Don, I would tend to agree. A $1M is peanuts when the prop firm allows the trader to trade with $1M on $25K down right? And there are hundreds of traders. So I would imagine at least $100M for safety. is that what BT has in reserves? just wondering... trader99
We give out our financials, as you well know, as should everyone....(just had to say it "one more time")... Don
Prudent broker-dealers generally don't allow their traders over 20-1 margin intraday. On $25K this is $500K in buying power. Risk can be fully controlled in an automated fashion depending on the trading styles allowed (overnight styles are obviously riskier). If the risk parameters are sound, a buffer of $200-300 can be very reasonable for 25-30 traders. I agree with you on one point though. If the firm has hundreds of traders the buffer should be fatter. But $100MM is massive overkill. You should look at the reserves per trader and the risk control policies of the firm.
We've been with the same clearing firm since 1978, and have been in plentyof "risk control" situations, and have always managed well. Our risk control procedures work real well. (as I am sure many others do as well).
Good point. I agree that capital reserves/trader and risk control are key when evaluating prop. firms.
My point exactly! But as far as I know this information is not readily available to prospective investors. Yes, I said investors. If they(the class A members) are asking you to contribute funds that they can use (they also benefit from the increased leverage provided by your funds) and control, you are an investor. For instance, if the total net capital for all accounts was only 1.5 mil and a few of the better capitized traders decided to leave, retire, wife divorces, whatever...and the capital falls to below 1.1 mil, then the firm would have to cease trading until the capital requirements could be reestablished. The individual trader's funds may be tied up for some time and if that was all the risk capital available to him/her then he/she would be up the proverbial creek. The single most significant reason that businesses fail(and traders)is for lack of sufficient operating capital. It would be comforting, as a prospective investor, to know that a company is well capitalized and not just "hanging on". snosur4
Sno has a good and valid point, there should be plenty of capital other than the traders money....(again, not trying to beat this to death, but all traders are in fact "business partners" with their firm, whether they like it or not...and should be privy to all information). Don
Don, With all due respect, you will always "beat this to death" because your mission on Elite Trader is to drive business to Bright Trading by creating a perceived critical importance with respect to net capital, balance sheets, etc, etc. Once you admit this as your modus operandi we won't have to keep revisiting this issue. Per your point that all traders "should be privy to all information," that is an operating decision specific to every firm. If you want to put your balance sheet on the front page of the Wall Street Journal then God bless you. It will make it easier for us to pick it apart if you do. But don't keep feeding us this diarrhea that traders should be "wary" just because a firm decides for competitive and privacy reasons to guard their confidential operating figures. The more you keep focusing on net capital and balance sheets, the more people will realize that this is ALL you have to focus on.
As long as other firms are deceptive in their recruiting practices, and continue to bring down the industry by keeping traders money (since they have none of their own), and lying to new people, I will continue to point out this simple and obvious business practice...everyone should know who they're getting into "bed" with. Ihave directed people to L&W, and other reputable firms when it made sense, so I am not simply promoting our firm. I am really sorry that it keeps coming up, and my points are wide open, and not directed at any single firm (which I could name several, but don't). I am not "slinging mud" (which I could very easily), simply helping new people to not get screwed. Sorry if it bothers you, but I feel strongly about it. When firms with these shoddy business practices finally "bite the dust" then the good firms will still be here....as it should be. Don (Enron had "sub-llc's" and other questionable partnerships, thanks for making my point about these practices as well).
Feudalism You have two cows. Your lord takes some of the milk. Fascism You have two cows. The government takes both, hires you to take care of them and sells you the milk. Communism You have two cows. You must take care of them, but the government takes all the milk. Capitalism You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. Enron You have two cows. You borrow 80% of the forward value of the two cows from your bank, then buy another cow with 5% down and the rest financed by the seller on a note callable if your market cap goes below $20B at a rate 2 times prime. You now sell three cows to your publicly listed company, using letters of credit opened by your brother-in-law at a 2nd bank, then execute a debt/equity swap with an associated general offer so that you get four cows back, with a tax! exemption for five cows. The milk rights of six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more and this transaction process is upheld by your independent auditor and no Balance Sheet provided with the press release that announces that Enron as a major owner of cows will begin trading cows via the Internet site COW (cows on web). I am sure you now fully understand what happened.