Liability for losses

Discussion in 'Prop Firms' started by tradergucc, May 23, 2005.

  1. I'm considering joining a prop firm but am not sure I understand the risk involved if one of the other members blows up.

    When/if a trader at a prop firm loses more than his capital contribution, what happens? What risk or liability do the other members/traders have? Who pays for that trader's loss.
  2. If you plan on becoming a member of any LLC type trading operation, first be sure that you are not joining a "sub-llc" - which would put you at higher risk. The board has been littered with groups that have gone away, often with traders money.

    Always check the balance sheets, be sure that you're with the main firm, and see if the "owners" are risking money "with" the traders. In our case, we put $10million into the traders (class B) account just to give everyone a comfort level (100 times what SIPC offers). So a trader would have to lose all their money PLUS $10Million of ours, before even a hint of risk would arise.

    Know who you're doing business with, in any business venture, not just trading.

  3. Don

    Thanks for the reply. So is what you're saying that if a trader loses more than their capital contribution then it comes out of your pocket? That sounds like it could get pretty ugly if the number gets big.

    Is that typical of an LLC prop firm?
  4. It's supposed to be, but as I said, we are the only firm that I know of that actually puts our money with the traders money for their safety and comfort level.

  5. cstu



    Could you explain what a "sub-llc" is and the implications of. Is it different than an llc? Thanks in advance.
  6. A traders end up joining a "sub-llc" (as opposed to the main firm). In the past, these sub groups have left traders in the lurch, abandoned office leases, etc., while the "main" firm simply rationalized it by saying.."gee, it wasn't really us, it was them, sorry" ....

    Always ask for and read balance sheets within 24 hours of turning in your U-4 application...have someone review them for you, check all compliance issues and regulatory history before turning over your money.