Running a Proprietary HFT Firm
Wed, 14 Mar 2012 04:22:00 GMT
An interview with Raj Fernando and Leslie Sutphen
In this interview for the High Frequency Trading Review, Mike O’Hara talks to Raj Fernando, Founder & CEO, and Leslie Sutphen, Director of Strategies and Implementation at Chopper Trading, the Chicago-based proprietary trading firm.
HFT Review: Raj, Leslie, welcome to the HFT Review. First of all can I ask you to give us a brief introduction to Chopper Trading?
Raj Fernando: We started in January of 2002. I was a cash bond trader, so for the first few years I taught everyone in the company how to trade Treasuries. Towards the end of 2004, manual execution was starting to get very difficult. We looked at all the third party software out there and none of it satisfied our requirements, so we started hiring programmers and we haven’t stopped since. As a result of this early investment in technology, we were able to pursue other types of automated trading and that brought us to where we are right now.
HFTR: Can you give us an overview of which markets you trade, which you avoid, what type of strategies you focus on and how long you typically hold positions?
RF: We don’t necessarily try to avoid any particularly market. A lot of it comes down to opportunity cost, meaning that we have a limited amount of time in which to do a limited amount of things really well. So, while we trade primarily energy, equities, fixed income and FX, we’re looking to expand into many other asset classes, like options, or having more of an Asian presence, which we don’t currently have.
In terms of holding periods, it all depends on what model and asset class you’re talking about. Some holding periods can be up to days and weeks, whereas some are hours or minutes or possibly just seconds.
As for strategies, we have several models in every asset class that we trade, and like probably every shop out there, we trade both passively and actively. The strategy depends on the model; some of our models are strictly market-making, while others use momentum, correlation, and other indicators to get in and out of trades.
HFTR: And how do you stay ahead of your competitors?
RF: Well, the majority of our competitors have outside investors and partners. Because of that, a lot of their revenues are taken off the table and given out as profit sharing. With us, that’s not the case. We take the majority of our money and put it back in our company. We spend a lot of money on R&D, in both trading and technology, to try to stay ahead of the curve. Technology is just as important in our firm as the traders are.
Although we’ve grown substantially, we’re still not where we want to be; we want to get bigger and better. I’m very competitive by nature, I never want to come in second and I know that most of the company feels the same way. Many of us have sports, chess, bridge, or poker backgrounds, so there’s a very competitive spirit within our company.
Leslie Sutphen: Competitive academically too. We like to bring people who have always excelled at what they do into our company.
RF: On that note, our recruiting policy is such that we will always hire exceptional people. That’s what we’re looking for. We’re not just looking for really good people. We’re looking for exceptional people because that’s really what it takes to move the ball these days.
HFTR: How do you attract those exceptional people? What do you offer them and how do you hold on to them once you have them?
RF: In the history of our company, we’ve never lost a successful trader and I don’t think any one of our competitors can say that. That’s because our people feel they have the opportunity to grow, both personally and professionally, and they are compensated fairly. We do our best to create an environment in which employees are treated well and as a result, our employees enjoy working for the company and enjoy being around each other.
We take our hiring very seriously. While some of our competitors might hire 300 people then fire 250 of them six months later, we have the opposite mindset. We try to take care of all our “firing” during the interview process. We’re very careful about who we bring in because we don’t like turnover; it’s too disruptive. So, we hire with the thought that hopefully those people are going to retire with us.
When new people come in, when they meet us and see what we’re about, they see that we’re very transparent. We actually care about the people we work with and we’ll go that extra mile to ensure everyone feels they’re taken care of. We want our people to have a personal life; we don’t want people working 16 hours a day and then getting burned out. On the same front, we expect them to work hard, and we hope to attract people who will push themselves. In fact, I’m often the one who has to tell them to go home when they’ve been here too long.
HFTR: How do you manage your risk? And how has that changed in the ten years you’ve been running Chopper Trading?
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