Hedge Fund

Discussion in 'Prop Firms' started by btowntrader54, Apr 16, 2008.

  1. Instead of having to deal with all of this stuff, why don't the owners of these offices just structure their office as a legitimate hedge fund and hire traders. The salary could be minimal and mainly performance-based with a hefty profit-share going to ownership. This way the interests of the traders and owners would be more aligned and less open to SEC scrutiny.

    It would seem to be a good choice if they had the money. However, I'm going to assume money is the main reason they don't??

    Any intelligent insight into this?
  2. setting up a hedge fund legally is very expensive from what i recall. also, you can only set salaries so low.. there are minimum wage laws. lastly, it is rumored the SEC is going after hedge funds next in re: to licensing.
  3. I appreciate the response but those are minor issues.

    Startup costs: Not as expensive as one would think

    Licensing: I never said people shouldn't get licenses, although by the time the SEC cracks through the hedge fund industry for licensing it will be a while from now - hedgies are influential in politics.

    Salary: If you're a prop-turned-hedge, do a $40k base salary with a 3-month 'probationary' period in which you only receive $1,000 per month. If you don't prove yourself in that time you lose the job.
  4. well your question was "Instead of having to deal with all of this stuff, why don't the owners of these offices just structure their office as a legitimate hedge fund and hire traders."

    those aren't minor issues to the "owners of those offices." maybe they are minor to you.
  5. What if the trader loses money, who covers the loss? Are you gonna pay for a salary and for losses? Do you think your profits can overcome both of those and be a profitable business?
  6. Sorry, I don't get it .... prop firms and hedge funds are in a different business altogether, the underlying business model is completely different, so why the mix up?

    I guess your underlying reasoning is the following: "Hedge Funds - a nice (dream) place to work as a trader but very competitive (impossible) to get in, Prop Firms - very easy to get in but the deal sucks for a novice trader, hence if I where to bring the nice things from a Hedge Fund into a Prop Firm while keeping the easy entry requirements, I as a novice trader will have a better chance at the dream game ...."

    Unfortunatelly, I guess by now you see where the fallacy is taking you .... this is a non-starter!
  7. If you can get someone to give you $millions to trade with, and not keep most of your profits, then the hedge fund idea is great. Paying out 80% or whatever in lieu of putting up a little money just doesn't make sense to me (especially if you plan on making money).

    We've had this discussion a few times on ET, and there are some good reasons for running a hedge fund with $100 million or so, but raising that kind of money might be difficult for most people.

  8. <img src=http://upload.wikimedia.org/wikipedia/commons/thumb/d/d4/Karl_Marx_001.jpg/200px-Karl_Marx_001.jpg>

    "From each according to his abilities, to each according to his needs?" :eek:
  9. I think the manner in which hedge funds operate make it useless for them to hire lots of traders. Prop firms are focused on trading the stock market and capital appreciation. There is no particular strategy (other than trading techniques.) A hedge fund, however, will usually focus in a particular strategy (ie arbitrage, sectors, currencies, etc). Hedge fund strategies are not generally based on day-trading. More likely, their strategies involve swing-trading or core-trading so that they can sink a large amount of money into a security. The need for a high number of traders is somewhat moot, especially with all those automated programs used nowadays to start/liquidate positions.

    Plus, with the fact that a hedge fund is a limited liability partnership, I think any traders involved in the hedge fund would have to be a general partner instead of employee since they are actively involved in the investments of the hedge fund.

    Please correct me if I'm wrong, though.
    #10     Apr 18, 2008