LOL American Greed? Unless your capital was stolen, joining a prop-firm is a mutual decision. The regulatory environment is the cause behind the constant changes in the industry. This has been discussed at length here. There are a few cases where traders' capital has outright stolen. The firms closed and never returned capital. There are a few cases like this but the majority of the time that's not the case. I feel like the heavily-regulated firm are at even more risk since they have insane costs in oversight and compliance. By the end of 2014, I suspect there will be a handful of prop brokers left and most traders will other option other than an educational firm.
I agree that outright theft probably doesn't occur that much, although that is pure speculation. I will bet that firms that steal are less obvious, shearing a sheep vs. slaughtering it. You can shear it many times. I think most of these firms that are not scrupulous follow some form of shearing model. What seems reasonable is that firms, like traders, either by design or by accident, mess up on risk management of overnight positions, an automated system fails or returns the wrong values via a glitch, or the risk management team was sick and they had a newbie substitute: all of these are possible and likely probable. If those mistakes blow out trader capital, all the firm will do is maybe say sorry. You can talk to a firm with the best intentions, and still these things happen. Case in point, and I am guilty too. I once traded with my old risk arb manager under his sub account. I gave him 7K and got 425K buying power, for directional, not arb or pairs, trades, overnight. I am not really sure but that looks like about 60:1. He trusted me from my past performance, but still that's insane basically. I would imagine i am not the only one who has gotten ridiculous leverage like this. i could have blown it out and left a debit of 400K overnight, or more if I went into the close with a full boat. Inever did use that much overnight, just in the day. Fortunately it was in 2006 to 2009, my best years ever on percentage. I think he thought I was going to do arb stuff, but the plays were obviously short, and really hugely short back then. I don't think he ever reviewed my intraday positions and certainly not my naked overnight 1 legged short side holds. Maybe that's how I know this can happen at any firm. And I thought this guy was on top of pretty much everything. Ok...confession over.
60:1 is a bit ridiculous. You lose 50% of your capital on a 1.6%% move. Nobody trading with that much leverage stands a chance. Whomever gave you that much is just as guilty as you are for blowing out the account.
The prop firm which is a corrupt flawed model gave him the leverage. ...No customer is making the terms when borrowing from a bank.
I agree its ridiculous. But let's clear up some points: First, I don't think anyone uses leverage all in one direction on one trade. I had tens of trades on at once, on and off, some just for a few seconds, some for a day, and very few on for days at a time. Never was I all in one stock or instrument. That would move from ridiculous to insane on my part. That is serious rookie ball. My friendknew me from the risk arb days, and although my positions were not market neutral he probably assumed I was hedging in some way. 2nd: 60:1 was great for me. I didn't state that I blew this account. When I That's just your assumption. I zeroed two accounts when I started on my own with little training and 10:1 leverage. Maybe this is a good example of being unskilled (any leverage will likely bust you) and being skilled with luck (even 60:1 did not bust). I could have easily yes as you stated, but I made tremendous amounts of money over equity. Just because it worked out ok that time doesn't mean it's going to over time. And this risk, if it was present with the firm I traded with, may be present at other firms and that's not only possible but perhaps probable. I spent most of the calendar year prior to that scratching out on many trades, losing a little making a little. By the way, that doesn't sound sexy but it's terrific preparation for when a big move comes, because after a while of doing the right things you are very sharp when the opportunity presents itself. That's essentially what happened in my case with the 60:1. Good outcome, doesn't make it a prudent tactic and I agree with you. But I might have known better, I still took the leverage offered. I even think if I called the desk again they would have increased it probably. Yes it's truly scary. My post was an illustration of where I took the bait of leverage and was either super skilled at risk management or/and just plain lucky. What might be also scary is that, in this case, when firms see you making money hand over fist, it's probably even hard for them to reel in the buying power. A lot of people seem mesmerized by this situations. Human nature perhaps? Just like in poker and in trading, when you do the wrong thing and you make money doesn't mean its going to work over time. I was just using my point to illustrate that I could have done the wrong thing for many in the firm, and I was not monitored properly. If you are thinking of joining an arcade these are the outliers to consider. Remember nobody though LTCM was going to go under, a brilliant guy, seemingly brilliant model, no constraints, anyone remember what happened?
I doubt it. nothing has really changed in years. yes the 56 test for some firms but again prop shops/arcades are so small in the eyes FINRA/SEC and other agencies. everything will remain the same. I highly doubt Dodd Frank Act which is 10000s of pages even mentions this small world. don't lose any sleep over it.
The problem with these education firms is that there is absolutely no clarity as to what you are getting into in terms of trading or training. 1. You have no idea how much of your money that you just spent on education that you can lose. Ask them up front. They won't tell you. And you only get to trade 100 shares with a $50 max loss per day. 2. You have no idea up front of the costs to trade and no room to negotiate. There was a thread earlier here on elitetrader from one education firm (that was mysteriously taken down!!) that quoted rates MUCH higher than you can get at a prop firm. 3. There is absolutely no proof that they can teach you anything you cannot learn from a book. Ask them for audited findings of the success rate of their students. They won't give them to you. Ask them for the names of 5 previous students that are now successful traders. Contrast this to a legit prop firm: 1. You start with $5k you can lose $5k...pretty simple. 2. You know the costs as they are part of a proper document with all costs clearly stated. 3. They don't make any promises that you will be a successful trader. Unfortunately this is the truth. Not all traders will make it. However, the education firms will sell you hard that they will make you successful. They are all about selling the dream. However, you are not going to get that by watching old videos and taking quizzes about fundamental analysis and the history of market regualtions. Evo, it seems you work for or are associated with Alpha7 so I can see where you would say the above statement, but I highly doubt prop firms are going anywhere.
That's not true. Apparently, Echo has also closed down. I always said the best option for an experienced or intermediate trader is a registered b/d where there is more oversight and you have control over the capital; However, I was just saying it is not inherently the most valuable for every trader. I noticed JC is charging only $300 for registration fees which is good. Most WTS groups are charging higher registration costs. I was disappointed to hear EchoTrade has closed (according to Don Bright). I'm not sure if they merged with T3 or just closed. Any clarification would help. I didn't suggest prop firms would disappear. I merely suggested that there will be more consolidation and fewer firms to choose from at this time next year. The closings aren't coincidental.
I see where you're coming from but statistically speaking, your odds of overcoming the risk with that much capital access are very low unless you implement very stringent risk-management controls such as max positions, max share per position, etc.