Traders Union recently reviewed the trading career of billionaire hedge fund manager Steve Cohen to understand how he was able to amass his immense $17.5 billion net worth. Their findings show that Cohen took an aggressive and risky approach to trading, focusing on volatile stocks with high growth potential.
Cohen’s early life and career
Born in 1956 in Great Neck, New York, Steven A. attended the Wharton School at the University of Pennsylvania, graduating in 1978 with a degree in economics. Even as a high school student, Cohen displayed a penchant for risk-taking, frequently gambling his own money in poker tournaments.
After college, Cohen got a job as a junior trader in the options arbitrage division at Gruntal & Co. on Wall Street. Demonstrating an aptitude for trading, he made $8,000 in profits on his first day on the job and was soon earning the company over $100,000 a day by managing a $75 million portfolio.
Founding SAC Capital in 1992, Cohen founded his own hedge fund, SAC Capital Advisors, with $20 million of his personal funds. He grew it into one of the most successful hedge funds in history, managing $14 billion at its peak in 2009. Its average annual return to investors was 30% after fees – one of the best long-term track records on Wall Street.
Trading strategy and techniques
TU experts noted that the key principles behind Cohen’s phenomenal success were the willingness to take on extremely high risk in exchange for potential high reward and the use of intensive research to identify mispriced securities.
At SAC Capital, Cohen oversaw hundreds of portfolio managers, traders and analysts who would use both fundamental and quantitative analysis to identify promising stocks. Cohen typically focused on stocks with the potential for explosive short-term price swings.
Steve Cohen day trading techniques included:
- making massive bets on small movements in stock prices;
- trading aggressively using high volume to enter and exit positions swiftly;
- analyzing data from various markets to detect trends and opportunities;
- benefiting from volatility by rapidly trading in and out of stocks.
Cohen encouraged collaboration among employees but maintained sole discretion in making final trading decisions. He strictly managed risk on a position-by-position basis to preserve capital in the event of mistakes.
Key wins and losses
Cohen’s big bets paid off enormously well during certain periods. For example, during the dot com boom of the late 1990s, SAC Capital made 70% returns from Internet stocks. After the bubble burst in 2000, Cohen made another 70% by shorting those same tech stocks.
In 2007, SAC Capital built up a $76 million stake in Equinix. Just one month later, Equinix’s stock price surged by 32%, allowing SAC to lock in substantial profits in a short period.
But with big rewards also came big risks. In 2002, SAC Capital lost nearly $300 million from negative bets on tech stocks and the broader market downturn. The hedge fund lost approximately $1.7 billion from late 2008 to early 2009 amidst the global financial crisis.
Insider trading charges and downfall
Cohen enjoyed over 20 years of immense success, including an incredible 70% return in 2008 even while the broader market crashed. His reputation as the “hedge fund king” led to his firm managing as much as $16 billion.
However, in November 2012, federal authorities began charging SAC Capital portfolio managers and analysts with insider trading. Ultimately, eight employees were convicted, drawing intense scrutiny to Cohen’s funds even though he was never charged.
In 2013, SAC Capital pleaded guilty to insider trading charges and paid fines of $1.8 billion. As part of the settlement, Cohen agreed to stop handling outside money, effectively shutting down SAC Capital.
Although Cohen himself emerged without criminal indictment, the reputational damage from his firm’s actions durably tarnished his legacy as one of history’s top money managers.
Comeback with Point72 asset management
In 2014 after sitting out a two-year ban from the securities industry, Cohen started a new firm called Point72 Asset Management to manage his personal fortune. The long cloud of suspicion from the insider trading cases at SAC Capital made it difficult for Cohen to attract outside investors.
However, in recent years, asset managers including Point72 have broadly rebounded. And so too has Steve Cohen himself. After purchasing the New York Mets in 2020 for $2.4 billion, Cohen is now worth over $17 billion. Although Cohen is still notorious on Wall Street for the methods by which he attained his immense wealth, Traders Union analysts concluded that very few investors will ever match his appetite for risk or ability to profit from market volatility.
Love him or hate him, Steve Cohen’s legacy as one of history’s most successful traders appears nearly as firmly cemented as his place among the world’s billionaires. The question looking forward is whether Cohen can replicate his magic touch in the current, more challenging market environment.
Evaluating best brokers with free day trading simulators
Traders Union experts also evaluated the top simulators for Aspiring day traders to practice. Trading simulators give users a funded virtual account to buy and sell financial securities using real-time market data, without financial risk.
“These simulators are game-changers for developing expertise in this complex, fast-paced trading style,” told a Traders Union expert. “They let you perfect strategies and master platforms using virtual capital before exposing yourself to losses.”
Based on virtual funds, instruments, data feeds, time limits, and learning resources offered, TU experts ranked RoboForex’s simulator as the best for unlimited practice with $100,000 in virtual capital. Users can trade stocks, forex, commodities, and crypto on this globally recognized multi-asset brokerage.
Exness also earned high marks for its unlimited demo account that can be used to test expert advisor bots, which automatically execute trades based on predefined strategies. Meanwhile, copy trading capabilities stood out on eToro’s simulator, allowing users to emulate the transactions of successful eToro traders.
The experts explained that simulators not only build skills but confidence as well. However, they noted that “Even if you achieve great returns in a simulator, that doesn’t guarantee you’ll do as well with real capital but profiting consistently using virtual money can give your confidence a boost before going live.”
While some brokers limit simulator usage to 30 or 60 days, TU analysts strongly recommend opting for an unlimited practice account. “Day trading requires developing muscle memory and intuitive reactions to market moves,” noted the report. “That level of engrained experience takes significant time and repetition.”
So, for novice traders looking to avoid costly mistakes as they learn the ropes, firing up a broker’s simulator first provides an invaluable opportunity to master a trading strategy to perfection.
Traders Union’s comprehensive review of Steve Cohen’s trading career offers a deep dive into the strategies and decisions that shaped one of Wall Street’s most notable figures. Cohen’s journey from a middle-class background to a net worth of over $17 billion is marked by aggressive trading tactics, a high appetite for risk, and a penchant for volatile stocks.
Additionally, the article provides valuable insights into the effectiveness of free day trading simulators, like RoboForex and eToro, which are crucial tools for aspiring traders to develop and refine their strategies without financial risk. This review not only showcases Cohen’s remarkable career but also serves as a resource for understanding the complexities of the trading world and the tools available for navigating it.
About the author
The author of this article, Peter Emmanuel Chijioke, an adept analyst at Traders Union.