Since this is my first post... Let me first introduce myself. I work full time in a job that I don't have much passion for. Looking to transition into a trading career while I have 4 months paid leave from my current job. So, I'll have a paycheck while trading, bingo. I currently can't paper trade like I want to due to my job. I've been studying on my own by paper trading for about 1 year (slightly profitable), reading, and learning as much as I can. And I'll be honest... I realize I don't know jack compared to what I should know. But what I do know is this: this is risky career move and some of my friends call me stupid. But I'm willing to take the risk. This is my dream. During and after college I played poker for a living. I understand the basic fundamentals of bankroll management, risk management, odds, gut feelings, reads, and the psychology of losing big and the effects of winning big. That's not all. I ran my own business during and after college. I was successful, never largely profitable but it paid the bills plus some. Okay, so I've been researching prop firms in my local area. And will be going into the office to chat with the manager to find out more. What would be some realistic and informative questions I should be asking? I've already been speaking with a handful of other prop firms to get the basic numbers and get a feel. But this one is at the top of my list due to their location and opportunity to learn and possibly have a mentor. Any insight would be great. Thanks, looking forward to the creative replies since there seems to be a lot of 'creativity' here lol Cheers
You need to clarify what you mean by "prop firm". It's like saying you are going to meet with a "medical professional". The term can mean very different things in different contexts and geographies. Are you putting up money Are they paying you Are you paying them How are exchange rebates passed through Do they trade forex/equities/futures DMA and colo servers or something else Microwaves / other network optimizations How much do they pay in clearing fees
It's a prop where I put up risk capital. I can trade remote or at their office. Commissions/trade fees are passed to me the trader along with ECN fees/rebates. As far as I know they mainly trade equities/options. What do you mean by DMA colo servers and Microwaves? I'm assuming they'll allow me to warm up my hot pockets there in there microwave in the break room. I'm not sure how much their costs are per trades are... I know how much mine would be per share. Is that a reasonable question to ask them or something? Is that what you mean by clearing fees? I feel like I've covered the basic questions. I'm going to dive more into how much hand holding, educational services (if any) and would I be able to come on with a full time mentor of sorts.
1) who is the clearing firm 2) is the LLC & its owners members of any exchange 3) where is the capital contribution held 4) which class member will I be B or C 5) I'd like to see the prop firm capitalization form X-17A-5 6) are you a broker/ dealer 7) in the event of a dispute where is the arbitration location, I have seen some firms list Panama as arbitration location. but as Garachen noted you need to clarify what you mean by prop firm...
Ok. I think that's enough for me to go on. There are two main philosophies of what people call a 'prop firm'. They can be distinguished by how much you and the firm are aligned from a profit making standpoint. One group always requests first loss capital. Usually payment for desk fees / software and maybe some training. Then they give you a comissoon schedule and offer you a high payout of 80-99%. In reality they are fairly indifferent to your success - and they are certainly not betting on it. The other model is to pay a salary, rarely require first loss capital, and pay all your trading expenses until you've got something working. They also pass on to you all the rebates they get. It used to be that they would offer a 50% payout but that's not really sustainable anymore and 20-25% is the current norm. They are very invested in your success and have bet heavily on it. In one of these models everyone stays poor and in the other model you might get a 90%+ chance of the trader succeeding and everyone making good money. Just think about it. There's no way to maintain a competitive infrastructure when the trader is getting 90% of the profit. They aren't even trying. The whole model is to churn through people en masse and collect commission and desk fees off them. Even then, it really doesn't work out for anyone. Ask them revenue per person and revenue per trader. Ideally ask a few people separately. Good numbers would be $1-2M. If the numbers they say are 1-2x your day job salary then 1) they are lying and the number is actually lower 2) even if that were the average it wouldn't be worth the time/risk. People way underestimate the reward required to sink very precious time into producing a volatile income stream. For adequate retirement happiness and to compensate for the risk you are taking you should have 80% confidence you would be bringing in 300k+/yr after 18 months. I know several traders who have had million dollar years, never lost money, didn't overspend and currently are having trouble making ends meet. It's a path with lots of uncertainty.
Doesn`t really matter what Q`s you would ask and what A`s you would get.No one would give two hoots about you.You have to be of interest to people.
If they are a registered broker dealer in the US, and they use your capital toward their trading capital, your capital contribution will be held for at 1 year. You will be a registered person and subject to their rules and procedures including getting permission for outside activities like your current job. As an alternative, if you choose a customer account, you will get less leverage but won't have to take the series 57, won't be a registered person, won't have your capital held for 1 year and won't need permission to go back to you job. If you trade equities in a reg-t account, you will need to keep your account over $25K to day-trade. Bob