Very simple, and goes to some of my earlier comments. Grinding out a track record. My Partners have to sign an Op Ag that states if the become a Partner, they'll never get to know the Strategy ... if for some reason they find out the Strategy (certain Partners can have access information that other Partners do not have access to it), they cannot disclose it (and that I WILL enforce that under trade secret laws) for five years. For those Partners that do not have acess to that information? They have to agree to not ask about the Proprietary methods by which the Portfolio is traded, as those methods will not be disclosed. How do I get Partners? Again, as I've said before, that's very easy. I've spent time grinding out an audited track record. They can see that tear sheet. I have the broker statements to back it up. If they want a part of what I can do? Then they sign that agreement. If not? Best of luck to them in their future endevours. Your track record, audited, with broker statements? That ... that alone ... is 'who you are', and what you can demand from those with capital. It's why grinding one out is so vital.
Without disclosing your strategy, but with a well documented track record. Three or four years of decent p/ls - FOs -experienced backers - nobody gives a shit about your strategy if you can demonstrate you can make money. They are going to be more concerned with the geography of the trader, do their products compete with what they are trading now, is it scale able to be of interest. A non-compete for some people - the trader is the one whose gonna want the NDA. In the Chicago area where we are - something other than SPX or VIX as they are a dime a dozen. Chicago, New York, Philadelphia and San Francisco would be easiest in the US.
And I have to reiterate this point ... This is why grinding out a track record is so important. No one is going to agree to that, unless they look down, and they see ... yeah, amazing metrics, and they want to be a part of that. You can explain a strategy until you're blue in the face. People are smart. You explain part of a strategy ... and say: "You can't know the rest, but this is in essence, how it works, and what instruments it uses", oh ... oh ... "and here's the track record with real money for three years (actually, 10 years in my case)". Then, then they'll start asking to see the Operating Agreement.
A billion times the above. That's real talk. Especially when it comes to scaleability. You have to know how scaleable your strategy is, and this is something ... I hate to say? Most retail traders that think they can make money? They know nothing about. They think if they can run $25,000 on a YM intra-day 5 tick strategy ... they can run it on $11 Million. Which I can tell you as I have extensively quantitatively worked with the YM? You can't. You're scaled out on that periodicity on the YM. Most retail traders that ARE profitable? Don't know the first thing about scaleability.
In essence, this is how a water landing SHOULD go. But if you do not share it with the rest of the pilot pool, and explain only PART of what made the ditching successful, all will be lost for everyone. Same deal with trading.
This is why I think most are better off starting with prop shops. I think they are more likely to give a piker a chance. This is also a good way to get track record with larger amounts of money, plus it's OPM. Any opinions on this?
If some trades a strategy I would be sceptical without also seeing a nacktest result that goes back to 1998. So that you cover some interesting times and possible worst case scenarios. A few years of real-time records are not really representative. I also think that for small traders should use services like C2 or WealthSignals for generating income and track record. Scalability and reliability are just as important. But as I tried to say earlier, it seems that the originator is not even interested in the answers.
The problem with Prop any more? Is it's such a wide-open term. It can mean so many things. I consider myself Closed Prop, in that there are Partners ... we all know the score, I trade the capital, the Lawyer keeps the LLC compliant, and it's not open to outside investment. But then ... as you mention, there is a Prop Shop, which ... has wildly varied and changed over the decades. It used to be a way, for a Trader to gain valuable experience and he'd be 'given a shot'. And I think ... (and here it is) IF you can find a viable Prop shop, then yes, this is a way to find scaleability. But here's my experience with the modern day Prop Shop. They either: A) Do not understand Quantitative Risk Overlays and Strategies as they should (I could tell you some stories on this score that would curl your toes) if they are going to be opening themselves up to that sort of Capital Risk. Note: The proceeding sentence is the polite way of saying: "They dont really know what they are doing". Perhaps that's my Quant experience leading me to be a bit arrogant? But honestly, from my view, it looks as if they grab a couple of licenses, and think they know trading strategies, and try to run a Prop Shop. And they run nothing but intra-day strategies, in like two or three markets. Then, what invariably happens, is they run into a risk event, like December of 2018 .. and they start losing a LOT of money. So they become absolutely STUPID with their Risk Metrics. Like, only taking traders with a Max DD to UNDER 1x their Annualized return in a BRIEF time window. Which, although I do this, I don't do it day trading, and only the best of the best can do. Which leads me to point B ... B) They end up just becoming an outfit that Arb's losing traders. The model goes a little something like this: Pay us $XXX and we will "Train" you. There's a revenue stream right there. Now, I'm not bagging on that, not at all. But when I put the rest of the business model together? Let's just say it's not something that I would do myself, with a clean conscience. To my mind, it's sort of like they have set something up, where ... let's say ... you come along, and want to learn Poker (by the way, this is NOT my illustration, I'm stealing it a bit here). So Phil Hellmuth says: "Pay me $360. You get to sit at my table for an hour, and we'll play 20 hands. And I'll "train" you and "help you" with my expertise, to make you a better poker player. Now ... if you beat me in 20 hands by winning 15 of the hands in a row? Then I'll stake you." At the end of it? Ahhhh ... sorry. You didn't win the 15 hands in a row. Sorry. But you train really hard, and you might become a great poker player. I'm always available here, and you can come back, any time you want and we can do this again" Hey, great gig for Phil. He can use his status as to who he is, and probably have people lining out the door. $360 a pop, and probably return customers. How many people would start bragging to their buddies: "Hey ... I was PERSONALLY trained by the great Hellmuth himself ... so ....". And very likely, his comments on individual hands, and how they are played? Would be of TREMENDOUS value. To anyone. Dear God, it's Phil Hellmuth for pities sake. Heck, I'd pay $360 to sit at the table with him, if he'd give me pointers. Gladly. But staking me? My value as a Poker player? Would have nothing to do with such a restrictive sample size. Dear lord, Big Poppa, the Texas Dolly himself could be sitting at the table, and not win 15 hands in a row. Are we going to say Brunson isn't a good poker player, because he didn't win on such a limited sample size? Then, add to this ... C) Very often, they have some sort of rebate scheme set up, with the volume that they bring in through the door, they are getting a piece of that action through a rebate. So all told? The way I see most Prop outfits today? They have constant people coming in, trying to "lean to trade", paying them $300 or $400 a pop ... making the risk metrics RIDICULOUSLY high, and then if you DO pass, for those traders that DO make it, they are making money off of the rebates they have set up, or some sort of Commission Sharing as they are acting as an IB. Their whole business model, is arbing losing traders, to a select company that can play at the Phil Ivey level with Phil Ivey's specific style of play and talent set. Heck, to continue that analogy? I would say that Brunson would fail out of their program. They only want "Phil Ivey's" and that's it. My own personal Litmus test is always: Would I run such a business model myself, and be able to sleep at night? With that one? Nah, I just wouldn't be able to live with myself. So all told, to answer your question? Yeah, I think it could be a great way to learn about Scaleability issues. IF one could find a legitimate Prop outfit accepting traders.
Yeah, I'd agree with much of the above. I didn't mention the backtested results? Because ... to be quite honest ... many don't know how to do it properly; and avoid things like testing for Noise Ratio, not succumbing to Curve Fitting their entries to changing environments, finding the actual E-Ratio, etc. But if a trader can backtest the results properly? And understand it's just the past, and all of the problems therein? Then yes ... they without question should have it backtested back to 1998. Most aren't willing to put in that work though. Like you mention, they can't even be bothered to put in a measily three to five years of audited track record before trying to drum up capital.
I've posted the strategy elsewhere. It's not complex and is mostly about dividend collection on a hedged leveraged position. It has worked fine in the account with no drawdown and nets about $500/mo with my current limited capital of about 37k. However, reg t is limiting. Using the same strategy with 110k and portfolio margin with sufficient leverage would yield about 10k/mo while being Delta neutral. It compounds quickly and if the dividend drops too low you simply unroll. It is profitable as long as the yield is above 5%, but currently it's around 12%. It's not sexy or high frequency so I doubt a prop firm would be interested, but it would more than double the starting capital each year even with some dividend cuts.