I am one of those people that Bright is allowing to begin trading with a lower cash "deposit" than 25K. I have spoke to Don and emailed him numerous times on my situation (Don says I hold the record for longest email thread he has been involved in) I am in agreement with Don that NOT putting up a sum of money is bad for the business (Bright) and for the trader in the long run. It is just human nature to not care as much or be as good a risk manager if one has NO risk. knowing that each side - Bright and the trader - are each taking some risk, contributes to both standing a better chance of being succesful in the long run. My point is many business models may work but human nature dictates that a shared risk approach works better and longer than most.
You may be in for a bit of a surprise when you actually start putting all the numbers together (zero $$ vs. some $$), and the "intellect" virtue is often used by those doing the manipulation (firms). What you call a "retail" model, is actually the professional model used on most exchange trading floors by clearing firms. Having strong traders partner with an even stronger firm to take advantage of the "economies of scale" (exchange memberships, volume discounts, routing, all the rest). There have been a couple of strong, respectable firms with zero entry traders (Shonfeld for example), but they have pretty much stopped (cut down tremendously). This leaves pretty much a void in this arena...the "self clearing" firms are having trouble making their monthly expenses (too much overhead, decreased volume). They tried setting up "sub-LLC's" to protect the firm, and have "multi-level" marketing plans in place, trying to undercut pricing, but this is pretty much over due to "self destruction." Another model: If a firm is charging the account double the fees, as is the case in most "prop" firms that I have seen, or keeping a big chunk of trading profits, OR Both!!...then the trader is actually paying the firm outright for the "privilege" of trading there. For example (after a short time)...a trader trades 500K shares per month (our average is 1.2 million shares, but I thought Iwould keep it low for this purpose), and they are paying about .8 cents too much per share (about the average), then they pay $4,000 extra to the firm "off the top." Add in ticket charges (as in some cases), then the $$5K / mo. profitable trader (minus $4K in extra fees) has $1,000 which is then split with the firm. After a few months, the Firm actually is keeping, not using, keeping much more money than the initial deposit would amount to.... Our model only works for the Firm when the traders make money, stay with the firm, and then increase their share size (thus a "win-win" for the firm and the trader). It won't work for every trader, but as they say...the "cream rises to the top." If you want to discuss it in more detail (for academic reasons), I am glad to talk to you directly...call me ... Note: I really, really, am not trying to spam or solicit, but am answering your questions as well as I can. My apologies to others who may read it that way. Don
ok, i guess goldman sach's trading desk is destined to fail then, huh?... as they do not require their traders to come in with their own capital and the firm takes 100% of the risk. if a trader loses money - he gets canned. simple as that. i think the fear of losing your job is reason enough to "care" about your trading and preserve your firm's capital (even though not your own).
Now you're mixing apples and oranges. Being a part of GS, I am fully aware of how firms like this operate...and they have excellent people acting in the capacity of filling orders, who get paid a salary, but the days of pure trading are pretty much over. There simply has been a major contraction in this type of position, there just isn't the need any longer (much like we don't need retail stock brokers much any more...thus all the layoffs). Getting a percentage of "trading profits" for GS is great, and so is becoming a professional NBA player, and there are about as many individuals doing it. We have tried to open up this "last bastion of free enterprise" (gee, a bit flowery, sorry)...to a much bigger audience. We took many of the exchange people in the beginning, and now we are growing with those who want to get involved. There is no "argument" from me...I wish everyone could do what we so love to do for a living.
Well, I consider myself a pretty smart guy who doesn't leave any stone unturned. Here's the deal I got from one of the "no-cost" firms: Based on my resume (Princeton grad, 3 years at major brokerage firm) I was offered the following: 97% payout $0 capital requirement $0 ticket fee $0.0080 per share (no minimum) $45 per 1500 share married puts $0 monthly desk or technology fee Stock options in the company (of course based on performance) Opportunity to trade on a desk comprised of young professionals with similar educational and work background and guaranteed to work under a top 10 trader within the firm = good solid training. None of that $2000 for a seminar in Las vegas bull. Supposedly, this is an average deal for someone with my background. "Double fees? Chunk out of my profits?" I simply don't see it here...so I don't know what you're talking about. I've done the math, and it seems to be a far superior deal and environment. Well if there is any sort of "intellect" manipulation, I think it would be me getting the upper hand in this case. Obviously the firm values my talent and potential and is willing to take the risk on me. They have a great track history of this method of hiring, so I'm sure they know what the hell they are doing. Supposedly, they built their proprietary trading arm using this recruiting methodology. Don, again I ask you, "How do you know so much about the inner-workings of your competitor's businesses?" Have you seen their balance sheets? Why so much negativity? I would have to say low volume would hurt a business model like yours even more as you depend on retail customers pumping in money through actively trading (that is your sole source of revenue). Self-clearing shops still profit on EVERY single trade made, regardless of volume. Overhead? What overhead? Do you know how much technology is involved with clearing these days? It's pretty much automated. I'm sure you already know though... Don, from the looks of it, it seems as though your view of TODAY'S trading industry is a bit outdated. Maybe it's time for you to actually find out how other firms are operating rather than making such blatantly false assumptions.
I'd check out and really put a lot of effort into talking to some of the guys at the top institutional firms, put a lot of effort into networking, check out www.wetfeet.com and www.vault.com, where you'l find lot's of crap but also some nuggets, start targeting the IB bulge bracket if you have the eduactional background, move on from there to the other brackets, while it's not easy at the moment that is the best that could happen to you. Eventually, if you're really good, you might even get to work as a proprietary trader, meaning that they'll let you take directional trades with the firms money. And then if you're really great you might even be able to move over to the buy side and trade for a hedge fund where you'll really start raking in the dough. Or just trade your own money when you've saved up a good size stake, at least you won't have starved till then because you earned a good salary with lot's of upside depending only on you. Financially it's clear, at most 1% of those trading at those glorified brokerages where you gotta put up money will compare with your average salaried dealer/market maker, and if you're talking institutional prop star at an IB, that's just way out of there. If you have the track record, you just sign your own deals. If your present employer doesn't like it, you bet that the next one will be more than happy to offer you that killer deal. That's the way it works more often than not, you just go to where the best deals are. If you wanna put up your own money and churn and burn at a glorified broker who basically just takes anybody who walks in the door, gives you huge leverage and then wants you to make gazillions of trades per day because those that give you full payouts just live from the commissions and costs plus silly seminars they can charge you, that's their only income, and if you really think you can earn money that way, what 95% who trade there cannot, then you better at least be aware of the fine print, and absolutely have a savvy attorney go over it. Active Trader mag had an article on some of these shops a while ago: Read the fine print Some proprietary trading firms may give traders access to money, but not the ability to fully profit from it. Understanding the conditions of your agreement is crucial to your financial health. By ROBERT A. GREEN, CPA To some traders (and would-be traders), proprietary trading sounds like an ideal situation: limited risk, plenty of training and support, and the opportunity to trade the firmâs money while enjoying a share of the profits. Not all proprietary trading situations are created equal, however. Some proprietary trading arrangements are good opportunities, but others â because of potential tax pitfalls and other problems â are more trouble than theyâre worth. Accordingly, traders need to understand all the details and carefully consider the substance of these arrangements before taking the proprietary-trading plunge. The pitch If you only have $25,000 to trade and donât think thatâs enough to do it successfully, you may be enticed by a firm that will take your $25,000 and give you a chance to trade as much as $100,000 of its capital. You are further led to believe the firm will pay for training, provide space on its trading desk alongside professional traders, and supply you with equipment and services critical to success. This firm will also be your broker-dealer and you will pay it (or its affiliate) brokerage commissions. However, this doesn't sound like a problem because the firm offers direct-access trading with sophisticated analysis tools and a competitive fee structure. You are hooked and sign the contract. You donât bother to read the fine print, but after all, why should you care? The firm trusts you with its money and pays for your training, salary and expenses. It is crucial that traders fully read a proprietary trading contract before signing up and, if necessary, hire an accountant or lawyer to clarify the details. The catch The reality of an arrangement such as this can be far different from what traders may have believed they were getting into. What sometimes happens is a convoluted arrangement whereby the trader opens an interest-bearing, direct-access trading account with $25,000 of his or her own money â risking his or her own capital rather than trading a firmâs money. The proprietary trading firm sets up a separate account for the trader with $100,000 or more of trading capital. The traderâs name is on this account, but technically, it belongs to the firm. All expenses for training, equipment, rent and other services provided by the firm are charged to the sub-trading account. In addition, the traderâs salary is drawn from gains to this separate, sub-trading account, and then in the form of a bonus at a predetermined time. All trading losses are supposed to belong to the firm, but the firm skirts this responsibility using complex restrictions and termination clauses in the agreement. For example, if the trader loses $25,000 (or whatever the initial deposit was), the firm has the right to terminate trading privileges and seize the deposit. Ultimately, the trader â not the firm â is responsible for 100 percent of the losses, trading expenses and taxes on any trading gains. (And new proprietary traders may find the âprofessionalsâ in the office are simply other people just like them.) The one benefit to the trader in this arrangement is the opportunity to trade $100,000 or more of capital rather than the $50,000 (including margin) he or she would have had in an individual account. Firms make money on commissions, and more commissions are made when traders have more leverage. In addition, some proprietary trading firms can increase their revenue by selling training services, equipment usage, desk space and overhead charges. Perhaps, had the trader realized he or she was buying tons of unnecessary stuff and using leverage to trade at dangerous levels, he or she would have skipped this âjob.â Active Trader Good luck
Treykool, You said: Based on my resume (Princeton grad, 3 years at major brokerage firm) I was offered the following: 97% payout $0 capital requirement $0 ticket fee $0.0080 per share (no minimum) $45 per 1500 share married puts $0 monthly desk or technology fee Stock options in the company (of course based on performance) Opportunity to trade on a desk comprised of young professionals with similar educational and work background and guaranteed to work under a top 10 trader within the firm = good solid training. None of that $2000 for a seminar in Las vegas bull. Now your an Ivy leaguer. Would you run a business like this? They take all the risk and the traders have nothing to lose and the house does not get a percentage of the profits. I'm sure you can't take money out for six months or you have to build up your equity to 25K or something like that before you can take out money. If you lose 5K, I'm sure you get "canned" or else how would the firm stay in business? I know a firm that gives this deal and that is how they operate or they would not be in business! You have to really use common sense in the business world and not rely on gimmicks and false promises. I'm sure this is a real "deal", just read the fine print and see how long it takes you to get your money out of the firm if you are profitable. Gene Weissman Lieber & Weissman Sec., L.L.C. gweissman@stocktrade.net
If you are just starting out and you need capital, then what you have going doesn't seem like that bad of a situation,.....however you would be foolish to stay if you have to give any of your profits up! That is crazy to even give 3% of your profits up! If you become a good trade and make serious loot you will head on over to where the professionals go Bright, Echo, Weissman, and so forth.. pay attention to what Weissman said about getting your capital out. Your main focus should be finding a good mentor, with out this you are just going to churn wherever you go. Right now learning to trade should be your biggest concern, worry about the deal after you become a kick butt trader.
I will only smile quietly, due to you age and aspirations...and disregard your arrogance and mis-information. Have you seen your firm's balance sheets? Have you done a cost analysis when a firm is offered for sale (nothing to buy except expensive leases)? Our traders learn more in a one week class (only a $1000 "lifetime fee" for continuing eduation) about trading than most learn in a lifetime. I hope your mentors have the same experience and success. Your deal is fine, better than some that I have seen....but don't let the smoke get blown too far up, since the "ivy league" thing has been beaten to death on this board, and has nothing to do with anything. You can now hope to make some money, let's check in again in about 6 months....and we'll see where you are doing then. I'm not trying to exchange "barbs" with you (just having some fun, above) so please take this opportunity to make strides within the industry...do well, and God's speed!! Do the other posters a favor, post up a weekly journal about your experiences, maybe it will motivate more people your way!!