From my own experience and from talking with others, if you take the take home pay per month divided by the gross you made, it likely comes out to between 30%-35%. By take home I mean net of commissions, rebates, desk fees, data feeds, haircuts(a term Bright uses to indicate interest charge for holding overnight), etc. All the firms out there have a different fee structure, but when you do some investigative work and get down to the bottom line, prop firms end up with approximently 70% of your gross. Seems like a raw deal to me. Especially when you consider the long run. Prop firms are like casinos...some traders will make it big and not fall in this 30% range, but overall, they will take 70% of the aggregate of traders' gross profits.
30%? I have never seen a prop firm that starts you out at anything but 50% in these markets. In the 97-2000 era maybe, but today? nitro
Yes I agree, profit split is >50% of net. But that is net of the commissions/fees you are paying to your broker. Higher payout brokers charge you a higher commission and lower payout brokers charge you a lower commission. Factor that in and you've got about the same take home imho. If a trader has an agreement for 50% of net and pays 0.4 cents per share and trades 500,000 shares a month. Then the trader is paying $2000 to his broker. Then what's left over, the broker splits it with the trader 50/50. Meaning the broker gets 50% of your positive net PLUS $2000 of gravy on top of that. Factoring that free gravy, usually drops a trader's take home down to the 30-35% range.
Interesting comment...Let's look at it from another side of the equation. Most business have to pay to use capital...we provide it for free on a daily basis. If you choose to put into place a trading methodology that requires the Use Of Capital overnight, and therefore incur a 2-6% per year "haircut" - then that is your choice. How many Fortune 500 companies have even a 10% "Net Net"? Run your trading career as a business....align yourself with people who can and will allow use of capital when you want it. I wish that SLK/GS would let me trade for free and not charge me interest as well....but Hey, it still beats anything else when it comes to making a living.... If a hamburger costs 2.50 to make, and you sell if for $3.00, you can start an empire....start your own Trading Firm, buy an exchange membership.....etc. And to think, the "hedge fund" types are grateful to give away 80% of their profits ...AFTER paying fees... I'm not at all defensive on this, I just want people to see it from other angles.... Even if you keep 30% after all is said and done (it should be higher, since at BT we don't keep any of the profits)..... "What a way to Live!!"... The "no money up" firms might be something to examine... most of them charge much more... and to save putting up a few grand, you might pay $10K per month in fees and profit splits.... In that case I totally agree with you..... so treat trading like a business, find a good partner...and make money... Don
I have to agree with a lot of Don's points on this issue. It has been my experience that there are 3 groups of traders when it comes to the issue of trading costs/commissions/payouts. Group 1 : those who have little or no industry experience (prop. or professional day trading) and have had no exposure to professinal rates only non-professional retail investor rates. The people in this group see the commissions paid by professional (prop. and high volume daytraders) as incredibly cheap. While many have trouble with the split aspect at some prop firms most can understand it if it clearly, honestly and logically explained to them. Group 2 : high level professional traders who have been around, know that there is no such thing as trading for free, and seek the deals that best suit their needs,. They look for value added services, and are not fixated on the 'price' of commissions as much as the true 'cost'. By cost I mean it is important to look at more than the number (dollar value) or price you pay to carry on your trading business and what the true 'cost' is in terms of intangibles. Cheap does not always = good and good does not always have to be high priced. High level pros are not nickle and dime, marginal, clowns always trying to squeeze the price of the inputs in their business down to nothing. They focus on being better and bigger traders and pulling more out of the markets, that's where their profits reside. Group 3 : this is the profile that spends the most time on these boards bitching about commissions and deals. Unfortunately this is probably the largest segment of the trading population. This is a large number of traders who are just good enough to survive at this game but think the only way to make more money is to trade cheaper. They concern themselves with price, not true cost and are marginalized because of this. They waste their time trying to save a little in commissions instead of investing their energies in figuring out how to take their trading to a higher level. These guys have a little knowledge about the industry and it actually hurts them. They think that because they have made a little bit of money and had a little success that they are god's gift to trading. My point here is this; Anybody who treats trading as a business (and that should be everyone who considers themselves a real trader) should be concerned with their cost structure its only logical. A little research and attention to detail can help any trader improve his profitability. But don't trip over dollars to pick up nickles and dimes! Become good enough and consistent enough as a trader that spending time worrying about commissions and splits is going to make a significant difference to your business. You can only get your costs so low and hence only benefit so much, but adding to your gross is boundless for most traders! Reality is this, if you are good you survive, if you are really good you flourish, progress and gain momentum. If you are a truly great trader you can write your own ticket, the deals find you. Here is a cheesy like saying for you; Good traders find good deals, great deals find great traders! And as for the rest, well most people could trade for free and they would still lose money. MACD
Good analysis MACD, and I might add that anyone who thinks that there entire professional life shouldn't be viewed as a business venture, should stop and re-think it. No one should expect "something for nothing" ...but as traders, we look for the best in all that we do. Don
lol, good point. I was just going to ask this guy what kind of style he trades to only end up with 30% of the gross. But now I know. And on that note. I heard some interesting things about Swifttrade. (mind you this may just be hearsay) check it out -----> Swift trade plans to open up prop shops in third world countries and pay the traders something like 5%. Because that would still be a decent salary in some of these places. lol. That's pure genius if you ask me. Don, any thoughts. As much as we bash them they are still trying to be ahead of the curve. Good for them. If I were to equate Peter to Larry Flint, would that be going overboard?
Bucket shops... Whats worse is that after they get done picking your pockets 'the man' is next in line...
"check it out -----> Swift trade plans to open up prop shops in third world countries and pay the traders something like 5%. Because that would still be a decent salary in some of these places." Pay them 5%? You can't get paid on a negative P+L.