I am new to this whole prop firm thing...are they like marketmakers combined with fund management firms? Can the whole process happen this way: After seeing and satisfied with your trades and statements, they will request the details of your strategies. Otherwise, they will ask you whether it can be automated or backtested which is essentially the same as above. Then they disappear... Or take a further step , ask for $50K from you by tempting you to trade a larger fund... and in a fine line somewhere says loss sharing too ....did anyone see the movie about magicians "The prestige"?
it's is very unlikely that thes prop firms would go bankrupt due to trading losses as they are hedged. but the risk is 'theivery' or rogue management going chapter 11 and closing the doors which means your funds are gone and you become a creditor. there are not enough prop firms for any insurance company to insurea them or they have no track record. I think the SEC should regulate these prop firms cause $25,000 CASH is a lot of money to deposit into a private firm or business. and i don't care how 'reputable the firm is look at Bear Sterns and these hedge funds blowing up.. wall street has a history of fraud so no insurance company would insure the deposist of a prop firm..and there have been prop firms going under leaving the traders with creditor status... first of all i don't see how these prop firms would go under unless only for fraud or chapter 11 to steal your funds legally.
Maybe I could set up a decent looking homepage and advertise: " I am a part-time programmer who may program for you FREE provided you show me your strategy's returns for the last 3 years... Please pass me the details i.e. step by step of your trading secret...If it work, it's free, if it doesn't please pay me $9.99/hr for the last 240 hrs(including my nap time) By the way, I am with a prop firm, pass me all your systems and participation deposit of $25K and we can arrange for you to trade like a fund manager Also, if you want to buy or sell any property, contact me too"