Is undercapitalization a good reason to use a professional firm?

Discussion in 'Prop Firms' started by Cdntrader, Aug 24, 2001.

  1. I read alot about traders who are undercapitalized wanting to move to professional firms to gain access to leverage on small accounts.

    Is this a good idea?
     
  2. Htrader

    Htrader Guest

    One thing to consider is that professional firms often have high monthly fees, several hundred dollars at some firms. This might be an issue for really undercapitalized people. Of course, if you manage to get an offer from a firm that will provide you with their capital, I believe that is always a good opportunity.

     
  3. Are you saying that traders who have not been successful to date should not use 5:1 or 10:1 leverage?

    If a trader is undercapitalized what are the chances that he/she has successfully developed an effective trading strategy to date?

    If they have developed an effective strategy, will that strategy work just as well with higher leverage?

     
  4. vikana

    vikana Moderator

    Cdntrader: You have to remember that there is no free lunch.

    You will have to put up a deposit with the firm in order to trade. Gains and Losses are added and subtracted to your deposit daily, weekly or monthly.

    Let's say you've put up the mininum 25k. Some pro firm will not let your deposit slip below the minimum deposit. So if you loose 5k, you will have to write a check to the firm before you can trade again. Firms have different mininums and rules for when trading get's cut off, but the principle stays the same: You're risking your own money

    There are some Wall Street firms where you can get hired, paid salary and get payout of maybe 50% of your profits, with no deposit required. Those positions are tough to find.

     
  5. vikana

    vikana Moderator

    It's not obvious that a strategy that works acceptably with 2:1 leverage can be traded at 10:1.

    Let's say that the 2:1 account has a drawdown of 5k, that would give the 10:1 account a drawdown of 25k. You may now be under the LLC mininum account balance and be shut down. Leverage works both ways.
     
  6. Whine alert!
     
  7. the beef is over on the "TraderX and nvda" thread.. oh wait, that was boloney..

    as far as margin goes, personally i dont have a use for it.. my objectives are to first make money within acceptable risk parameters and second, control my expenses.. going pro offers higher leverage that i wouldnt use and higher expenses that i dont want to pay.. the most enticing thing about a pro firm to me is being able to associate with people who are bringing in the big bucks, not the ability to lose 10 times my money..

    -qwik
     

  8. the beef is over on the "TraderX and nvda" thread.. oh wait, that was baloney..

    there ya go Oscar TradeRX Meyer, sorry for the mistake..

    -qwik
     
  9. tradeRX

    tradeRX

    Ok quik ol'buddy....since we're reposting messages I ask you "how does this help me trade better tomorrow?

    "as far as margin goes, personally i dont have a use for it.. my objectives are to first make money within acceptable risk parameters and second, control my expenses.. going pro offers higher leverage that i wouldnt use and higher expenses that i dont want to pay.."

    Brilliant! Insightful! Keep risk & expenses low. WOW! Haven't heard this one before! Come Monday I'll make tons of money on that one!! Thanks quik!


    "the most enticing thing about a pro firm to me is being able to associate with people who are bringing in the big bucks, not the ability to lose 10 times my money..

    Gee quik, do you think this successful trader that you wish to emulate at this Pro firm is there because he DOESN'T want to use the additional margin? Good reasoning quik.

    tradeRX

    PS What difference does it make if you pay higher fees at the Pro firm if you are pulling in the "big bucks"! {{{shaking my head in disbelief}}}


     
  10. remember the hypothetical questions on the Series 7 regarding suitability tests for the indigent (you know, grandparents, retired and orphans).

    Well, let's go back and ask that question again:
    "Whould/Should you accept a desperate dilusional prospective professional trader into your LLC who is undercapitalized"?

    a) advise him to reconsider his financial state
    b) advise him to reconsider his financial state
    c) advise him to reconsider his financial state
    d) all of the above
    e) none of the above
     
    #10     Nov 24, 2001