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If you live in the UK then someone who you may have seen in the news is this guy Gary Stevenson. He is an ex-Citi trader, who has a popular Piketty chic YouTube channel covering economics and politics, which he has parlayed into a book.
As long and short-term readers may have realised by now, I am basically a curmudgeon, and Stevenson is the kind of person that I actually can’t watch for more than a few seconds. His insincere mien and the hat he is wearing in the picture at the top of this article, made worse by the way it’s positioned on his head, should be an indication as to why that’s the case.
Stevenson is interesting for another reason though, which is that he attracted a lot of controversy for inventing a bunch of stuff he did as a trader during his time at Citi. These lies have been discussed elsewhere so you can look them up easily, but what I find fascinating about them is the fact they go beyond simple factual errors and instead play on various stereotypes and false ideas about what a trader actually does.
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The overwhelming likelihood is that almost all of his trading activity was actually just market making. Instead he claims he was making massive directional bets on markets based on macro predictions. Stevenson’s lies have worked for years in large part because of these pre-existing stereotypes, and he has been able to position himself as a ‘thought leader’ on economics and against inequality as a result.
What are these false ideas that I’m talking about? In rough terms, the mythical trader, as he exists in the imagination of the average person, is a guy that sits around shouting on a phone, staring at 20 monitors, making crazy bets on the market, driven by some kind of complex algorithm, a macro call, or some combination of the two. Films like Wall Street, Wolf of Wall Street, and Trading Places all work in part by making use of this caricature.
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This mystique is also what most affiliates in this industry play into. Stevenson could have probably taken this route if he wanted to. He could have been Anton Kreil but instead he chose to be Thomas Pikkety. Alas. He does have some ‘trading’ videos though, so maybe he considered it.
Whatever the case, sometimes when you have sifted through news about brokers all day, listened to the word ‘trader’ repeated countless times, and seen a million posts about managing risk, you sit back and go, ‘is this all real? Am I just living in this weird constructed fantasy, designed by broker affiliates and marketing people?’
The reason this interests me is more – without wanting to be too pretentious – a philosophical one. I ‘get’ market making, arbitrage, macro, tail risk hedging and other strategies because of their underlying logic. But these would all be difficult or even impossible to undertake with a CFD provider.
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Consequently the main strategy left to you is something much more short term, like a trend following strategy. This stuff is just much less convincing to me – I don’t ‘get’ the logic behind it or find it convincing. And so if someone is making money from this kind of strategy, and it’s not just luck or a fraud, I am interested in understanding how they have done it.
Which leads us to the ultimate question – is there anyone really doing this stuff with purely leveraged products? Is there someone out there doing some sort of mini managed futures strategy with a CFD provider or are they a mythical being that doesn’t exist? Although some executives I spoke to understood and/or shared my scepticism, almost everyone I talked to said they did have at least some clients trading profitably and consistently with CFDs.
“When I was working at a broker, a very small part of my client base was trading only on leverage and making money consistently,” said an ex-premium account executive at one large broker, who dealt with clients in the MENA region. “Some people obviously come to gamble and will get lucky, but you see them lose in the end. These people were making money regularly for years, so either they knew what they were doing or they got just insanely lucky, to a level I think is not possible.
“The main thing I’d say about them is that they would nearly all trade the same instrument, like gold or oil, and that was it. They were also annoying to deal with. I had one client that would really drill my brain about how the platform would work, how it would execute, what the costs would be, what I thought about the market. She was one that made money regularly.”
Interestingly, the point about making money from a small number of instruments was echoed by two other executives, at two separate rival firms. Both noted that, although it was a small segment of the overall client base, they tended to trade a small number of instruments repeatedly.
A couple of other interesting ways of looking at this are by using copy trading platforms or companies offering similar features. For example, Darwinex has a pretty good feature that lets you look at a strategy then go back and look at risk metrics and long term performance. For example, here is the track record of one person who is with them that dates back to 2009.
And you can see some more details below…
One point I’d note is that the returns are gross of fees, which is a tad misleading. However, even if you came to me and said ‘yea bro, I did 11.5% annualised over a 14 year period and the main thing I traded was four leveraged currency pairs’ I would probably not believe you. And yet there it is.
You can also watch a video with one guy that has a decent five year track record with them here. Maybe there is some kind of ‘sleight of hand’ that I’m missing and you are welcome to let me know what it is, assuming that is the case. I don’t see it and think if this was structured as a spread bet it would be an interesting product to have for people who maxed out their ISA.
The other platform that has somewhat similar features is eToro. You can play around with their copy trading options and then look for someone that only trades FX or something else, like indices or commodities. Unfortunately there are a couple of downsides to their system. You cannot look over a time frame longer than two years and there is no annualised return option. Another ‘problem’ is that there are just so many people to sort through that, even if there is someone who has a profile akin to the one above, I couldn’t find it.
The only other insight I can think of is actually meeting real people that claim to trade profitably. This has happened to me a grand total of…two times. One was a guy, originally from Mauritius, who ran a shop fixing electronics near where I live. He only traded gold and used IC Markets. How real this was I don’t know but he had no reason to lie to me, beyond ego, and did have a track record showing decent P&L. Unfortunately he moved to America about two years ago so I couldn’t go to do a follow up with him for this article.
The other people were two of the most rogue IBs that I met at an event and who ran an account together with IG Group. I say rogue because you would 100% not expect these people to be trading at all, let alone with the account size they had. This one I am more sceptical of but they did show me a track record that had good P&L. They only traded indices (part of the reason I don’t think it was real) and were also very pleased with their account manager, because of the margin terms he gave them. Shout out big P.
So where does that leave us? I guess there are some people that are doing it but I still can’t shake that feeling of scepticism. I keep thinking back to a conversation I had with a savant maths guy I know. He works in a pod shop as a rates trader, having previously been at an investment bank. His response to a question I asked that was not so different to the one posed in this article? I can’t remember the exact words but something along the lines of…
- I do arbitrage
- I do carry trade and leverage it massively
- I used to do market making
- The idea that there is a guy who is somehow in tune to the markets and can make money accordingly is false
The myth continues!
