The only reason I could come up with for DB or any prop to move to a standardised 80/20 model is because they can't possibly remain or become profitable under existing business commissions, likely because of lowering commission incomes, risk tolerance is too low, underlying risk capital is too fragile or nonexistant, and overall trading profitability has decreased into the red, or is nil, or will be projected nil into the future. The only way to incentivise a trader to give up 15%+ more of his profits would be to trade firm capital under a hedge fund model, as a contracted employee/member of the firm, with combined profit-sharing, benefits, bonuses, etc. similar to existing bank/ib prop terms. Otherwise, yes, I agree with Maverick, BD prop will be dead. What I don't agree with Maverick is that GS doesn't know what it's doing in it's own restructuring. GS is not a firm I would ever bet against, not under even the worst of economic or political circumstances. They will always find the loopholes.
Listen people, you're all climbing up the wrong tree here. They're closing down retail shops who pretend to be prop like the people who run co's here. If a prop takes 100% of the risk, they could pay out 1000% of the profit if they wanted to. You're right Maverick, the 20 year loophole is over.
I'm not sure if you selectively read what Don writes, but his firm is a prop firm now that he backs traders in 50% split accounts 100% firm risk alongside the trader capital accounts. I have no affiliation with Bright, but I think you are being a bit unfair with what he's explained. If a firm shares risk with trader, they are by definition, prop.
Actually this is not completely true. Let me explain. In order to get this so called "backed account" you need to already fund a regular 25k account. So essentially you have 25k with the firm. Then Don creates a separate sub account for the JVC account or whatever he calls it. You have to fund your own account to get this sub account. And the account is only 10k. And if it loses 5k you are shut off. Don knows he is going to make that in commissions and haircut charges on your 25k account. I may be off on the exact details but this is the general idea. Look, any firm will do that deal. Shit I'll do that deal for you. And to top it off they take 50% of the profits. What they are doing is using your own commissions to fund a side account in which they can earn more commissions and a split from. Look, I'm not saying Don is doing anything bad with this program, I just see all the angles. I know all the tricks. I'm in the freaking business. I'm speaking from a position of honesty here that prop firms are trying to do anything they can to generate business. This is really not all that different from the firms that charge you 5k for education then tell you that you are trading firm money. That is until you lose the 5k. Let me be clear again, Don is not doing anything dishonest here. I'm not accusing his firm of that. What he is doing is manipulating the balance sheet so it's a win win for the firm and it doesn't really cost them a penny. Surely you see what they are doing.
Just to keep it "real" and civil, of course. Many of our traders have only $5k or so in their "normal" accounts - this has worked to help "save" struggling traders who have been helped by the discipline provided by the "free" account. Some started with $10k, some with $15k, and some with more. Many who would have "gone away" now have made $40K-$50K or so in the last few months. Many have made more money in their "normal" accounts too, with the help of the "group" mentoring. We are anticipating heading more in the prop direction based on our "experts" - but want to provide the highest payout opportunities possible in the meantime. Commission rates for the "free" account start lower, and go to under our actual costs (as low as .002 at this point, perhaps to zero in the future). I know you're a sharp guy Mav, "seeing all the angles" - but sometimes these "angles" can be a positive thing for both parties. If we collect 3% on capital use (pretty cheap, right?), and trader keeps half or more of the profits...well, that seems pretty good to me. In my old age, I honestly feel that the only "good deals" are those who work for both parties. Sure, we need to make some money, but so do the traders...not too much to over-think here. Heck, we may end changing our minds if this doesn't work - eat the losses, if any, and try something else. We have made mistakes before, but hopefully this isn't one of them. (as far as "manipulating" - I don't really see anything close to that) (As far as no risk, let me say that the last time we attempted this type of thing - our "portfolio" room - it cost us $millions , but we hope we learned enough to help with this latest venture). Don
Tired of editing, LOL...trying to make sure to address all your comments. The "use your own commissions" etc. Well, guess what...most JVC members have slowed down their "normal" trading by a lot, opting for the "free" account. I honestly think you may been reading too much into all of this, Mav. I've been pretty open (sorry Diane, I know, "loose lips" and all that - Diane is my Compliance Officer)....In the words of my famous friend "Vinni" - "It is what it is" - LOL. Traders have been asking, some begging, for years come in with less money, offering to split profits....the timing is right, we came up with theis idea, started in January, have about 170 in the program now....so far so good, keeping fingers crossed. Don
Missing from this discussion is the simple fact that there is a trade-off between risk and opportunity. You can get hired as a trader by a hedge fund (or until now by Goldman Sachs, etc) and paid a six-figure salary with plenty of capital and training, etc. That's a great opportunity for the very select few who have the connections, style, temperament, etc to make the cut. For the rest of us (especially us "slow learners"), we have to invest in ourselves because nobody else will. That's where the "capital contribution" and "independent retail" models comes in. I haven't done business with Bright Trading, but my impression is generally favorable. At least they're not advertising trader "jobs" on monster.com (I don't think they are, anyway). Bright Trading seem to understand the need for their traders to have a shot at longer-term survival.
OK Don, let me take a stab at this. BTW, you must love all this advertising I'm giving your firm. As the saying goes, there is no such thing as bad publicity. Maybe I'm not as smart as I thought I was Don. Because I read your posts and realize that I don't understand a single word of it. I'm going to have to stop by Borders this weekend and pick up the latest copy of gobbly gook speaking for dummies. So let me get this straight, a trader comes in to your firm, let's say with 5k (I'm really struggling to believe you do this) and opens account A. This is so called "regular account". He doesn't make any money so he decides to take advantage of the JVC opportunity that Bright is offering him. So now he has account B (the JVC account) and suddenly the guy is making money. This makes no sense to me. Whatever strategy he is using in account B, surely he could do this in account A. How does he suddenly become a profitable trader by trading in a different sub account. You teach these guys to trade pairs. What difference does it make which account it's in? My next issue is one that you seem to keep avoiding. Your margins are getting killed and with every post you write you seem to confirm this. A few years ago you were charging guys a penny a share, now you are charging guys just over cost and perhaps under cost in the JVC account. You then talk about losing millions in your last venture with backing traders. And somehow I am suppose to believe you guys have a viable operation going forward. Don pretend you are an outside investor. Pretend you have never worked in the investment industry and you are looking to make a private equity investment into this company called "Bright Trading". And you read all the things you are posting here. You see the margins getting crushed with each qtr. You hear the owners talk about losing millions on backing traders. You hear the firm is going to make little if any commissions going forward. Can you honestly tell me you would make an investment into this trading firm? Next issue. Don, I have a buddy that attended one of your "boot camps". This guy really wanted to trade with you. He's a good guy and a good trader. You told him he needed to come in with 20k. There was no mention of coming in with 5k. There was no talk of you letting him just come into this JVC program. All he got was a hard pitch to sign up and pay for an additional training program. So Don, I'm going to find out now if you are a man of your word. If my buddy calls you back. He has already given you 1k. Will you offer him a so called backed account? Will you honor your word? Will you let him into your JVC program? I have no ulterior motive here Don. I just hear a totally different story from guys that attend your boot camps. Guys that call you up and ask what the deal is. Guys that actually trade in your firm. Now in this particular instance, this "guy" is a friend of mine and I would like to help him out. The problem is the deal you are talking about on here is not the deal you offered him. This guy is not some youngster out of school, he has been trading for over a decade. And what happened to that guy that you talked about on here that went debit into your firm for over 7 figures on a pair gone bad. You said he was a good guy and he was good for it and he would pay you back. Ever seen any of that money? Either you guys are running a business that has no chance of making any money going forward or something is not adding up here. Don I do appreciate you answering these questions. The only reason I'm riding you so hard is because you are really the only firm that is on this forum talking about the industry. So the bad news is you have to take this shit from me. The good news is you get to make your story heard and get a lot of good exposure. At the end of the day, I maybe wrong on all my assessments of your firm. And when I am wrong, I will admit it. It's just that what you are posting does not add up. There is something missing here. Anyway, the floor is yours...