We are often questioned by many people "Are the direct trading programs Real, or are they a Scam?" The second question we are usually asked is: are trade platforms real, or are they a scam?
In short, based on our many years of experience, they do exist and what they do is real, but not in the way they are often described by many people or through internet media. Many private placement programs and trade platforms are legitimate investment vehicles accessible to a wide variety of investors. However, many myths are surrounding these programs that we will attempt to dispel.
Perhaps the most common misconception regarding the direct trading programs and trade platforms is that they are the exclusive domain of the ultra-rich through secretive, invitation-only investments. Often, clients are told that they must pay large upfront fees to gain access to these exclusive instruments. Besides, they are told they must submit a POF (proof of funds), a CIS (client information summary), or KYC (know your client) package, along with their passport. Nothing could be further from the truth.
So now, let's find out the real story about the direct trading program.
Trading Platforms are pools of capital that invest in various financial instruments, including stocks, bonds, commodities, ETF’s and foreign exchange. These capital pools may be several legal entities; however, the most common is known as a PPP, an acronym for Private Placement Programs. Private Placement Trading Programs are not offered to the general public. They are precisely what their name implies, offering membership interest to a select group of chosen investors who meet specific financial requirements.
The minimum investment in these Private Placement Programs can often be quite high and require a lockup period, where the capital is committed to the Trade Program for a certain amount of time. The minimum investment levels and principal commitment periods vary depending on the type of investments and the investment objective. One-year lockups are not uncommon, and in some investments, the lock-up period maybe even longer. Lockups serve a crucial function. They provide the Trade Platform Managers and Platform Traders with time to obtain results for the investors. Platform Traders want to know that the capital allocations they have been given to trade are long enough to allow a particular trading strategy time to mature.
If you were to look at the returns of outstanding Platform Traders, you would see profitable results over time; however, they may have a period of negative returns in the short term. If your interest is in traders with no down periods, please read no further, as they do not exist, contrary to popular belief. There is no such thing as free money. Trading involves risk. Every investor dreams of opening the door today and finding tomorrow's Wall Street Journal, but this only exists in fantasy. Platform Trading requires hard work, tremendous discipline, patience, and superb talent. The fact is that very few people have the gifts to be a successful trader. The Platform Traders at the very top of their peers are rewarded with staggering wealth. Platform Traders utilize many strategies to help determine profitable trades, such as macro analysis, price theory, fundamental analysis, value analysis, and many more investment strategies. What superior and outstanding Platform Traders can do is make enough winning trades over time, irrespective of what strategy they may use to accumulate trading profits. However, a number of their trades will not be winners. A large part of successful Private Placement Program trading is risk management, controlling losses, and preserving investment capital.
One of the very basic risk management techniques utilized by Private Placement Program Traders is only risking a tiny percentage of the investment capital on every trade. It is usually between one half and two percent on a particular trade. If a trade loss hits a defined percentage allocation, the trade is closed out. The average investor has a challenging time taking a loss. It is a human tendency to hold on to losing trades and cut winning trades short, which is the opposite of what great Platform Traders do. Risk management systems can get very complicated, and Platform Traders often write complex algorithms to manage risk when many positions and trade strategies are running all at once.
The advent of the computer has radically revolutionized trading, just as it has every facet of our lives. Modern Trading Platforms are heavily dependent on mathematics and the hard sciences. Today, most Platform Traders have advanced formal education and training in mathematics, probabilities, physics, computer science, economics, and engineering. Trade rooms are more similar to a busy computer is driven laboratory than the old image of guys in a boiler-room shouting into two telephones at one time. Almost all orders are input electronically, and trades are matched up by sophisticated software. Private Placement Programmers and software engineers are indispensable to successful Private Placement Programs and Trade Platforms.
Platform Traders have many products to trade and a huge number of global exchanges to execute the trades, as mentioned earlier. The most well-known exchange in the world is the New York Stock Exchange (NYSE). When Platform Traders make a trade, that trade is executed on an exchange. The NYSE, CME, NYMEX, ICE, CBOE, and NASDAQ are the largest U.S. exchanges. In Europe, the LSE, Euronext, and Frankfort Exchange are the largest. In commodities, much of the execution is done on the Globex, an electronic exchange. Platform Traders use the exchanges to buy and sell trillions of dollars of stocks, bonds, currencies, gold, oil, euro-dollars, CMO’s, ETFs, and hundreds of other securities, currencies, and derivatives in efforts to make profits for themselves and investors.
Private Placement Program Traders can make profits by buying a particular instrument or by shorting (selling it), betting the price will go down. Some Platform Traders buy and sell similar instruments simultaneously, betting on the change in price between the two instruments; this is called arbitrage and spread trading. Other Platform Traders employ options strategies, such as writing options, writing straddles, strangles, butterflies and condors. Options strategies can quickly become extremely complex and are a highly specialized trading area that requires extraordinary expertise.
Private Placement Trading Platforms utilize margin to buy and sell all of the various instruments they trade. Margin is simply a partial payment for the instrument. Most people are familiar with margin on stocks. Margins are met with cash, period. Contrary to what some people may believe, the only good instrument for backing a trade position is cash. When a profit is made, it is credited to the Trade Platforms books that day; when a loss is taken, it is debited from the Trade Platforms books. Private Placement Platform Trading is a cash business; gains and losses are marked to market each day. Trade Platform Managers should know by between midnight and two a.m. each trading day where they stand. The Private Placement Trade Platforms maintain what is called a customer segregated account with an FCM. This account is where the Trade Platform Investors’ funds are held. An independent capital account is established for each Trade Platform Investor to provide accurate accounting on a monthly or quarterly basis. The Private Placement Platforms’ funds are deposited into a master segregated funds account for margin in trading.
Goldman Sachs, Merrill Lynch, ABN AMRO, MF Global, JP Morgan Chase, Credit Suisse, Deutsche Bank, and Bank of America are FCMs. These companies, as well as handling trades for independent Trade Platforms for many years, have had their own internal proprietary trading desk or Trade Platforms. Some of these trade desks are famous such as Goldman’s Alpha Fund, Morgan Stanley’s PDT (Process Driven Trading) Platform, and Deutsche Bank’s legendary SABA Trading Program, led by Boaz Weinstein. The new regulatory environment is forcing many of the banks to divest themselves of proprietary Trading Platforms. This makes for a large talent pool comprising the best and brightest traders available for Private Placement Programs, Private Hedge Funds, and Trading Platforms.
Private Placement Programs and Trading Platforms often use what is known as notionalization or notional funding to increase the trade Platform's leverage. The Trading Platforms may leverage its trading capital as much as ten times, meaning that One Hundred Million Dollars ($100,000,000) may be traded as it was a Billion Dollars ($1,000,000,000). Leverage, while increasing the returns on cash significantly, can also lead to a significant loss. The adage that “leverage is a double-edged sword” is very true. Notionalization absolutely must be continuously monitored and adjusted, depending on margin requirements and market conditions. The Private Placement Platform Managers have investment committees that are responsible for determining notional trading levels. Notionalization is a potent tool for Private Placement Trading Platforms.
In conclusion, when it comes to Private Placement Programs, the minimum investment can be high, and the risk can be high as well. However, the reward can be great, great enough to easily justify the investment and risk for one who has the means to get involved in such an investment.