firm takes risk deposit legal or not ?

Discussion in 'Prop Firms' started by jetmacrotrader, Mar 25, 2009.

  1. a prop firm takes risk deposits, but does not require its traders to have licenses. they told me the traders would be trading from a sub account from there deopsited funds. b/c there not a licensed b/d (although they have affilates that are b/d) is it illegal for them to take deposits?
  2. karth


    What is the name of the firm ? I am looking for such a firm too and it seems to be the norm everywhere.
  3. broadstreet trading
  4. Sub contractor is how they get around the no license, I trade for a firm with the same layout, more and more of these prop houses everyday, just make sure they don t kill you with transaction fees and hidden cost and if you provide your own capital the pay out better be big,

    good luck

  5. NazSpaz


    AKA - Tuco Part 2 :D
  6. okay naz, so please justify your reasons why this would be tuco pt.2,? does it have to do with taking risk deposits or not?
  7. NazSpaz


    No clue about these guys in particular, never heard of them before this thread. I would hope they would be smart enough to do something different than Tuco, but even then I know the SEC doesn't seem to like non-licensed traders being given greater than normal retail leverage based on giving money to the firm in the form of a risk deposit, they make it clear now and then with taking down a firm - a la Tuco. So whenever I hear a firm doing that it just makes me cringe after seeing all the pain the Tuco guys went through with it. I would highly recommend doing your homework and reading all the Tuco info in old threads here before making your decision.

    Don Bright is also a good source of info about all this, he is very versed in the legal aspects like this. Would recommend to yourself or anyone considering such a firm to call Don and hear what he has to say about it. He is a great resource for questions like these, I have always respected that he will take the time to talk to anyone from these boards, that is a resource you might want to tap as well.

    Personally I would (and did) just do it the right way and get a Series 7 and go with one of the long-standing prop firms if you want to make this a career. It's a pretty easy test if you read the book.

    Good luck!
  8. As a general rule, the deposit is simply asked for so that the firm can protect themselves in case you lose a lot of dough.
  9. (thanks for the invitation to comment, Naz..)

    It's a bit difficult for me to speak openly, on this public board, about non-registered firms. What I'll try to do is shed some light on generic examples from current times and the recent past.

    Some non-registered (non Broker Dealers) firms over the years have pooled traders money together to develop a large enough pool to keep open positions under the retail trading limits (PDT of 4 to one for example). This practice has been shown to be illegal in most States, and is a cause for concern.

    Various ways of trying to circumvent the in place PDT and other margin requirements have proven to be very costly to traders over the years. Other matters come to mind, such as aggregation rules, etc. Caution should be exercised with these firms, IMO.

    The question about putting down a "depsoit" can best be addressed in the way that the broker dealers do it (not just Bright). The capital belongs to the trader...the trader becomes a member of the Primary Firm's LLC (vs. a "sub lllc" or other entity). This is basically the traders "account" - to add money via profits, or to deduct money with any losses...just as with any account anywhere...IB, Schwab, etc. The Primary Broker dealer has capital from the "owners" - the Bright's in our case, shareholders etc. in the case of some other firms. This capital is subject to being considered adequate to meet "net capital requirements" for all the traders within the Firm.

    The allocations of profit and loss go to each trader, the overall capital usage is dependent upon the financial viability of the General Partner (owner). This capital usage varies greatly from firm to firm.

    Disclaimer: I, of course, cannot address the "legality" of any trading arrangement. I am presenting my understanding of how things work within our industry. These opinions in no way reflect legal advice, and may not reflect the opinions of Bright Trading or any of it's affiliates or subsidiaries.

  10. Are laws regarding this subject different in the US versus Canada ?

    We are talking about unregistered firms though, so that's another thing entirely.

    It is much safer to be linked to a registered B/D and have someone monitor the legal state of operations.
    #10     Mar 26, 2009