients ultra low latency market data and executions, a business we have been successfully servicing for years. This transaction is a validation of our leading position in the professional trading arena.”

The exclusive licensing deal for Anvil represents the fifth successful transaction that Lightspeed has made in the active trading space since its inception nearly four years ago and its third deal this year. Past transactions include the acquisitions of retail trading firms Schonfeld & Company, LLC, Integrity Trading Inc, NobleTrading, and Terra Nova Financial, LLC earlier this month.

Ehrlich noted that the licensing deal could, when effective, bring the total Lightspeed client base to more than 7,500 traders who could execute over 220 million equity shares per day with total client assets exceeding $1.35 billion.

About Lightspeed Financial, Inc.

Headquartered in New York City, Lightspeed Financial operates through three wholly-owned subsidiaries:

Lightspeed Trading, LLC operates as a fully disclosed introducing broker-dealer and FINRA and NFA member. The Company offers securities and direct access brokerage, trading and advanced order routing services to their clients utilizing Lightspeed’s software products.

Lightspeed Technologies, LLC serves as the Company’s technology development subsidiary. Lightspeed develops and operates Lightspeed Trader, Lightspeed’s Direct Market Access trading software application; Lightspeed Gateway, Lightspeed algorithmic trading offering; Lightspeed Risk, a real-time risk management application; and Lightspeed Admin, Middle Office Technology suite. Utilizing a number of proprietary technologies, Lightspeed offers these products and more to broker-dealers, institutional entities and professional traders.

Lightspeed Education, LLC delivers educational products to the Lightspeed Trading, LLC customer community. These products include third party educational tools, webinars and the Lightspeed Spotlight social community. www.lightspeed.com

Lightspeed Financial, Lightspeed Technologies, Lightspeed Trading, Lightspeed Education and the Lightspeed logo are trademarks or registered trademarks of Lightspeed Financial, Inc.

© 2010 Lightspeed Financial, Inc. All rights reserved.

Press Contact:

Mike Boccio

Sloane & Company

(212) 446-1867
**End of Press Release

Now, back to what I was saying, with one point of clarification, and that was the Assent/Anvil deal structure.  Assent is in fact being wound down apparently, but The Anvil platform lives on to see another day. That’s great news for traders and crowns Lightspeed as the industry’s “de facto” roll-up player. Quite an impressive feat for a small private company to be on a roll-up strategy of trading platforms and trading firms, which now allows it to reach over 7,500 traders and generate over 220 million shares per day.

Good news or bad, Lightspeed Financial has been implementing a roll-up strategy since their acquisition of Schonfeld, which gave them Lightspeed, which itself used to be eTrade’s proprietary trading platform which Schonfeld had purchased way back in the day. Not only has Lightspeed acquired Terra Nova Financial, which gives them the all mighty “Real Tick” platform, but they’ve also acquired a “perpetual license to The Anvil.”   Both Real Tick and The Anvil were pioneer software platforms in the early days of electronic trading, when it was still the wild west; and the the equivalent of today’s High Frequency Traders were SOES Bandits.

Being on the inside of this business gives one a certain “dial” into the street buzz, which let us scoop even the Press Release by about 3 or 4 days. Not bad for a tiny blog. (Even though we got one small piece of it wrong, there are parts of  the transaction which I won’t even disclose to you!)

With regards to myself and the firm I’m associated with,  anyone who wishes to use LightSpeed as a trading platform can do so for NO monthly fee. Instead, LightSpeed will assess a charge of .0006 cents per share for use of their software. It has always been one of the more expensive platforms, but if one learns all the capabilities of Lightspeed, including how to customize and optimize the built-in execution algorithms, and the powerful basket functionality and ease of modifying the layout, it’s well worth the added cost and if you are doing less than 400,000 shares per month, the additional charges are trivial. Even though they recently upgraded Lightspeed’s charting capabilities, I would say they’re still in the dark ages when it comes to analytics, but that’s possibly what makes it such a lightning fast platform.

The heavier the analytics, the heavier the installation package and therefore the slower your system will run.  I’ve always separated my charting from my trading, putting each on a different machine.  This allows me to use a lightning fast execution platform while also using a professional but heavy charting package like Metastock Pro with Quote Center by ThomsonReuters.  Don’t go for the eSignal version of MS Pro because their data sucks. Excuse my French but that’s really the best way I can describe eSignal. The worst charting platform ever invented, which I wish would just die a slow death and go away.

So, back to our little math problem, if you are doing 400,000 – 600,000 shares per month… it’s a judgment call. One platform over the other for almost the same monthly cost… Hmm, In this situation, I’d go with the superior platform, which is by far Lightspeed or Anvil. For a little extra, go for Real Tick. That little extra will be saved on the back end when you no longer have to pay for such a piece of trash like eSignal and their totally unreliable data and third rate technical analysis capabilities. You won’t even need a professional platform like Metastock because Real Tick’s charting capabilities are professional grade and I’ve always loved using it.

As long as you learn how to use any platform you chose like a pro without being a key pushing monkey (i.e. retail day trader perpetually gross positive while always net negative at the end of the month), you should be alright, even with a “P.o.S” like Sterling Pro, which I think to be the most inferior trading platform available today, and if it wasn’t for the fact that it’s the lowest cost option, and has access to the most execution outlets, and the API is easiest to write to, I wouldn’t trade a discretionary or market-neutral strategy involving baskets or otherwise on Sterling even if you put a gun to my head, that’s how much I hate it. But if you’re a black box quant and need an easy API and as many execution outlets lit up at the lowest cost possible, then Sterling it is, even though it pains me to admit that.

Above 600,000 shares per month and it stops making economic sense.  The added cost of .0006 cents per share for Lightspeed per share, or the monthly cost of Real Tick,  could eventually offset the superiority of these platforms over a generic platform like Sterling Trader (not sure of the added cost, if there will be any, for the use of The Anvil and how it will be structured: whether per share like Lightspeed or a flat monthly rate like Real Tick).

But stay tuned as our MarketWizard keeps you dialed into the market’s buzz, all the way from sunny Irvine, Ca. where the sun doesn’t stop shining and the girls only where their swimsuit tops while rollerblading the broadway at the beach, all day long, sometimes stopping in for a drink or two before taking off again, without even telling me her name, just handing me her number…

Let me know when you’re ready to make the switch to 20 cents per 1000 shares and 75% payouts and I’ll gladly make the introduction.  Just email me at the following address:    Pej   (at)   InvestmentCapitalist   (dot)  com  (pardon the weird spelling of the email but it prevents the spammers from picking up the address and flooding me with Viagra adds and cheap auto insurance loans offers)

The strongest “sector” from a long-term macro perspective unbelievably is the Biotech Index. The chart below is monthly! Let’s keep an eye on the group for some short opportunities because the corrections are going to be hard and fast, but not for the faint of heart, or the prop guy with a tight stop-loss for the day.

Please click on image above for higher resolution chart

Is the CRB Index running its course, with an ongoing rally in the US Dollar and fires burning in Europe over severe austerity measures in countries used to Socialism? Or will the mighty Chinese economy pull us all through whatever is going on. The weekly chart of the CRB shows how it’s turning over after running into a myriad of moving averages as well as an important Fibonacci retracement level. Therefore, a good area to find short trades if we continue to fall and/or the US Dollar continues to surge, are commodity stocks.

Please click on image above for higher resolution chart

On that note, here’s one idea. BP and RIG both are in severe trouble. Technically, fundamentally, from a public relations standpoint, and the amount of damages they’ll have to pay is still unknown. But although they’re good candidates to short, at some point, both stocks will be extremely attractive buys. For now, the breakaway gaps in each suggest lower prices to come. However, at the moment, both are extremely oversold, so I would only short them if they break last week’s lows. Otherwise, let’s wait for a retracement and then we’ll hit the bid.

For now, the most important observation I’ve made thus far is that the most reliable indicators have been Fibonacci Retracement & Projection lines as well as specific moving averages. If you don’t know how to use Fib Retracements and Projections, tune in to my radio broadcasts on T3 Live, the internet’s most advanced stock research and advisory service. In these volatile times, you need guidance from the best traders on Wall St., who trade during the day, completely transparent, buying and selling in real time while talking on the radio explaining what’s happening. T3 Live has been on CNBC, Fox, MSNBC and mentioned in all the major financial publications. Check it out with a free trial here.

There really are a tremendous amount of both long and short trade opportunities out there. The problem? Gap after gap after gap!  It gets extremely frustrating for those that try to trade  the tape rather than a portfolio strategy.  Nonetheless, it’s just a matter of finding the market’s pulse and trading with it. Right now, to be 100% directional is suicide. One shouldn’t go beyond 80/20 during the day and 60/40 overnight. Here are some ideas on both sides. I’ll announce their entry, or trigger on the radio:

The primary MACRO THEME for the month is going to be a rising Dollar with a flight to quality, the carry trade continues, bond markets know interest hikes are coming, probably after the streets of Europe stop burning. Short look at the commodity stocks vs. long the tech names. Once again, I’ll be on the radio with many more names on both long and short trades. It’s been a long time since the VIX has been above 40. Let’s hope it stays here for a few weeks at least.

Equity Long/Short Market Neutral traders will have an edge in this market over Momentum traders waiting for an expansion in the VIX.

For example, convertible bonds are the “paper of last resort,” and the airlines are desperate for cash (when aren’t they?). So it’s not a surprise Continental is in the market to raise some expensive capital and a $200 million deal (if the green shoe is exercised) is nothing serious. But the devil’s in the details.

I think the coupon is going to float around 4.5%, literally a 25% premium on a five-year maturity. The bonds at this issue price are a clear advantage over the common and set up an ideal trade, again at the issue price. I keep emphasizing this because the hedgies will be buying up the offering and shorting the stock to capture the premium so the spread should narrow really fast.

My bet is that most, if not all of this offering is going to the hedge funds. A few back of the napkin calculations, and after the offering, it’s quite possible that up to 60% to 65% of the common will be short.

Since the deal is for $200 million (including the $30 million green shoe), with a 25% conversion premium, this means about $184 million of stock will be controlled by the bonds. Around $120 million of stock will need to be sold short to hedge the deal. This means somewhere in the neighborhood of 7.5 million shares.

With this in mind, the sell-off in the stock should continue. So hit the rallies and hit them hard. The sell-off began with the deal’s announcement but it’s not over. I wouldn’t expect it to settle in much higher than $13.50 or $14. Perhaps even closer to $12 on an overshoot. In fact, if the common does overshoot through $13 and then through $12, look for a dead cat bounce trade of a couple quick points.

I’ll do some research over the weekend and post some more ideas. I know I haven’t updated the blog recently but I think the weather in New York is going to give me an excuse to stay in and write more often than before. It is absolutely, insanely, unbearably cold here.

MW

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I’m watching the 70.50 level like a hawk in Oil, as are several prominent hedgies I dialogue with on a daily basis. Right now, until Crude breaks above $71, I really like the spread of Short Crude vs Long Nat. Gas. I would lift the short side on a sustained break above $71 in Crude and get long and strong the entire energy complex, including equities.

The Dollar is beginning to weaken across all currencies rather than isolated instances, as was the case throughout the summer, when the Greenback showed strength against many majors. However, it now appears the floor for the US Dollar is being tested and probes are underway to see where the Federal Reserve will likely begin to increase its open market activities along with the US Treasury. It’s too early for a “strong” dollar in this economic bounce. Too many talking heads came out and said the worst is behind us. Which of course means that it’s not.

Keep an eye on Copper. China opened its mouth at the start of summer and swallowed this base metal like a wild boar, which threw off a lot of macro models because Copper is, of course, watched as a leading indicator of economic recovery. However, being that China was behaving like the gluttonous behemoth that it is, it could have just been a strategic build-up of reserves, or a hedge gone bad that needed to be covered. With China, we never know these days. Capitalism being so new to them, they’re like an over-grown kid on a high school football team that’s never played the sport but the coach puts him in there because he’s so big. Clumsy and stupid at times, ultimately very bad at playing their cards close to the chest and equally bad at not giving out the wrong signals and then chasing their own tale ex-poste.

I know many of you are Prop. Traders, whether equities or swaps or paper, or whatever. It doesn’t matter. The forum is to exchange ideas and share trades and various perspectives from highly qualified and advanced traders around the world (including myself, of course).  It goes without saying that if your LinkedIn Profile indicates you are a recruiter, or unrelated to content of the group, your request to join will sadly but most assuredly be declined.

With that being said, I invite you to join Discretionary Proprietary Traders Worldwide

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Analysis:

OIH holding 77.50 all day. Above 79.35 will result in a continuation move. Easy money in this ETF.

SPY has been putting in a base for 10 days. There may be another test of 82 required before the market starts to believe. However, Tuesday’s action looks like bidders are stepping up and sellers are at 85. Watch that level for a breakout WITH VOLUME.

The analysis from Jan. 5th is applicable to this coming week, referring to the pullback I would like to see, and to what levels, before I would start getting excited about buying US or global equities…