nothing in life is free so if your hoping for a draw why not hope to win the lotto. you got to be a bigtime talent for a firm to even thing of giving out a draw you can live on your first year. also if they do you will be in a big hole because they will overcharge you. i think the best thing to do is make money everyday.
Boy, what a discussion this simple question caused...some very valid and interesting takes on the concept. A "draw against future earnings" or a "draw agains potential earnings" is just that....a firm may give you $500 per week as a "guarntee" - you keep it no matter what. But if you make $10,000 for yourself after 10 weeks, you have $5,000 coming to you (unless, of course, they hold that for future potential losses). Your "paycheck" would show $10,000 gross, minus taxes, minus the DRAW you already took. This is not a big deal...just a way to give people some living money from their earnings. This is a salesman's method of compensation. If you "sold" a $200K house, and had $12,000 coming (if it closed escrow), then your boss may give you a "draw" of $5,000 or so with the understanding if it fell out of escrow, that you would not get any more until you closed another deal. IMHO, you're better off making the money, taking the money, keeping the money, without all the games....but, to each his or her own... Don
Thanks Don for the explanation. However, I'm still unclear about what would happen if the trader NEVER MAKES money in the future and gets fired/quits. Does the draw work like a cash advance with the legal force to retrieve payment from the trader's assets? I realize that prop firms don't give out draws anymore. However, what about during 2001-2003? Since many traders who received draws quit or blew out, were they forced to pay it back? I just don't see how it would be beneficial to a firm to give a draw in any situation (even when everyone is making money), since even if a trader turns profitable, there is nothing holding him/her back from leaving for another firm and therefore not paying back the draw amount to the previous firm.
We don't hold the trader responsible for any draws (which we have only in our family portfolio management group anyway). I wouldn't think that any "decent" firm would either. You are right about the whole scenerio. We choose to cater to the serious, independent, entrepreneur type trader (as opposed to the "employee" type). We don't need to come up with all sorts of ways to finangle extra money from the poor trader to cover his "salary." What you make is what you get...pretty simple and clean. Don