Thursday, March 04, 2010
Steven Schonfeld: Millionaire Maker
The following is a chat I had with Steven Schonfeld in 2005---- the founder of Schonfeld Securities. His firm was/is the premiment proprietary trading firms of all time. Many multi millionaires were bred by trading for this firm in the 1990's. Guys that started with nothing and by using the firms technology and leverage changed their lives forever. This is an inspiring interview from the man who started it all.
Photo courtesy of Forbes
Today I am privileged to be
joined by Steven Schonfeld. Steven is the founder and CEO of the Schonfeld
Group. His firm trades over 150 million shares and completes over 500,000 transactions
daily. He is a true revolutionary and innovator in the world of day trading.
Welcome, Steven, thank you for joining me today.
Steven: Hello Dave.
Let's start the very beginning. What first sparked your interest in the market?
Well, I was a teenager when I first got interested. We had a stock market
class in high school and I had always been into strategies, like gambling at the
casinos, race tracks, or poker. I felt that the market was a bigger and better
game. After college, I became a stockbroker at around 23 years old.
I know you were one of the top brokers, at Pru Bache, for about seven years. You
must have been making a serious salary and bonus. What made you want to go out
on your own?
Growing up, I always felt that I was very entrepreneurial. When working at the
brokerage, I got to build up my capital base, but part of my goal in life was I
wanted to be an owner and see the other side and do actual trading in the
market. The electronic method of trading stocks had just recently been
introduced in the â€˜80s, and things were becoming more electronic overall.
Computer power to assess and analyze market data was coming into its early
stages. Since I always loved reading percentages and statistics, I saw a
natural fit with trading. In addition to that, after the crash of â€˜87 I felt
that proprietary trading could be pretty big for the next few years and I gave
that a shot.
You really got started at the ground floor of proprietary trading?
Dave: Whatâ€™s the difference between a proprietary
firm, a professional firm and a retail direct access firm?
proprietary trading firm backs its traders 100% with its own capital. Retail
trading firms house customers who are trading their own personal capital. At
Schonfeld Group, we support both types of traders. Professional trading is a
broad term that generally defines any trader, whether proprietary or retail who
earns his or her living as a trader. Schonfeld Group aims to be a place where
both types of professional traders can have a successful, profitable career.
Did Level II data exist back then?
We did mostly New York stocks, but there was also level II at the time for
Did Schonfeld grow steadily through the 1990s, or did growth fluctuate at times?
steadily. From 1988 on for years we grew very steadily. We always tried to make
it not too fast, not too slow, but moderately strong growth.
At your peak, how many traders worked for Schonfeld?
I think it was about 1100 proprietary traders. We have had about 4000-4500
traders come through the doors in the last 17 years.
Is it strictly in the office trading, or are there remote traders as well?
We have remote and also office. We are looking to grow our remote trading. It
is setup for the traders to be in office for a while, at least 6-7 months and
then go back to trade out of their home or another office.
You basically start everyone out in the office for a couple months?
For the most part, yes. But if someone has some sort of a track record they can
by all means start out remote.
I am personally friends with several of your traders during the late 1990â€™s.
Some of the stories they tell are simply amazing. Are you able to share any of
Steven: From 1999, 2000,and the first quarter of 2000, which was 2 1/4 years of trading. In that
period, the trader compensation, how much I paid my traders was $685 million.
Thatâ€™s the best way I can illustrate those times.
Wow, that is truly mind boggling! Were you guys the first proprietary firm of
the modern era?
As far as I know, yes.
I know we witnessed a shake-up in trading firms after 2000, but now there seems
to be a new boom starting. Do you think this relates to anything in particular?
Steven: I guess
part of it is from the number of years of trading. Through time, weaker firms
fell apart from the tough trading and there were very few firms left. Now new
players are going back in. Possibly, there is a bull market, or at least one
coming in the next few years, people are preparing for it. The newer crop of
people are trying to get in now that werenâ€™t around back then.
Is there a difference between a daytrader today, and a daytrader in the late
Not that different. Maybe some are more computer literate, maybe more
How about strategy and tactics. How have they changed?
In relation to strategy, itâ€™s a whole new ball game. There use to be tons of
volatility and many volatile stocks. Nowadays, you have to really have to
narrow in on the really volatile stocks of the day, instead of trading the same
stock over and over again.
How do your traders locate these volatile â€œstocks of the dayâ€?
We provide all of our traders with a proprietary technology weâ€™ve developed
called SchonSite. Itâ€™s a filtering tool that uses Schonfeld Groupâ€™s own
proprietary variables to help our retail and proprietary traders research and
identify stocks and trends that will support the strategies theyâ€™re using.
Dave: Are traders today holding the trade longer
then they did back in the 1990â€™s, or is the time frame pretty much the same?
When we talk about holding time, we have an enormous amount of studies of all
the trades that have been done in our firm, and it really depends on the stock.
Scalping can be within seconds, and yet some scalpers are holding for 5 to 15
I know Schonfeld has put a lot of effort behind training traders, can you tell
me a bit about your training program?
The program is very different for a new trader than it is for an experienced
trader. What we have is statistics, studies, report cards, video broadcasting,
and, a quant group who gives out enormous amounts of information about
Dave: Do you prefer someone who is new and knows
nothing, or do you prefer someone who is experienced?
Really, I would take both
Does the banning of bullets change your trading tactics at all?
Not materially, or too involved, but there were some scalpers that got affected more
than other traders.
Do you have an opinion on the new threshold rule ?
There are a lot of variables and its too early to tell how it will effect traders.
What is your view of the day trading industry as of today?
I still think we are in the doldrums. Volatility is unbelievably low, and in low
volatility its tough to make a lot of money. On the other hand, its also tough
to lose a lot of money. Unfortunately, many traders arenâ€™t making what they use
to make in the past. The most important thing right now is to stay in the game
and work on honing their skills like control, discipline, and strategies.
What do you think is responsible for this low volatility?
Volatility is low because of a lack of retail volume in the market as a
percentage of overall volume. Also, the influx of competing black boxes in the
market is resulting in fewer big swings.
Judging from what I witnessed at the 2005
NYC traders expo, some of the larger, full service firms like Fidelity are
courting the lagging retail market. Seems like someone is predicting retail
coming back in a big way. Whatâ€™s your opinion?
I think the retail market will grow slowly until there is another bull market.
Then we will see it take off in a much bigger way.
If retail comes back, leading to an increase in volatility, do you foresee a new
â€˜golden eraâ€ in daytrading?
More like a silver era. I think we will see another good chapter for active
trading, though not as golden as before. Retail will come back with the next
bull market. However, the black boxes that trade against retail volume are here
to stay. This is a big change in the environment since the last golden era of
I can't wait for those days again! We are out of time. Thank you for joining
me today, Steven.
Thank you, Dave.
Posted by marketsurfer at 3:00 PM