Bill Lipschutz: The Architect of Forex Trading at Salomon Brothers

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In the late 1980s, Bill Lipschutz was the head of forex trading at Salomon Brothers. For professional forex traders, this was the best time and place to be.

Jack Schwager described Bill Lipschutz as the largest and most successful forex trader at Salomon Brothers. This was not surprising, as Lipschutz's single trades often amounted to billions of dollars, and profits were frequently calculated in tens of millions of dollars.

According to Schwager's estimate, Lipschutz generated more than $500 million in profits during his eight-year tenure at Salomon Brothers, equivalent to an average profit of $250,000 per day for eight years.

I. Salomon Brothers Period

After obtaining a bachelor's degree in architectural design and an MBA from Cornell University, Bill Lipschutz joined Salomon Brothers in 1982, when he was 28 years old. He initially received training in stocks and stock options and was later recruited to the forex trading department, where he was involved in the design and promotion of over-the-counter and centralized market forex options products. The forex market is the largest and most liquid financial market, with a daily trading volume of more than $2 trillion.

"In the 1980s, Salomon Brothers was a very unique organization, especially in the forex market. John Gutfreund's management style made Michael Lewis describe him as a notorious person."

"Under Tom Strauss's management, the forex traders had a lot of room to play. Of course, if I messed up, I still had to take responsibility and pack up and leave. Even so, I have to admit that many institutions could not provide such an opportunity. Other companies usually did not allow forex traders to establish similar positions or take similar risks."

"In this environment, forex traders quickly learned to be self-reliant and mature in their trading mentality. No one would say 'This is your position limit, you have to cut your losses and exit'."

"If a forex trader's losses accumulated to a certain level, his desk would suddenly disappear. But in this environment, you could keep moving forward. As long as you succeed in reaching another level, you can continue to advance. This was a very unusual culture, and I couldn't fully appreciate it at the time. Looking back, Salomon was indeed a unique institution, and the people at the management level were also very unique."

"When I stayed at Salomon for that period, the company's performance measurement method was different from asset management companies. The latter usually used percentage returns as the benchmark, which often caused misleading, because it involved additional capital. "

"In companies like Salomon, trading often did not require actual capital. The main market makers and financial institutions' forex transactions were based on credit. No margin was required, so no actual capital was needed."

"At that time, we traded through a subsidiary of Salomon, which had a capital of only $1 million. No one knew how much the company's accumulated returns were. But our credit limit was as high as $150 billion."

II. Going Solo

Bill left Salomon in 1990 and set up his own company, which was named after a small town in southern Connecticut, Rowayton.

"Rowayton Capital Management was established in 1991, and we managed our capital, which was not large at the time. Initially, the company had only me and two colleagues, Bill Strack and Ron Furlong, who were also my colleagues at Salomon. According to the plan at that time, we planned to manage external funds in the future, but we were not sure whether we could continue to grasp the many elements of success after changing from a large company to a small company where we were our bosses."

"So, we traded with our capital for a while. At the end of 1993, we started to raise a small amount of funds from outside. My wife Nellie Jones had been an institutional salesman at Goldman Sachs for nine years, not in the forex field, but in the fixed income securities department, and she was responsible for raising funds."

"Within 18 months, we raised about $150 million in funds. For a small start-up company. Although I was engaged in forex trading, I still proposed three basic products with different structures, each with different risk/reward targets and trading tools."

"For example, one product did not involve options at all, and basically engaged in spot forex trading that was cleared on the same day, and any positions were not dragged overnight. Another medium-risk product, which included some option combinations, tried to reduce the exposure of short positions, such as option selling positions, ratio spreads, or other similar positions. We engaged in a lot of spread trading within European currencies."

"Finally, we also had an aggressive product, which included many naked selling positions, ratio spreads, low delta, or other similar strategies. We used these three products as the basic building blocks, and launched other products with different risk/reward structures."

"For various reasons, we ended Rowayton's operations in 1995 and set up another company, which also had a very strange name. It was called Hathersage Capital Management, and Hathersage was the name of a small town in Yorkshire. At the trading level, the new company's operations were no different, but some necessary changes were made at the management level."

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