How One Goldman Sachs Trader Made More Than $100M

In what sense is "everything shut down by compliance?" Is compliance so cumbersome, that no one can be arsed to do any big trades?

Aggressive traders who understand market structure can and will profit.

I remember flash crash days - my trading platform stopped responding - I could not get quotes and I could not do trades. I desperately wanted get a fill at the flash sale prices. No dice for me. Some friends who had stops in place found out that their broker had automatically sold their positions at deep discounts. Aggressive traders (with working platforms) benefitted for sure.

Prop trading: you buy or sell based on a guess which way things will go and hold that position then exit at (you hope) a profit.

Normally the big book of banking says market makers "provide liquidity" which in my experience is enough to make most people in banking stop right there as providing liquidity is to them akin to passing bread to orphans.

When George Soros decides to sell a billion British pounds, that's a prop trade. He's not hanging out letting the trades come to him.

(I say currency booth, not exchange, just to avoid confusion. We usually say exchange, because that's what happens, but it's not an exchange in the market sense.)

1. is basically market making. You can either wait until you have a matching trade and take a cut (=exchange, broker). Then you're always flat (that is, you don't care where the price moves - you always get your cut). Or you can post bid and ask at which you are prepared to trade. When someone avails themselves of this, you then have a position, and the market might move against you. The spread compensates for that risk. Key here is to distinguish informed traders (that offload stuff on you before the price drops due to some news) from "dumb money", aka noise traders, that just want to buy or sell some stuff, but don't have information where the price will go. The latter make you money on average, the former might cost you.

2. That's basically manufacture of derivatives, say. You buy or sell an option, charge something on top of the computed price, and then trade underlyers against it to be flat, and at the end ideally realise that charge.

3. This is basically prop trading. If you put on the proper position, and your view turns out right, you make money, otherwise you lose. You need to be right more often than wrong :-) and quite some capital cushion to balance out the wins and the losses.

So, prop trading is characterised by you NOT being flat, i.e. you are exposed to market moves. As someone pointed out, when you are market maker, you are also exposed, but it's for short periods of time, and not the main goal. However, this does introduce some ambiguity.

I guess making 5% returns isn't such a big deal when you are playing with billions of other people's money.

An average well-established seasoned trader might earn anywhere between 400k and 2m a year dependent on luck and skill and general company profitability - but in every given year, there are probably a few dozen traders in every top-10 investment bank who make 10 million plus (though they are generally heads of desks or the partners in charge anyway).

The problem is that's a teaser rate. The current rate for 1 year is $277. That's way more than I'm willing to pay for a single newspaper.