Hello fellow prop traders. I am starting this thread out of curiosity. I had wondered how prop firms are established. Where do you start if you want to start a brand new prop firm. Do you go to a clearing house or to a brokerage and negotiate a deal? How do you get a Software provider like Sterling support your firm? What would be the minimum capital need to start such a venture? What is the legal structure of a prop firm based in the US or Canada, the UK or any of the tax heaven countries. Please give me your insights into how could one of us start a prop firm if capital was not an issue. Thank you in advance, prop trader
"I am starting this thread out of curiosity." with this ridiculous remark why should anybody respond to you. you see the button in the upper right hand corner. hint: s....
You have to go to clearing and open an account (price generally based off volume), then go to software manufacturer, then accounting software manufacturer, then to the right regulatory body and obtain the proper license - if you are in the US. I would say a rough figure on the estimate is rough 100k for a small broker starting from scratch and that's if you want to take trader deposits. You're gonna need a lot more than 100k if you want the traders to trader high-leverage of firm-capital. It's very difficult for someone outside the business. I have no experience in the back-end myself but it definitely requires a small work-force of 3-5 to manage deposits, payouts, etc. and reconcile it across the trading platform, propreports, quickbooks, your accountants and tax lawyers, etc. It's just getting more difficult & more expensive & with the new HFT laws and large parts of Dodd-Frank going into effect this year, there's gonna be more and more of the industry's firms condensing, resulting in a only a few options for prop-traders, all of which are highly-powered firms with lots of legal protections behind all the loop-holes in the laws. personally, I don't see a prop-firm can be profitable in the long-run unless it's a small-group trading in the market for-profits. The remote-access brokers is becoming more and more of a thing of the past. Heavy regulation has a lot to do with it, along with an economy where people aren't willing to take risks trying strategies. It's a combination, really.
Maybe this will help you: http://daytradetheworld.com/ I think this company is somehow connected to swift trade. "In business since 1998."
It is swift. They branded the technology / connectivity business as Orbixa, and rebranded their branch franchise business as DayTradeTheWorld. They were never shut down by the SEC despite what some people think. -- Also, laughs at the TOS charting they are using on half the screens in that video.
If you're going to be a "prop firm", and structured as a partnership, not a broker-dealer, then no registration is required in the US. One advantage of managing your own prop would be choosing how you allocate capital. If you don't have any viable strategies to work with then why risk? I kinda see starting a firm (again, partnership of traders, not being a broker) as a natural progression to trading on your own when your strategies could be better employed by multiple people or you want to spread out your risk between multiple products and styles. That is to say, if you're starting one without any edge (expecting people to bring the edge) then you're going to have a hard time. Then again, I've never started my own prop, nor managed a floor.. so I could be wrong. Just my observations as a trader.
The way I understand it, you would have to be structured as a hedge fund and isolate the traders from the investors, if you need it to be that way. it's still highly unregulated, but that's definitely been changing. If traders are going to have their own accounts and funds allocated per-user instead of a large firm account, then you need to have the brokerage license. In terms of prop-firms you need to look at it this way: if you had a strategy that worked well, would you be willing to let anyone with 5k join & teach them the strategy? If it's truly profitable, you would keep that data highly-secured and would not be willing to jeopardize it by giving it out so easily. That leaves you with the realization that prop-firms are nothing more than direct-access brokers. Some offer basic training on execution and some basic technical analysis for free, some offer more for a higher price. Unless the firm has a multi-million dollar investment in technology, it's gonna be very difficult to convince me they have an edge. I can understand why young people might want to learn the skill on the cheap and putting up $1500 or $2500 or even $5000 and getting free scalping and execution training and a "trading permit" (licensing scams seem to be the new way the government is funding private regulatory agencies that can't stay afloat on their own) is well-worth it then what the hell. The firms can make $$ by marking up routes some. Sometimes you can use these strategies to make some $$ but eventually you'd get kicked off the routes or what not, so it's really best to learn to execute well. The way I see it, if somebody had a profitable strategy, why would they be teaching it to others to literally make pennies on the transaction? Wouldn't they be a bit more secretive about it? I personally don't post anything about my trades online because it's none of anybody's god-damn business. The type of firms you find on the internet generally offer few benefits among those including: data subscriptions, access to routing options, leverage, pre & post-market trading, support, Etc. Nowadays prop-firms are nothing more than service providers who take risks on providing leverage in return for making a little bit off your executions. The new regulations make it so expensive to run these firms that I expect most will go under within the next year. It's sad but the only option may be going over-seas where there is no oversight and your $$ is at greater risk. A few overseas firms have been around for a while (http://www.tmglobalcapital.com or http://www.nevistrading.com/ some have even recommended http://www.nonkotrading.com - so they're probably more easily trust-able, but you never know when doing business over the internet. I've told other traders in the past that if you're biggest concern is keeping your deposit safe, you're better putting it in the bank than in the market, since the market will get to your funds a long time before the prop firm does.
I'm kicking around the idea of opening a trading office within the next 6-12 months. It won't be a prop firm but just nice place away from home to trade your own money. Now sense I would just be charging for desk space and would not have access to anyone's money would I have to register with any government agency? Common sense says no but I thought I'd ask anyway. Thanks.
Sounds like you're just running a shared office space, or office coop.. so I wouldn't think so. Of course that changes the moment you handle execution, and such, for people in the office.