“This is not a get-rich-quick scheme. It’s hard work to try to find positive expected value. That’s what we do every day.”
Conceptually, proprietary trading is easy. One must follow two simple steps – finding positive expected value and managing the risk of positions taken. The devil, as always, is in the details.
When Jeff Levoff, partner at DRW, began in the business, positive expected value was an easier proposition. A simple Black-Scholes based software suite would spit out theoretical values, and market makers like Levoff would actively bid below theoretical value, offer above it and – voila! – positive expected value. As markets have grown more complex and as participants have grown more sophisticated, today’s proprietary trader must think and act outside the box to find opportunity.
In this MarketsWiki Education presentation, Levoff demonstrates DRW’s philosophy using quotes from famous people and applying them to the financial markets. Be sure to watch until the end because, as the saying goes, it ain’t over till it’s over.