Generic CBOE/CBSX firms vs generic Canadian firms and the winner is

Discussion in 'Prop Firms' started by cactus_trader, Dec 5, 2010.

  1. Generic CBOE/CBSX firms vs generic Canadian firms and the winner is

    Canadian firms hands down with the new CBOE/CBSX 90/10 payout model

    Lets compare (software, ECNs, routes, and SEC fees being equal for both) and leverage is same as well.

    Scenario 1
    Trader has an edge of 1.5 cents per share and traded 1,000,000 shares. Gross profit is $15,000 for the month.

    Generic Canadian firm
    80/20 payout model and dirt cheap commissions (they do not mark up commissions but traders pay what the firm pays from the cleaning firm) so lets use 5 mils

    $15,000 after payout $12,000 and now subtract commissions (5 mils is $500) = $11,500

    Generic CBOE/CBSX firm
    90/10 payout and average of about 35 mils for 1,000,000 million shares (some CBOE/CBSX firms are from the low 30-40 mils at the 1,000,000 volume mark)

    $15,000 after payout is now $13,500 and now subtract commissions your account is $10,000

    Difference between the two $1500 monthly and an annual amount $18,000


    Scenario 2
    As we know most traders are not profitable, so our trader does not make any money but traded 1,000,000 shares in the month. Some winning days and some losing days and he ended up with flat.

    Trader did not make any money so he didn’t have to pay out his profits, just his commissions of 5 mils (his account is only down $500 the month)

    Trader with generic CBOE/CBSX firm traded 1,000,000 shares at 35 mils and now his account is down $3500!!!!

    Again Canadian model is better. Trader didn’t make any money but his account didn’t get crushed.

    CBOE/CBSX firms are b/d they make money by marking up commissions, the commission game is dying as we know it. The margins are getting tighter and tighter. The Canadian firms make money on profitable traders not the churn and burn model.

    The year lock up. SEC Rule 15c3-1 is really in place for capital requirements but prop shops actually love this rule as the average trader is going to be stuck at this firm for 1 year. If you do not like your retail firm or Canadian firm you can just take your capital and go to the next. You need to wait for 1 yr before you get it back with the CBOE/CBSX model! If I do not like my account interactive brokers I will just switch to Lime brokerage or vice versa. The 1 yr lock up will keep the trader with the B/D typically till he churns his account to “close cancel” status and his money is gone. It’s uncommon to see Canadian firms who have locks ups

    For the most part, the CBOE/CBSX trader joins a remote firm for leverage. That’s it for the most part. These firms have the lowest barriers to entry (typically 5k capital and no U4 S7) These firms are b/d’s who do not provide any value to the traders. Most of the remote firms provide no training, no special information, and no unique programming help. If have a software question you need to call your software provider, don’t call us type of attitude, wait 2 months for your U4 to be cleared etc.

    I do not represent any Canadian firms, I just want to inform that the CBOE/CBSX model loses the Pepsi Challenge in every way.
  2. Maverick74


    I asked you on the other thread and I did not get a response so I will ask you here. Are you saying that any US citizen can join a Canadian firm while living in the US and trading remotely?

  3. Yes.

    I thought I submitted a response to your post in that thread, but I guess it never posted.
  4. Where did you find that Canadian firms accept U.S. citizens? Can you please name some firms?
  5. Maverick74


    Ok, no problem. So what was your response?
  6. There are advantages/disadvantages with both models. One has to consider other factors besides just the commission. Of course, it's always best to get the lowest commission, especially if the CBSX firms begin to cap their traders at 90% payout.

    What about regulatory oversight? Do Canadian firms file monthly focus reports with their SRO, or is the structure more like a private equity group LLC, where you have no idea about the financials? At some point it's always a matter of which firm you are willing to trust, the integrity of the owners, and your luck in trading with a firm that isn't going to mismanage and/or disappear with the funds.

    However, if I can view an SEC report, for example, and know that a firm has plenty of Class A/Class B member capital, then Rule 15c3-1 is not much of a concern. If a newbie comes into the business and simply "churns and burns" their initial 5k within a year anyway, then 15c3-1 also is not a barrier to entry.
  7. Yes I see your point but I would not rely on the SEC or any financial organization to really run a tight ship. Look at Madoff, other ponzi schemes, all kinds of insider trading issues, bond rating agencies, Now SAC Capital as of recent is in trouble.

    We can go on and on how financial regulatory agencies have dropped the ball.

    Scenario 3.
    Our trader has a very small edge per share, he feels he can profit in the markets from his superior order execution. He knows all the routes, dark pools, mid point orders, ECN rebates and his edge per share will be a fraction of a penny. His volume per month will be in the millions.

    with the no mark up commission model, he stands a chance to make it.

    the traditional model, he couldn't even attempt this strategy.

    Scenario 4
    Joe Lunch bucket from Palm Springs, CA is a registered representative and sells securities to clients. He works typical hours and manages a decent book of client accounts. He wants to try trading in the first few hours of the day, but he doesn't want to put up a large amount in a retail account, he just wants some leverage and wants to dabble in the markets part time.

    If he goes the CBOE/CBSX route he has to worry about all the dual registration issues and he may be turned down.

    If he went to a Canadian firm, he has to disclose to his b/d he has a trading account but he doesn't have to worry about dual registration issues.
  8. fyi, this thread is a carry over from Mav's thread
  9. Yes, and the posts by Maverick74 and CQNC make some very valid points. The question that has not been answered is which Canadian firm(s) that do not have a U.S. presence will accept U.S. based remote traders? CQNC provided a solution whereby one can incorporate in Canada as a workaround.

    It's doubtful that a U.S. based remote trader who wants leverage and starts out with a 5k account will go through all the required hoops of setting up a Canadian corporation just to save on commissions, however someone that trades higher volume and has the ability to put up more capital may find the risk/reward justifiable.

    I do agree with your point on the regulatory issues, since there are no guarantees unless you are willing to open a SPIC insured retail account with 25k min., but why take chances when there are other options? Perhaps I'm biased since a bunch of us got burned by an LLC, and several traders in our group either went retail or with the many different registered firms as a prop. As posted earlier, it's the combination of the firm and your luck, as with any business.
  10. Regulation changes is forcing many traders in the U.S to open accounts with Canadian firms.I already have setup 3 U.S traders with the firm i am trading for.
    Hands down the Canadian model is more beneficial depending on the amount of volume you do.
    Let me know if any traders are interested,i have many contacts with Canadian firms and network with dozens of traders.I can hook up any trader with a firm suited to their style of trading.
    #10     Dec 5, 2010