Equity-only firms vs equity derivative firms.

Discussion in 'Prop Firms' started by HezBallah, May 15, 2013.

  1. So, in general, what do people think of firms like T3, Kershner, Chimera, WTS, Trillium, FNY vs other equity derivative firms like SIG, Jane St, Wolverine, Optiver, Bluefin etc. It seems like at the latter firms, the training is better (you at least learn about options), the methods are still relevant (the training at equity only firms seems focused on reading the tape, other methods that seem a bit dated), and are better capitalized. Have people noticed a difference between the two types of firms? Typically, I've noticed it, but I wonder if other people notice it and what the reason may be? It seems like the equity only firms seem more focused on churn than production. Is this substantiated at all?
     
  2. Maverick74

    Maverick74

    The 2nd group require a high GPA from a target school. The first group requires a pulse and a check.
     
  3. 1245

    1245

    The comparison is not a fair one. SIG and Wolverine are traditional prop firms trading their owner's capital. They don't take deposits and the traders are employees. When they hire, they have to train you. They hire from top universities. Most of those stock prop firms make their money from transaction fees and take first loss money from traders.

    1245
     
  4. hmmm... if an equity only firm is interested on churning only... how does that work? last I checked a lot of those firms charge 0.0005 per share... so, lets assume a trader does 1MM per month... that is $500 in commission to the broker... lets assume there are 20 traders... all trade 1MM... that is $10K per month...

    infrastructure, rent, compliance, payroll, etc... are way more than $10K per month.... so...

    what is the benefit of churning when your transaction profit is so low? wouldnt it make more sense tho ensure your traders are profitable (regardless of remote or office) and make $$$ via their P&L?

    I am just saying... a shop would have to churn 250MM per month just to cover costs in the city, at a minimum... wouldnt that be best done if you had traders that were profitable that traded that much volume?

    I dont know, maybe I am missing something... maybe I am a noob after all...
     
  5. 1245

    1245

    I think 0.0005 per share sound low to me for 1m shares per month.
     
  6. No you are totally right. A lot of these equity only firms have low fees... some of them are as low as 50% per 1k shares (Kershner), others are like $6-8 per share (Quad and FNY). But the theme is the same... throw a bunch of college kids into the fire and see what happens. It seems like they just don't have any relevant info to share anymore and it shows; the salaries are low and the pay % are getting higher (to retain producers).

    The derivative prop firms seems different. Their training seems comprehensive, the people there are fairly bright and quantitative, and the resources seem deeper. Have people noticed this? Any idea why the equity-only firms are lagging? While you're right the fees are too low to be churn only shops, and some of those equity-only firms don't require deposits (Chimera, Trillium, Kershner)... what exactly is the business model then???
     
  7. Maverick74

    Maverick74

    Your quote is way off. Bright Trading charges .0030 to .0050, that's $3 to $5 per 1k shares. Their whole sale cost is probably .50 per thousand.
     
  8. Maverick74

    Maverick74

    Guys who trade options have a solid math background in stats and probability. Most can do at least "some" programming or be intelligent enough to work with programmers.
     
  9. I know what bright charges, I wasnt thinking of them at all... I was more thinking of the other guys with lower cost to entry... $2-5K deposit... keep in mind that Bright requires $25-50K and their focus is pairs, unless you go in with 50K and do whatever you want (as long as it is ok with them...)
     
  10. They look for different things:

    The equity firms will take your 5k deposit and give you a very tight rope (5k of risk). They don't care if you make money or not. They just don't want you to lose more than your 5k and cut into their capital reserves. Eventually the 5k will come to them in the form of commissions and desk fees. If you can take more from the market, great for you.

    The derivative prop firms will train you to run their system. You aren't expected to make money on your own; but rather execute their strategies (which they won't tell you). Often it is "buy 1000 CSCO May 21 calls" and you don't know if it's because they are short tech gamma and need to hedge or have a strategy that think earnings are cheap. The firm isn't 1000 individual portfolio manager (like the equity prop firms); it's a giant machine of which you are one cog.

    Being in that seat affords you the ability to see the flow and see how others think. Some smart individuals have come out of those training programs and developed their own trading strategies and have made 10's of millions for themselves.
     
    #10     May 15, 2013