Episode 116 ... Sean Hendelman (65:44)

Good episode ... Hendelman "bursts a lot of bubbles," but he's right on the money, knows of what he speaks.

University of Michigan grad
Got an MBA at Stern (NYU)
Sounds like a New Yorker
Started on mortgage-backed securities desk
Greenwich Capital Markets
1999 decided to start a trading business
Started with $50,000, lost within 3-4 months
Kept at it
Took him 18 months to get good
Founded Nexus Capital (2003) -- 40 traders [like an arcade?]
Read a lot of Peter Lynch in high school
Interested in trading in 1993-1994, while in high school
Worked as tennis instructor at country club, made good money (15K a summer)
Bought names he liked (Peter Lynch advice): DELL CSCO MSFT ORCL
Put all his tennis money ($5-$10K) in each of above stocks, made massive money during dot com bubble
Luckily took all money out before bubble burst and bought NYC apartment, turned cash poor
Thought he was a genius
Made six figures at Greenwich Capital, which was good, able to save
Expensive to learn how to trade
SDLI QCOM, buying thousand share lots [Only old guys remember symbols like SDLI, JDSU :)]
Started hedge fund in 2002-2003, stat arb fund, broke even, expensive to run
Running $15MM, not enough to make it work, too many expenses
First $50K loss was a great first learning experience
Not a math guy, not a programmer, doesn't know C++
Backs 25% of traders in his firm on prop side, other 3/4 self-fund
Traders in his firm have all kinds of styles
T3 name of his firm
T3 has 1,000 active accounts
Has two broker-dealers, one prop, one retail
Need series 57 license to use prop broker-dealer
T3 makes money on commissions, interest, profit splits
T3 only caters to active traders, competes with IB and TradeStation
Holdbacks and payouts of the trader's capital
Not focused on futures or forex -- don't understand, too much leverage
T3 can't spend enough money on infrastructure to compete with HFTs anymore
Co-location of servers, routing, data, compliance, best of the best programmers -- all expensive
T3's HFT successful 2004 to 2014, now much harder
HFT very crowded now
Hudson River, Virtu hired lots of people, built big organizations
T3 takes liquidity, no passive orders
99% of all bids and offers aren't real [yes, I've found this too]
Flashing and spoofing very common
HFT never take liquidity at size, would show their hand
No more low hanging fruit in high frequency trading
Scott Redler his partner, "Red Dog Reversal," lives highly structured life
Everything gets priced in very quickly now
Medium frequency strategies also being priced in very quickly
Medium frequency not as expensive, no need for co-location, etc.
Medium frequency traders' success rates very low
Most don't understand market impact or slippage (+commissions)
Never backtest, always forward test, use 100 shares, take a few thousand trades, will have realistic market impact data
Tiny number of medium frequency guys successful and when they are, profits only last a short time [I'm sure he's right]
CalTech MIT guys are already exploiting every obvious edge
There are no edges out there ... they have better tech and programmers than you
Your ideas aren't good enough, someone else already tried and discarded them long ago
Your ideas after market impact, commissions, paying the spread, won't make money
Best black box traders are constantly changing, evolving strategies
1 in 20 smart traders who try to automate things succeed
Medium frequency is the same as an active trader
Will take you a long time and lots of capital to even test your ideas
Double your commissions and slippage estimates
Good strategy might have 50% success rate after six months and tweaking
T3 has 50 strategies running live
Laughs when people say they didn't run their strategy with real money
Successful hand traders' pattern recognition still ahead of black boxes
Momentum traders (buying and selling within minutes) going away, black boxes taken all the profits away
Good traders don't get excited when they make money
No emotion with a black box, faster than humans, can prepare well in advance
Best business advice: Change. Adapt. Don't be afraid to make mistakes. Money in, money out -- positive cash flow
Best trading advice: Risk management, emotions in check. Preparation.
Best traders are in the office earliest, reading, adapting to the market
Don't try to beat the market, you're never going to do it
www.t3live.com