One slight difference. We are talking leveraging over night positions and in some cases with futures. Also, Bright wants 40k. These guys want you to put up a million. Maybe as little as 100k to 500k. That's a lot more cash to risk on an overnight blowout. Also, most the guys doing this are not trading pairs, they are holding leveraged directional positions, in most cases, futures.
So the manager takes all the risk and gets a fraction of the reward. Your business is not sustainable given this skewed arrangement for several reasons: 1. While this is a fit for some individuals, the problem is that by creating such an arrangement you will be attracting a certain type of trader, e.g. a desperate one who doesn't know any better. 2. Dangling the carrot of "further funding" based on drawdown and PnL leaves a lot of room for interpretation. You provide no incentive other than a promise that you can break at any time. All in all, this is a horrible deal for any decent trader. Any number of firms will back a track record, and provided trader risk capital, will easily give PnL splits > 90%.
Actually, the business is not only sustainable, it's incredibly profitable. The traders who are not able to manage risk are quickly out of the program (either because they realize that their risk control is not strong enough for this arrangement, or because their capital balance declines). The traders who ARE managing risk end up making a strong profit for themselves AND for the funding partner. the "further funding" isn't a carrot being dangled. The institutional investor HAS MADE - AND CONTINUES TO MAKE allocations to managers in the program. This isn't hypothetical, it's actually happening. "A horrible deal for any decent trader." Really?? You can say that with authority - with no exceptions - without even looking at a trader's strategy or returns?? I don't think you can simply make a universal dismissal without looking at each individual situation.
Plenty of traders can put up $100k or $500k in risk capital - especially considering the fact that the returns are also magnified significantly. Your argument is similar to saying that its ok to play $1/$2 No Limit Hold Em because the stakes are low - but it's unwise to play $10/$20 stakes. If you're well capitalized, higher stakes allow for higher profit. And isn't this business built around leveraging your skill over more capital so that your business can actually support a professional?? "Most are not trading pairs, they are holding leveraged directional positions, in most cases, futures." Where did you get that information? That sounds a lot like an opinion stated as fact. The truth is, the program specifically avoids most futures traders - unless they have hedging techniques to keep them from taking directional bias that would put the account at risk. These guys are SERIOUS about risk control. It's why they have set up the program to be the way it is. It's why they perform due diligence on managers before they accept them into the program. Let's not dismiss the idea universally and base that dismissal on opinions that don't bear resemblance to reality...
I agree with you here. This model is very lucrative for you and it is sustainable. There is no shortage of traders out there that will take this deal. I'm not knocking your business model. It's a solid one for you. Just not the best deal out there for the trader.
So you are letting guys leverage individual stocks 10 to 1 over night? Check out PCLN today. LOL. Good luck.
Yeah, and any "trader" who held a leveraged position in PCLN heading into earnings DESERVED to have their head handed to them... c'mon now. Shall we have a legitimate discussion, or use isolated examples to try to prove a perspective that you are already committed to... Who says a trader couldn't have been SHORT PCLN. Or even being long, would you really put more than a few percentage points of risk capital into this kind of play. The funding group is looking for REAL traders. Not guys who are going to load up on one stock and head to the airport with a ticket - hoping to be right, but ready to flee the country if they are wrong. That's not trading. You can play roulette in Vegas and have more fun if this is the way you trade...
Quite a few if you come in with >100k of your own cash as is being discussed here. Some even have separate groups that will fully back traders with no contribution (I think the split is 60/40 in that case). Hold Brothers Echo Schonfield (Opus) Just to name a few. Make the calls and negotiate, you'll need a securities license though... In these cases putting up your own risk capital is *huge*! And yes, I can see why the business is profitable for Mr. Mcdermott and his investors. Its a free call option at the expense of the trader!!!