Other than the risk manager, what is stopping you from going all in let's say DNDN before an FDA meeting? If you're an independent contractor does the firm have any legal rights to sue you or something if you leave the firm with a big loss?
Don't they use a simple ratio in their programs to limit you to say 10x your net capital currently in the account like other brokers?
I don't know.. but even with that, do they have a recourse if you blow up? Other than a risk manager I don't understand how this doesn't happen at prop shops more often.
Not sure what 'independant contractor' is but there are two scenarios at a place like this: -you have series 7,55,63 and they let you trade 50x intraday and 4x overnight. If you are all in on DNDN and it is down more than 25% then they are at risk for that. You owe them the money, if you skip out then they tell FINRA and you lose your licenses. -you are not licensed and you have $25k minimum 'daytrader' rules deposit down. Therefore you get leverage on what you have in excess of the $25k. Let's say you have $35k then you get 4x on $10k overnight. DNDN would have to be down more than 88% for them to start to lose money on you.
What if your at a no deposit prop firm with no licenses, you have 3m bp, you are long 120k shares, and it down 10 bucks. Who eats that?
You could not be long 120,000 shares because with 3mm BP you would still be restricted as to # of shares in one name and $ amt in one name. You can't just go out and spend it all in one name, not how it works. 3MM BP would probably be 500k BP overnight and limited # of shares in one name. Computer systems do not allow for rogue trades. It just won't let you do it.
Can't speak for Anvil or Sterling, but on Laser back office, you can limit position size and which symbols you can allow any trader in your group to play with, so with proper risk management, this scenario would not materialize (can't imagine that Anvil at least would not have a similar feature).
Risk control is the most important factor in ensuring a trading group has longevity. Sterling allows for individual trader share size and stock selection to be controlled. These limitations are agreed to so there is no misunderstanding between the trader and the group.
No, you don't owe them anything. And in reality, you will not be able to get into a position that take such a big hit. You're far more likely to churn a large gross loss. There are risk controls put on every trader. It is very unlikely that a consistently profitable trader that scalps away for his profits will all of the sudden go all-in on a bio tech stock prior to announcements. He will essentially be losing his deposit and burning a relationship with his firm if he loses. The guys who tend to play for high stakes have special limits on them as well as higher deposit requirements.