MYSTERY OF THE YEAR
Finding the Flipper
It has been a source of great debate among traders on the Eurex all year: Who is the Flipper? Is there a Flipper? Is there in fact more than one Flipper? Could there be a whole organized army of Flippers? How many Flippers does it take to screw in a light bulb?
In April, the Eurex announced a rule change after a number of participants petitioned the exchange with complaints about a trader, or traders, known only as the Flipper. The ranting mob was convinced that the Flipper, suspected to be a Dublin-based trader specializing in the German two-year government bond known as the Schatz, was "gaming" the market. The accusation: This trader would offer to buy or sell a large volume at a particular price. The offer would attract other traders, who would post their own buy or sell offers at the same price. The trader would then withdraw his offer and reverse his position, from sell to buy or vice-versa, to take advantage of the price he had created. According to reports at the time, this mysterious trader might have been making as much as $5.5 million a month.
Does the Flipper truly exist? One Dublin-based prop trader's name is commonly bandied about -- he was unavailable for comment -- but London market-movers say that it is probably not possible for someone to game the market the way the Flipper has been accused of doing. Put simply, they say no one trader or trading group has the financial clout required for the type of price swings associated with flipping the market. Instead, they suggest, fluctuations are caused simply by the ebb and flow of pre-programmed system trading. Reluctant to let healthy skepticism get in the way of a good conspiracy theory, we honor the Flipper for the havoc he has caused and the money he is making. Here's to you, Flipper, whoever you are. Your legend keeps growing.
Meet the Flipper:
"Is eight figures a realistic goal? It has been done by private own account traders for years. Paul Rotter from Germany, 32 years old, is one trader that has made 50-60+ million ($65-78 million) per year for 10 years trading the most liquid contracts at the biggest futures exchange in the world, Frankfurts Eurex debt futures, primarily the Bund contract.
In 2003 I received an email from a former Man Financial broker in London who said, "One of our private customers has been the highest volume trader on Eurex for the last 8 years. He trades approx 3 million lots a month and makes himself 50 million a year, which he has apparently been doing for the last 10 years." In 2004 I learned that it is Paul Rotter. He is notoriously called "the flipper".
The bottom line is there are other traders, we never hear about, making 8 figure profits. If Rotter's trading style did not attract attention then we would have never heard of him. If Rotter and others can do it, then maybe you can to. Remember, trading is very risky and you will lose all your money if you do not know what you are doing and when to do it. So please do not trade unless you are ready and willing to accept and take personal responsibility for the outcome.
In January 1998, Kinski, Rotter and some other traders formed a Dublin-based prop-trading firm, Greenhouse Capital Management.
Rotter's balls-to-the-wall modus operandi helped Greenhouse prosper, but not without some tense moments. The firm began life with $1.3 million in seed capital and featured, in addition to Kinski and Rotter, two other standout own-accounters, Pino Curcio and Florian Albrecht, the latter one of Rotter's closes boyhood pals. As a unit, they worked well together, though Rotter was clearly the star. "It was do or die," Kinski recalls. "We knew Paul would have these large positions -- in one day we could have been out of business."
By the end of its first day, Greenhouse was up $526,000. Within three months the firm had made $6.5 million, though not without ruffling some feathers. "Paul has sometimes played a controversial role," Kinski acknowledges. "Some traders didn't like him because he was changing his position so quickly." In 2001, Rotter formed Rotter Invest and eventually moved his operations to Zug, Switzerland, an affluent town that's home to its share of traders..."
The Worlds most Successful Trader
Paul Rotter - aka "the Eurex Flipper"
Paul is arguably the single largest and most succesful individual futures trader on planet Earth, executing trades on the German Eurex exchange primarily in the Bund, but also in the Bobl and Schatz interest rate futures. He trades between 200-300,000 roundturns daily using the X_Trader platform, and clearing through GNI Touch.
Every trader can aspire to imitate Pauls success as he is proof that it IS possible for a small trader to build on his success and grow into the biggest most active speculator around.
Interview introduction (translated from German language interview with Traders Mag):
Paul Rotter has made it - he belongs to the best traders in the world and counts as a real big player. he usually does 150 000 rt/d, sometimes up to 250 000 mostly in BUND/BOBL/SCHATZ futures. in the hall of fame of celeb EUREX players he´s top notch end even leaves tom baldwin (bonds) or lewis borsellino (S&P) behind. he had to work ahard to make it. he blew up in the beginning of his career, which was painful but also educational - he learned his lesson and with lots of research, seeking improvement all the time, he became the man.
Q: was there any key event that brought you into the game?
A: no, no key event like 'buying my first stock'. took part in some trading contest while at school.
Q: how did you get to professional trading?
A: when i was apprentice in a german bank i had to work on the DTB (now EUREX) execution desk for several weeks. this attracted me a lot. during that time i was doing gamble trades on my private account, losing pretty much all of it. when it was deeply in the red, i had to leave the bank but shortly after, i was allowed to start trading in a japanese bank. i was very lucky here, since i was allowed to gain knowledge through learning by doing.
Q: did the bank give you any mentor?
A: not, i didnt have one. in the beginning i was exchanging ideas with the chieftrader ajiasaka, who was constantly profitable. he sometimes even hedged the positions of his boss, when he thought that his boss was wrong. i had many conversations about market psychology, which proved to be very helpful, especially after bad losing days.
Q: how was your trading back then? have you been constantly profitable from the very beginning?
A: i was doing 100 - 150 rts a day after a short time...i had no losing month with the first 3 years of my trading. later on with bigger position sizes i took occasional hits, especiallly after EUREX allowed terminals in the US and big players like harris brumfield / chicago were entering the field.
Q: there is a saying that every trader has to completly blow up his account at least once before he can become successful. what did you learn out of it?
A: like i earlier said, my private account saw some bad times during my apprentice in the bank, although i must admit, that back then i had absolutely no idea that there was something like 'risk-managment'.
later on i found 7-digit losses to be cumbering. on day i had a blackout and after losing 2,5 mln i was seriously thinking about stopping. i still had enough capital left to live without having to worry about financial issues and i just wouldnt want to take those psychological hits anymore. after taking 4 weeks off, i regained my motivation and returned in the ring. i was able to make up the loss in a relatively short period of time, so that i came out stronger than before.
Q: has this changed the views of the market in a way?
A: with the expirience of bigger losing days coupled with good phases right afterwards, i´m not so sensible for losing days anymore. i know that i can make it back. this has lead to being able to switch off the screens on a day with medium/small losses more easily, instead of forcing the way back into positive territory.
Q: what are your strengths as a worldclass trader and where are the differences between you and other traders?
A: it´s the ability to get more aggressive in winning phases, taking bigger risks, and scaling back in losing times. this is against human nature. the best thing is to have somebody around who is neutral to trading, that switches the terminals off, when a certain loss level has been reached for the day.
Q: you are known as a orderbook-scalper, could you please explaining to our readers what you are doing and what your strategies look like? what is your tactic?
A: it´s some kind of market making where you place buy and sell orders simultaneously, making very shortterm trading decisions b/c of certain events in the orderbook (level2). for example, i usually have lots of orders in different markets at the same time, pretty close to the last traded price. the resulting trades are usually a zero sum game, but i get a pretty good feeling for what is going on and then ultimately can make a decision for a larger trade.
Q: how long are you usually in a positon?
A: since i do trend plays very seldom and actually scalp the market, i constantly get fills in different markets on both sides which can cause constantly changing positions for hours. sometimes i change my opinion several times within a couple of minutes, which is not pretty hard for me, since i´m only looking for the next 3-5 ticks.
Q: during your professional career, have you always been a scalper or did you try other strategies (momentum/swing) as well?
A: yes, i have always been a scalper, but i am adjusting my strategies to different market situations all the time. on volatile days i of course have less orders in the market and do more 'single trades', although i ususally hold them only for a couple of seconds.
Q: your strategies only work on electronic exchanges?
A: yes, b/c you cannot handle that much orders in a pit, looking for counterparties and so on. computer exchanges grant faste orderflow and are not as easy to manipulate.
Q: as a scalper, are you trying to run stops?
A: well, yes, but because of the increase of liquidity in the last couple of years, the fast spikes caused by stops are not happening that often anymore. apart from that, that stops often are not where you would suppose them to be, because the other market participants are not silly either or learned their lesson in the past.
Q: what role plays risk-managment in your trading?
A: i set daily goals for my p&l, whereas the most important thing is the stopping limit, the maximum loss i take, before i switch off the screens. my biggest positions are 5 digit number of contracts. i dont use any specific money-management rules.
Q: what are you doing when a position goes against you? are you using stop-loss orders?
A: i striclly close my position when they start going against me. with bigger positions this is not that easy, because i move the market against me, which could cause other traders to get in the same situation like me, which could accelerate the move. however, most of the time i am able to make some of the losses up, b/c i know what caused that move and therefore take the opposite position.
Q: why dont you have any problems with closing out the position and even taking the opposite direction? shouldnt a trader stick to his opinion?
A: no, definetly not. an analyst or some kind of gure has to stick to it, but as a trader you should have no opinion. the more opinion you have, the harder gets it to get out of a losing position.
Q: what role plays market psychology?
A: i constantly try to read the psychologiy of the market and base my decsisions on it.
Q: how do you handle distracting thoughts and emotions?
A: when it gets really bad - taking a cold shower or jumping in a cold swimming pool.
Q: how do you prepare for the trading day? do you follow any routines or do you take it as it comes?
A: before the open i check all the economic reports that are about to be released, speeches of central bankers - simply anything that could move the market. then i try to define important levels in the markets i trade. i do this through my own analysis and through reading analyst commentaries. that´s how i get a picture of the market and its important levels. i am not interested in opinions of other market participants as this would influence my own opinion.
Q: anykind of mental preparation?
A: nothing specific. actually i am motivated all the time...i see trading more as a sporting challange and try to erease the thought of the money.
Q: how many hours do you spend in front of your screens?
A: usually 5 hours, thats when i trade actively...in case of special events i can be up to 11 hours
Q: isnt it hard to spend that much time in front of your pc´s? how do you stay concentrated for such a long time?
A: that is what my japanese colleagues asked themselves as well...well i take it as some kind of game where i forget the time. therefore the real troubles are more physical (eyes) than psychological.
Q: what do you do to calm down / relax?
A: i do lots of sports and take lots of vacations.
Q: what equipment do you use?
A: MD-trader from TT, reuters, bloomberg, CQG and a USD-squawkbox.
Q: why a USD-squawkbox?
A: i use it because /$ had some effects on the intrest rates over the last couple of months. those effects change, right now it influences oil prices and the DAX.
Q: what timeframes are you using on your charts?
A: usually 5- - 30-min charts for trendlines and indicators. i prefer p&f charts because they give me a clearer view on patterns (triple tops). for indicators i like the CCI because it also shows the volatility of the markets.
Q: do you think is it possible for a single player to manipulate the market?
A: no, in my opinion a single player cannot influence the market around the clock. there are always several big players in the market. take the BUND for example - there are one million contracts traded a day. when a trend starts out of the blue with only slight pullbacks, i could trade against it, but with no effect. i couldnt stop the market from going up, because there would be more money needed that i could bring in. apart from that, so-called 'Analytics' computerized scalpers have made it tougher for me lately. as far as i know they are analysing the behaiviour in the orderbook and create a fully automated system. since they act in several markets at the same time, i think these computer freak come from the fully automated arbitrage- and spread-trading.
Q: what has one to do if he wants to become a scalper?
A: he has to watch the orderbook for a very long time."
Q: What are your strengths as a world-class trader and what are the differences between you and other traders?
A: I have the ability to get more aggressive in winning phases, to take bigger risks, and to scale back during losing times. This is contrary to human nature. The best thing is to have somebody around who is neutral to trading, who switches the screens off when a certain level of loss has been reached for the day.
Q: What role does risk management play in your trading?
A: I set a daily goal for my profit and loss, with the most important thing being the stopping limit, the maximum loss I take, before I switch off the screens.
Q: Shouldn't a trader stick to his opinion?
A: No, definitely not. An analyst or some kind of guru has to stick to it, but a trader should have no opinion. The stronger your opinion, the harder it is to get out of a losing position.
Q: Do you do any kind of daily mental preparation?
A: Nothing specific. Actually I am motivated all the time... I see trading more as a sporting challenge and try to eliminate thoughts of money.
Q: How many hours do you spend in front of your screens?
A: Usually 5 hours, when I trade actively... in case of special events it can be up to 11 hours.
Q: Isn't it hard to spend that much time in front of your PC? How do you maintain your concentration for such a long time?
A: That is something my Japanese colleagues asked themselves as well. I think of it as a kind of game and I forget the time, so the real trouble is more physical (eye strain) than psychological.
