Professional Gamblers at Work--
Meet the Bright Brothers: Card Counters Turned Stock Market BillionairesBy Arnold Snyder
(From Blackjack Forum Volume XX #4, Winter 2000)
© Blackjack Forum 2000
[In the Summer 2000 Blackjack Forum, we ran a small advertisement for Bright Trading, a Las Vegas stock trading firm specifically seeking card counters to become professional day traders. Many readers asked me what I knew about this company, and my answer was zilch.
Day trading is considered to be among the more high-risk (if not the most high-risk) methods of attempting to make money in the stock market. Then again, as investment opportunities go, counting cards at casino blackjack is not exactly considered “money in the bank.” I figured Blackjack Forum readers might be interested in Bright Trading, which in its small Blackjack Forum ad stated it was “started by a professional card counter.” I also wondered if these guys were on the level.
Bob Bright's Start as a Card Counter
BJF: Were you with any investment companies prior to starting your own?
I toned my bets down, and then I got up from the table, walked over to the cage and cashed out. When I turned around I saw him standing there. I thought he was with the casino, and was probably going to ask me not to play. I was certainly surprised when he showed me his I.D.
He said, “That’s the best play I’ve ever seen as a lone wolf.” He asked me if I would teach him how to play as a lone wolf, because all he had going was the teams. I joined his team for a few weeks. Ken showed me everything about his team play, and I showed him how to play lone wolf style.
That was the last association I ever had with him. In 1978, my reputation had grown to the point where casinos around the world were barring me. The Horseshoe, in Las Vegas, finally barred me. They had always maintained a position where they welcomed any and all action. Many casinos do not bar counters; they are inclined to deal the proficient player worse and worse games by shuffling frequently.
After being turned away from a number of casinos, I saw the handwriting on the wall. I looked around for another game where I might have an edge. That’s when I joined the Pacific Stock Exchange.
Eventually, he left that job and headed up a blackjack team that played not only in the United States, but in various casinos around the world. From 1978 until 1990, I basically traded the market and played blackjack on the side. I made more money in the market than I did with blackjack because in the market, you don’t have to tone your bets down. If you’ve got something good, you just go with it.
Bob Bright on the Switch to the Stock Market
BJF: When you started playing the market were you just doing this completely on your own money?
As a market maker, you get extremely high leverage. As a market maker on the options floor, options are leverage instruments of their own. Then, as a professional market maker on the floor, you get even more leverage. So, with that I was able to get in with $50,000 front money and it grew from there. I retired from the market in ’87 and didn’t get back in until ’92.
We use various kinds of derivative products to give us indicators as to entry points and exit points in the market; just like you might use a count system to make your entry points into a game of blackjack. High count, you know the edge is in your favor, you jump in. With derivative trading in a certain manner, we have the same feel in the market. We jump in when they’re giving us a so-called high count.
Most good day traders will make money on 70 or 80 percent of their trades. Just imagine playing blackjack and only making a bet when you have a count in your favor. It doesn’t mean you win every bet, but you’re going to win more than you lose.
You see derivatives starting to move, or some type of indicator that you’re watching, and it gives you a good idea that the stock that you’re watching will probably move in a certain direction. So, you jump in. When those indicators or other things tell you it’s too risky to hang onto the position, you get out. That could be 15 seconds later or hours later.
The Bright Trading System
BJF: So you’re not watching the stock price itself, but you’re watching the options and futures?
If you’re watching the British pound and it’s strengthening, the drug companies might do well because most drug companies are somewhat more related to the British pound than they are to the U.S. dollar. You’re watching the S&P 500, which represents the top companies in the country. Everything relates to the other side, too, because we trade both sides.
If the futures start to go up and the stocks haven’t moved yet, it’s highly likely they’re going to pull the stocks up with them. It just means the big institutional firms are in there buying the futures ahead of their institutional orders. And we just get in before they’ve placed those institutional orders to buy some stock in whatever direction they are going. Those are the types of indicators that tell us when to get in or when to get out.
And then there are a hundred and some million investors in the market mainly through pension funds, 401Ks, etc. As day traders, we make our money largely from trading against the online traders at home and trading against the mutual funds and pension accounts. You can imagine a Dreyfus or a Fidelity, they want to go in there and buy 100,000 shares. They don’t care about a quarter point. They say, “Buy it around 90, 91.” We do care about a quarter point. If we make a quarter point once a day, it’s $100,000 a year.
So, the timing could be days for them to make decisions, and they’re not as interested in an eighth or a quarter point or so. We will go in and then jump right back out if it doesn’t look like we’re right; or if it’s not going to move like we anticipated it would. Our cost is so much lower than what the funds pay. As professional traders, we have the lowest costs around. You couldn’t even get close to the cost as a public customer or as a mutual fund if you were trying to get soft dollars back.
Professional day traders understand the risk involved. They understand how you can really get hurt if you’re stubborn, and they understand that you need to do some size with a small profit potential to make the real money. Just like blackjack, you’d rather play 500, 1000, 2000 dollar hands than the ten dollar hands. Same way with professional traders. They want to trade 2-, 3-, 4-, 5000 shares at a time, not 200 shares at a time.
The Bright Brothers Trading Room
Bright: At 100 shares a crack, you’re probably not even going to pay the overhead.
Or say there’s a news item. Somebody in the room’s going to notice it and yell it out. We encourage our people to mention facts that occur. We don’t want to hear opinions. We don’t want to hear, “Oh, I think General Motors is going to go up.” But if Ford Motors just did a one point down-tick on a three million share block print, it’s nice if someone saw that and mentioned it to the room in case anyone else has similar stocks and might want to take some action.
It’s just that the people in the room, they get to know what the other people trade so they share information. You know that John down the aisle there is trading drugs, maybe trading Merck or something, and you see some news item on one of them, you’d say, “Hey, John, did you see the news on Merck?”
You’ve got to remember that every trader isn’t watching everything. He can’t see everything by himself. If he’s watching an indicator, he might not be watching the news tape. You have a news tape, you have futures indicators, you’ve got options that you’re looking at, you’ve got indexes of various segments of the market you’re looking at. And you’re watching your individual stock so you don’t let a trade get by without seeing it.
We see every trade on the stocks that we’re watching, every quote change. You might see 5,000 bid for, 8,000 offered. That means something to us. We work with people. It takes them a year or so to learn even what to watch for. We have a one-week training program that we put them through to get them a so-called “basic strategy” on trading. We teach them who the players are. They have to understand who the players in the market are to try to be able to identify those players by watching a tape.
When you see a tape of a trade or a quote change, after a while you get to visualize the actual people who are doing these things, and it helps you with your trading. You learn to anticipate, to push that button and be in there early to make that trade, because you’re not the only one seeing certain things.
Let’s say there are 10,000 shares offered, and you go in to buy 5,000, and you don’t get it. We have people who say, “I should have had it. Why didn’t I get it?” Because 75 other professional traders out there, plus a lot of other people, saw the same thing you did. What makes you think you’re the only one who saw it? Speed is very important.
So, whenever they take $75, we take $25 and put it in a reserve. Say they make $10,000 the first month. They want to take a draw. They take $7500. We take $2500 and put it in a reserve account. At the end of the year, if their account never went below $15,000, they get the $2500. Or if they average $25,000 for the trading account for the year, we give them their bonus. So, in effect, if they manage themselves responsibly, they do get their bonus, they do get the other 25%.
It’s very difficult to lose that kind of money. We have parameters that new traders can’t exceed 5,000 shares of any one stock per trade. Now, how does a person lose $25,000 if they’re only doing 5,000 shares of a New York listed? Most of the time, by the time a stock moves a point, it shows up in the red area on our software that they’ve lost $5,000. Especially a new guy, we’re going to call him and find out what he’s doing.
We don’t even encourage new guys to trade 5,000 shares. We want them to trade 100 shares to start. The one time that we did lose was a guy that sat there and bought 5000, 5000, 5000, 5000, 5000. He had 25,000 shares. He ended up doing it on two other stocks. He had a total of 75,000 shares before either one of the stocks moved. Once one of them started moving, it showed up on our list and then we forced him out because it was in complete violation of all our risk policies.
He was a trader from Bear Stearns, and he came over and traded with us. He was just trying to take a shot with us—with our money. He lost his $25,000 and he lost a bit more than that of which we had to eat the difference.
There are no good books on day trading. We provide a school; we teach people; it’s in our interest to make sure our people stay around a long time. We make money when they’re trading 2000 shares at a time, maybe doing 100,000 shares a day a couple, three years down the road.
So, we put a lot of time and effort into retaining people. We call it R&R, recruit and retain. We put more of our effort into retaining them because we make our money down the road when they’re doing large volume because we get such a small amount of revenue from their volume.
We charge them the same thing as what they would pay if they were on the trading floor. You want to trade, go buy a $2 million membership in New York, or a $400,000 one in Chicago, and you stand there on the trading floor and trade for a penny a share. Or you can join us without having to buy the membership and trade for a penny a share.
During a visit to San Francisco, Eddie demonstrated electronic trading. It was just becoming feasible in the early 90s. He said, “Pretty good. Technology is about there. About ready to do it.” So we joined forces in 1992. I had the capital and we had the networking ability to do it, both in people and in getting it done with the computers. We’re 50/50 owners.
He was a blackjack player in the 70s also. I joined the Exchange in September of ’78, and he came out about six months later. Eventually, I retired, but Eddie stayed and continued trading. When he was playing $10 blackjack, I was playing $50. When he was playing $50, I was playing $500. The same way in the market. So, we formed Bright Trading with his knowledge of technology and my capital. It’s grown ever since. Our first trader joined us the same month we started. He’s still with us. We have a lot of people come and go, like any other business. Everyone can’t be a card counter, and the same thing can be said for the day trading business.
Again, you have these indicators and these things that work. They slowly work or not work over time. And as more traders see indicators that are working, more people jump into it. Pretty soon they don’t work. So, whatever way you design the computer to make decisions, the computer will have to react to those changes also.
Blair and I traded in San Francisco for a few years, and then he moved back to Chicago, around 1980. I went back in ’83. He retired in ’83. When he saw how I was doing in ’84, he jumped back in again and he built a very large arbitrage type company in Chicago. He eventually sold it to Goldman about a year ago for $600 million.
But even in ’92, when I was beginning to form this company where traders could come in and trade from an office instead of having to stand on the trading floor, he had already developed computers that would make the entry point decisions on the stocks. So, he was way ahead of the curve on that.
So, yes, there are people that do that. But no computer will do exactly what it’s supposed to do, where you can fly away somewhere and come back a month later and count your money. It doesn’t work that way. In ’87, they thought it would, but that was the cause of the ’87 crash—computers were doing a lot of stock selling themselves regardless of the price of the stock…
Exchanges will change rules when they discover certain things happen. So, there were all new rules about using computers. If the market moves more than a certain amount, you can’t utilize computers to program trade.
I do better when I travel to another office to audit the office or see how things are going. There are 35 offices. We’re adding a few offices this summer. It’s hard to keep up now. We may have to hire some additional help. We only have three employees in the whole company. We have 400 traders.
The first 100 traders we had were mainly experienced who may have had a year to ten years or so experience. Then some of them said, “Well, I’d like to run an office for you in San Diego or Kansas City or wherever.” Fine, so we were looking for people who knew how to make money trading to run offices so we could build other offices.
We knew the technology was there, but not the expertise within the non-exchange cities to be able to get the traders. So, that’s how we grew. Whenever we had someone willing to run an office in another non-exchange city and they wanted to go back home and do it, fine. Do it. We’ve gotten some pretty good offices that way.
The Bright Trading Training Process
BJF: How often do you have a class, and how long is the training period?
A lot of them will come back in three months and take it again. We charge a one-time fee for the class and it’s a lifetime fee. We believe in continued education. We want to retain our traders. So, they go through the class, most of them come back three months later, a year later. And they continue to come back.
We had nineteen people who attended our last two classes, plus some of our own people who came back for a refresher course. They try to come back once a year anyway to keep up on any new strategies that we’ve developed or that we’ve seen. People who are making less than a quarter of a million a year, we strongly encourage them to attend, because they’re obviously not making what they should be. So, of the 19 people that have never traded with us before, 13 signed up, and six decided not to.
So, it’s like eight out of a hundred made a career out of it. Here, we used to have about 15 out of a hundred. Since we started the school, we’ve got about 25 out of a hundred that are making a career out of it. But that’s the same in any business. How many succeed in card counting? The cream of the crop, they make a great deal of money. I would guess 2% of the people… This is one of the reasons we started the school. We saw that many of the people were just not getting it. They weren’t being retained.
There are a half dozen major firms tht are doing that as a team where the people are being paid salaries for the company. They’re not independent. I remember Blair Hull had numerous people… He would hire these 6’6” guys to trade on the CBOE floor because they were tall and had loud voices. All they had to do was read off what was on the computer…
Once they got together, and they told Blair he had two weeks to come up with a better pay for them because he was paying them $30,000 a year. After about eight trading days went by, they got worried that he hadn’t gotten back to them. So, they appointed one of them to go up and see what he was doing and give him a date when they were all going to quit. They found him in a room training 30 new people. He just said the heck with it. He hired new people. When you tell people exactly what to do, you don’t need to pay them much.
We just took a different way because I learned from being on the trading floor that the bigger traders were backing the smaller traders and it was working out okay. So, we began to do that here. And we started off giving traders like 50-60% instead of 30-40%. It went up to 75%. Then we eventually went to 100% because we were able to do it and get traders to come directly to us from the trading floors, even the ones who were highly profitable.
Through the economies of scale, we were able to offer them the same income, in fact, more net income, but the same gross income with lower costs and there’s still something for us. We charge everybody $600 a month for a workstation. They were paying $20,000 a month on the trading floor for their overhead just to show up. They had to make $20,000 in a month to pay their overhead. With us, they have to make $600 to pay their overhead.
Therefore, we get dealer transaction fees, not broker commission fees. So, our people pay transaction fees. We get some of that back from the clearing firm because of the economy of scale. The clearing firm looks at our firm rather than every individual. They don’t care about the individual. If an individual trader loses half a million dollars, they don’t care. Just take it off my account, under the firm account. They give us back the cost so to speak.
They saw me as a novice who knew nothing about stocks. But options were more mathematics-related. I went up there. One of the clearing people asked me, “How are you going to trade?” I said, “I haven’t the slightest idea, but I will figure it out. I will take some of my blackjack abilities and discipline and apply it to the market.” And they said, “There’s already one blackjack player doing this. Why don’t you contact him? It could save you some time.” It was Blair. He already had a computer model for what we needed and I shared costs with him.
Since ’88, I probably haven’t run into Blair more than once or twice. Then, in ’92, Eddie and I started Bright Trading. Blair was a dominant force in Chicago. There were two of them. He was one of the two who were really in control of everything out there just because he was smarter than everyone else.
He wasn’t really dominant in San Francisco, but he was one of the sharpest. I’d love nothing more than to get poker players and blackjack players to come trade with us, especially now that the casinos are all putting in perpetual shoes. There have to be a lot of counters out there who could use their abilities with us, and probably make a lot more money.
I don’t know if you have a clear sense of the similarity between blackjack and the stock market, but it’s pretty much the same. You go from red chips to green chips to black chips to pink chips. In the market now… the casino scene is small potatoes. Every time we make a bet here, you can make or lose thousands of dollars. Typically, our trader, after about two years, are making six figures or more. Not everyone can do it. The ones that pick up on it, are with us for life. This is what keeps our firm growing. ♠
For more information on professional blackjack players turned stock traders, see Market Wizards: Interviews with Top Traders
and The New Market Wizards by Jack D. Schwager.
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