are prop firms illegal?

Discussion in 'Prop Firms' started by increasenow, Oct 13, 2008.

  1. I am talking back and forth with a prop firm and might join...ARE THEY ILLEGAL????

    **do they hold your cash for 1 year?
    **your cash locked up for 1 year?
    **isn't it illegal to trade with someone elses money?(meaning me trading with theirs??
    **and from another state? our is a prop firm not set up like this?
  2. no
  3. Joab


    J walking is illegal
    spitting on the sidewalk is illegal

    prop firms hire high priced lawyers and you have nothing to worry about.

    your biggest concern is the other traders in your firm and your firms safety switches.
  4. okay, I guess they are legal
  5. if prop wasnt legal, half the members at et wouldnt exist lol
    only thing i can say is make sure your prop firm will hold any legal actions in a decent country.
  6. do most prop firms absorb your losses or do I absorb them?...Example: I start today with prop firms $100,000...lose $5k first I start with $95,000 to trade with the next day????...what if I lost all $100K???...would the prop firm absorb that $100k loss?
  7. Jachyra


    Depends on whether you're talking about true prop or retail prop.

    In a truly proprietary firm, where you are an employee of the firm, trading their capital, and you don't need to make any kind of capital contribution, they would absorb all of your losses and you wouldn't be responsible for anything... although with those kinds of losses you probably wouldn't have a job for very long.

    In retail prop, where you're joining the firm as a member and making a capital contribution... your capital contribution is used to cover your losses... So if you deposited $100k and lost $5k, you would only have $95,000 left in your capital account.

    Now whether or not you'd be responsible for losses in excess of your capital contribution would depend on the firm's membership agreement. For the most part I would say you would be responsible for any and all losses you incur, even if they exceed the amount of capital contributions you've made... however, I think Don made a comment in another thread a while back indicating that at Bright Trading their membership agreement specifies that you're not responsible for any losses in excess of your capital contributions UNLESS you want to continue trading with them.
  8. I'll dive in again for second. One type of prop entails being hired as an employee, plain and simple. Technology has made it so there are fewer jobs for actual traders out there over the last few years.

    The other model, which I call the stock exchange floor trader model is simply designed for independent traders who want to take advantage of capital usage, relationships, tax advantages, mentoring and other perks. If you can "use" (not "abuse") a $million or more to engage in solid working strategies, you can certainly make more money than you could with a $25K retail account.

    In the second case, as we engage in, the trader has a sub-account. This sub account is no different than if you had an account at Schwab, IB, or anywhere else. If you make money, you have a bigger account, if you lose money, you have less.

    And, yes, in our case, you are truly "limited" to whatever you keep in your account. If you happen to go negative, and haven't broken any rules, then the Firm eats the losses.

  9. timcar


    Hey Don here’s a thought-------------------

    Maybe all those traders at the BIG WALL STREET firms (MS, LEH, GS, BSC and MER) should have been trading Retail PROP,(of course at Bright Trading) then they would understand that losing their own money is a possibility.
  10. thanks which of these needs a series 7 and which does not?...can you trade at a prop firm without a series 7?
    #10     Oct 13, 2008