Paul Rotter The Flipper’s Trading Strategy

Who was Paul Rotter and what was his strategy?

Back in the early 2000s was a golden era for prop traders.

Not online prop trading like today.

But a different model.

You rented a desk for £1500pm in London, sat in a room with other traders, and were given a high-spec trading machine, a fast connection and rock-bottom commissions.

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These traders were known as locals.

And most locals traded the German interest rate futures. Bund, Bobl, Schatz.

It was a specific calendar spread strategy, using big size, trading on the order book, grabbing ticks here and there.

Everyone was making money and then along came Paul Rotter…

This guy became known as ‘the Flipper’

Why?

He knew exactly what these local’s strategy was and essentially manipulated the order book to spook them.

Eg:

  • Rotter would place a large buy at a significant price on the order book.
  • Other local traders watching the same order book, would see the buy order and bid a tick in front of it.
  • The idea was, that they would get filled long, if the market popped then great, they made a few ticks.
  • If the market was weak it would start to work its way through that big bid. Locals would be able to hit that bid to exit if the size started to go down quickly.

So effectively locals were ‘leaning’ on this big order and using it as a backstop.

Rotter knew this of course and as the price started to get close to his huge bid, he would suddenly pull that massive bid that all traders were using as a backstop…

Then flip his huge order into a sell order onto the offer/ask – creating the opposite effect on price.

But this time, you’ve got hundreds of traders already long, traders with a very low loss tolerance.

Their backstop had gone, and now they see a huge seller.

So what do they do?

They liquidate into the bid.

Causing the price to move lower.

Of course, Rotter was prepared for this, he positioned accordingly and made an absolute fortune taking money from these guys.

Rumour has it, that he made millions doing this for years until it stopped working.

He spotted an edge based on the emotions of others and exploited it.

Was it legit? Was it spoofing?

Maybe, maybe not, but he did it, wasn’t stopped and set himself up for life.

This story is not dissimilar to the no 1 local in the S&P pit, trapping the other pit traders. You can read about that one here.