And how do we know they don't end up like Harbor Securities. Poof! All your money is gone???? There is a risk that everyone here should be aware of. You can lose all your money without executing a singal trade. Ask those who traded at Harbor. Bill
I don't mean to be a party-pooper in this celebration of proprietary firms but you should be aware of the risk of becoming a "member" of these firms as Sniper points out. These firms are not SIPC insured. In case of bankruptcy, members have the same priority shareholders would have if the firm were a corporation--namely, the lowest priority. Moreover, it is apparently the practice of these firms to not disclose their financial condition even to their "members" whom they treat for the most part as customers. I spoke with a representative from ECHO who confirmed that I would not be given information of the firm's financial condition either before or after becoming a member. Considering the rapid expansion of some of these firms, I'm sure the business of running a proprietary firm must be potentially very profitable. However, just be aware that you will likely be out of luck if they shuttered their doors without warning.
is all of this switching really only about $15k. do i understand correctly? if you have 25 grand in your account nothing has changed? on-on
I have been posting about this....I traded with a prop firm before you guys even existed on this board, I think for the most part financial strength is public knowledge. ETG and Bright are bullet proof, Schoenfeld has been around for ions <b>What I dispise that these guys don't consider important to disclose info to traders.</b> This is really fucked up !!! They should have to be forced by the marketplace - i.e. <b>you the traders</b> if you don't think your 10-20k is important to you by all means deal with them but be firm and ask questions.
Sniper and Icarus, I guess I would be the best to respond to this since I have been trading professionally for almost 7 years now. Out of all the firms who do this, one went down. Harbor was an accident waiting to happen. Ask anyone who traded there what the atmosphere was like at that firm. There were no risk parameters, you could click as many shares into the software as you wanted. (The fellow that had the big loss took on a 600,000 share position!) Also, the guy that ran the firm would encourage guys to take bigger positions and to trade the high fliers. I once talked to him, and told him that I trade NYSE stocks and risk-arb, he told me I was nuts and if I wanted to make real money I should be trading china.com. Their burn-up came as no shock to any of us who knew them, we were surprised it took as long as it did. Now, the first thing that happened since then is that the SEC came and revamped the LLC's. All the other firms, who were running clean, doing things right, and would never have anything like that happen, still had tons of new regulations and scrutiny placed upon them. At the time, the LLC's had to have $100,000 in equity to open their doors. Now the SEC minimum is $1,000,000, but the clearing firms won't let them trade with less than $1,500,000. They are also now audited all the time, the regulators are all over them. The biggest change that was visible to the public is the rule that all traders have to have the Series 7. No one was grandfathered in when they did this by the way, if you were already trading you had 6 months to get it or bye-bye. The biggest change we saw is that all the firms became very strict with limiting leverage. I defy anyone to try and walk into one of these firms and try to lose more money than is in your account. From what I see, it is impossible. Harbor's risk management was to look at your sheets the next day, they had no way of knowing what you were doing until the day after you did it. For the other firms it is all real-time, I have tried for my own peace of mind placing large orders (away from the market, so in case it went through I wouldn't get filled) and at least at Echo, the order will not even get past my terminal. A message pops up "Exceeds max trade size." Try to place too many small orders, you get "Exceeds max buying power." They also have a staff of people watching every trade that anyone at the firm does. Now, lets compare that to a regular non-pro firm. From what I understand, anyone can open one of these firms with $5,000 in equity. $5,000!!! That's why on the internet every Tom, Dick, and Harry is trying to promote one of the countless firms that has Realtick and clears Soutwest or Penson. Where is there more financial security, in $5000 or $1,500,000? But they are SIPC insured you say? We'll, let's look at that. For a trader like me, and I would say that among the guys I know I am average, I carry about $50,000 in my account. I make on average $30K-$40K a month (except for this month, July has sucked) and I have them send me all my profits every month. I utilize about 20 to 1 leverage. So if I were at a place like IB, to trade as much as I do I would need to carry about $500,000 in my account. I go home every day in all cash, I don't take home any positions. If somehow Harbor happened, which I doubt could ever happen to any firm again, I would worst case, be out $50,000. If the non-pro firm went bankrupt, SIPC insurance would kick in, yay! So I wait a year and a half (that's how long I hear it has taken them to pay out, I have not experienced myself) and I get a check for $100,000. Yup, SIPC only covers $100,000 in cash. So in that instance I am out $400,000. You tell me, in both worst case scenarios, which is worse, $50,000 or $400,000? By the way, in case of a blow up, at a pro-firm you are not lowest priority as you would be with a regular firm. With the LLC's, the owners of the LLC, the class A members, lose every cent of their money first, before any of a traders' money is touched. Call any of them and ask. They also have legal implications if they disclose how much money they have, so none of them do it. It is not that they don't want to, I have heard that some of them have upwards of $50 million bucks. I am sure they would not be ashamed to tell you that unless they couldn't. Hopefully I have answered the questions for you guys. I encourage you guys to call any of the pro-firms and ask them all this. Call Echo, or another pro-firm I like is Lieber. Ask Gene Weissman at Lieber about this stuff too, he has some old posts in here about this and is very good about explaining it all too. One more thing that made me feel very secure. One day I had the idea to play a little QQQ, and I put in to short 200 shares, I put the order about a half-point above the market just to mess around. About a minute later my phone rang, it was the Echotrade Trading Desk telling me that I didn't have to send QQQ orders as a short, that it has different rules, I could just sell it. Dang! They watch every order that goes by! Since then I have been very comfortable that my money is safe. -Jim
Sorry about such a long post (I didn't realize how long it was until I hit the submit button), but this was a big issue for me before I joined a pro-firm, so I did a lot of investigating. But still, do your homework on any firm, pro or non-pro, before joining. -Jim
I'm intrigued with what I'm reading here about these PRO firms... But...What if for some reason or other you don't like the firm and want out, or maybe switch PRO firms... Can you get your money out FAST? Didn't someone here claim you have to wait over a year or more to get your initial funds back? Also, are these Series 7 exams given in most major cities? What are the software fees and ticket charges at Echo after Jan 2002? Thanks. tradeRX
I heard this exact same story from one of Echoâs principles from the first person perspective, as well. Seems like a number of people have had discussions with this guy.
I traded for a few weeks in an office with some Echo principals, I know they have had some experiences with the ex-Harbor principals. I think the story they told me was that the Harbor guy was going to the other trading firms afterwards trying to sell the Harbor trading software. I would be curious to know what firm ended up buying it. -Jim
TraderJimR, You evidently misunderstood the intent of my post. I'm not here to discourage anyone from considering these firms, and I will disclose that I am currently studying for the Series 7 exam in preparation for trading at the office of one of them. The purpose of my post was to disclose the downside of trading at these firms, and regardless of how indestructible things may appear, my approach is always (1) to try to know the risks, and (2) to reasonably prepare for all contingencies if possible. You are correct about SIPC insurance covering a maximum of $100,000 cash, but the maximum amount for a claim is $500,000. (I realize you may not hold overnight positions so the first amount is all you care about.) Moreover, many firms purchase private insurance to supplement the SIPC amount. For example, Penson has additional coverage of $24,500,000. According to the information I received from ECHO, they are not privately insured for such contingencies. I am not singling out ECHO--they are the only one I remembered to ask. And I'm not arguing that any of these firms should get private insurance. But I want to know this fact. You say that your account size is $50,000 and relative to the $30,000 a month you make it's not that big a risk. I agree with your argument for someone in your situation, but from personal experience I know it takes some newbie traders years to save that much risk capital. I have no personal knowledge of how long it takes to settle one of these claims, but, regardless, I think the insurance is not insignificant to someone who has but one modest grubstake to learn how to trade. Additionally, I want to address a point of yours which I believe is just plain misinformed. You state: "By the way, in case of a blow up, at a pro-firm you are not lowest priority as you would be with a regular firm. With the LLC's, the owners of the LLC, the class A members, lose every cent of their money first, before any of a traders' money is touched. Call any of them and ask." You seem to be implying two things here: LLC members are not the lowest priority in a bankruptcy proceeding AND customers of a "regular firm" are the lowest priority. This is just plain wrong. I grant you that as between "members" of an LLC there can be an agreement to set the priority in case of bankruptcy, just as between shareholders of common and preferred in a corporate bankruptcy proceeding. However, members of an LLC are not lien holders; they are equity holders, and as such have the lowest priority as a class in bankruptcy. That, however, is a minor point. The major point is that customers of a "regular firm" are not the lowest priority because they are not equity holders. Their claims in bankruptcy are not that unlike those of depositors at a financial institution. You also state: "They also have legal implications if they disclose how much money they have, so none of them do it. It is not that they don't want to, I have heard that some of them have upwards of $50 million bucks. I am sure they would not be ashamed to tell you that unless they couldn't." This is a rather curious statement, for you seem to be saying that somehow it would be unlawful for equity holders to know of the financial condition of their venture. I'm not saying you're wrong, because I don't have the law in front of me, but I would be interested in knowing the source of your knowledge. A citation to a statute or a point in the general direction of a regulation would be preferred over an "I heard it from them" statement. Finally, I want to thank you for your informative posts on this matter. They've helped me ask better questions when I've called these firms and also saved me time in making an informed decision in choosing to go to a proprietary firm. I hope my post adds to the pool of useful information on this board.