Opening A Prop Shop In Dallas?

Discussion in 'Prop Firms' started by Leo Capelli, Jul 24, 2006.

  1. Hmm, ok. I live in both Dallas and Chicago and I might be interested in providing the space and computers needed. I am a computer tech by trade. I work mainly with Dell hardware although I service HP, Compaq and IBM stuff also.

    I had debated opening a shop a few years back (you can check my thread history and see that) and I have access to quite a few locations that would lend themselves well to this type of venture.

    If we can come to a lease space amount and rental rate for the needed stuff, I might have part of what is necessary from that end already. I just offered to open a space to a firm in Chicago for trading. Having a Dallas operation would be of interest to me also. :)
    #11     Jul 28, 2006
  2. sub0


    That's a good idea. There is definitely some demand for it. Who would you clear through or join up with? Which prop firm? Or would you start your own?

    Let me know if you need any help with anything, as far as operational stuff.
    #12     Jul 30, 2006
  3. Check out Vantage Capital out of Dallas. A friend of mine runs the office and they have some successful trader and it is a good environment to work from.

    I would think that a deal could be worked out to do a sub group in some spare room and and join their low volume rates that they get.

    Mike is a very straight up guy and also runs some remote options and futures traders nationwide.
    #13     Jul 30, 2006
  4. sub0


    Thanks for the info! Do they have a website?
    #14     Jul 30, 2006
  5. lol this thread is a hoot. i've been full time trading 17 years and toyed with the idea many times of opening an office. over the past 2 years i've financed a few remote guys and nobody made it past a few months. i know several people who run big prop houses for major day trading firms and let me just say it's a tough gig. believe me i've been threw the math a ton of times. ok lets say i can scalp .004 per share overide and my group does 20 million shares a month vol thats 80k a month in overides minus maybe 15-20k amonth of expenses max. sounds good on paper but thats not how it works. first of all newbies were you can scalp .004 overide aren't going to trade much there first few months so you'll make little. second out of 10 guys you train maybe 1 or 2 at most will make it over a long period of time and provide nice vol. but once they get successful they'll beat you to death on rates till they're down to .003 or less if they're high vol. then you got the huge risk factor. you'll have to finance all the traders under an llc with most only having 5k to put down. so you'll need at least 500k -1 mil in an llc to get 2-4 mil intrady buying power. and the dreaded part comes if a 9-11 happens intraday and many traders are elveraged out at 30 or 50-1 and can't exit there positions as they markets locked. also to conistently get a shop to do 20 mil a month is very tough as the one must avg out the very slow summer months were many traders are gone alot and a slow trading dec. plus of that 20 mil vol at least 75% will come for a few high vol guys who'll want .003 at the most per share so your overides on the majority of the vol is low. don't get me wrong if you get a huge shop that does big vol and the guys are profitable you can make big money but it's very tough and takes years to grow to that.. i know a guy who had a big shop with etrade pro and one day they said they're exiting the business and closing all the offices and bamm he lsot 2/3's his traders in weeks. so what took years to build was killed in weeks
    #15     Jul 30, 2006
  6. JA_LDP


    Seems clear that "lack of interest" wasn't the reason Bright closed their Dallas office.
    #16     Jul 31, 2006
  7. ozarka


    Here is the thing though, if your intention is to open a prop shop, and you have to choose between having your traders trading remote or in an office, which method is more secure for you and your firm? The branch location right. Because you can walk around and monitor things, discuss ideas and news and even ideas. If you can remember, when 9/11 happened the markets did not close instantaneously. It took a little while for it to set in. Just like with any crashing stock. When is a crashing stock halted? Towards the top? No, after it's crashed some.

    I would assume you'd encourage protective stops and a group of traders in a room collectively would grasp the information quicker than if all the traders are separated. Worst case scenario is you have a remote trader who's stepped away from the PC temporarily to go to the restroom, and you can't get a hold of them on the phone. And do you even think to call everyone? It would take forever. In an office it's fairly simple. Everyone is there and everyone is updated, that is for certain.

    So the idea that you are seriously deciding on doing a prop, it could be argued, a branch is the best way to go if your main concern is managing risk (traders).

    Regarding profits, a number of prop shops have traders give up a percentage of their profits and charge fees in exchange for access to larger pools of capital. There are a ton of traders out there that would be more than willing to give up a percentage of their profits in addition to paying commissions. It's done at many firms. So why couldn't you do it?

    You have 17 years experience, you would be an asset to work with. I personally would jump at an opportunity to work with someone as experienced as you. To get access to better equipment, better trading software, and larger pools of capital in exchange for paying commissions and giving up a percentage of the profits is worth it for me.

    If you ask anyone at Swift or Schony why they do it, they will say the same thing, 20% of $100k is better than 100% of $10k. And that's at 20%. You don't have to go that low to compete against them. You could come in at 50% or 70% or 80% or whatever is mutually agreed upon in your market. How does that benefit them?

    Well you then have a vested interest in making sure they are successful and they realize that. And they are confident you will stick around and not get too bogged down with your own trading. You will actually take a little time out and pay attention to what's going on. Maybe have meetings at the end of the trading session for open discussions. In the end, everyone is building up the assets of the firm that they can borrow against.

    I don't see why that would be an issue. Assuming you could find some traders that are willing to pay commissions and give you a portion of the profits, would you do it?

    Just look at Swift Trade and how popular they are. The biggest problem sited about them is their offices aren't that great. What if your office is better? Another issue about them is they aren't in the U.S. What if you are in the U.S.?

    They have a pretty successful business model as you can see from their growth. They do however front their traders capital or back them outright without a $5k deposit. But in the end they get a higher percentage of profits. I think if you gave your traders both options depending on their track record or background, you'd be surprised to see how much interest you would get.

    I think in the end, as long as they are making money, they won't care how much the commission is. I know that sounds crazy. But if you have 17 years of experience, you are bringing a lot to the table. You are someone they want to be with and can learn from and that is worth the few extra fractions of a cent in my opinion. They could go somewhere else and pay less in commissions and lose money with poor management, poor software, poor systems, etc. Obviously if you are trading for 17 years now, you know a thing or two about all of the above. :)

    Anyways, that's my rant.
    #17     Jul 31, 2006
  8. no i agree with much of what you're saying. in 24 months i could recruit 50 guys easy as i'm near a big college and i'm a motivator and having doen this well for so long it's easy to get people excited. if i were 25 i'd do it it's jsut at over age 40 i don't have the a patience. i trade 7 of my own accounts now and have total freedom to come and go as i please vs owning an office and having to be there all the time. but being around many office onwers i know it's still a lot tougher than it looks on paper. for isntance yes 9/11 was premarket so not much risk to any trader as the market never opened but if an event happened mid day different problem. one's still fighting the #'s that say only 5-10% of traders make it. another thing one must factor in is loses from your traders. one thing many office owners told me is you'll get sucked into a few traders who run out of money and you'll extend them credit as they're doing heavy vol and you want the commish overides so you put yourself at risk. if a trader has mad eyou money for years all of a suddent he's got zero of his own cash i assure you you'll let him ride.another problem is sure i could charge a guy .008 a share and a dek fee or a fee to teach him. premblem is you could suffocae hime with heavy commissions early on and he goes broke fast. again if you can find a couple of good traders you can make it
    #18     Jul 31, 2006
  9. ozarka


    Well based on your numbers, if you make $80k on the front side, and let's say just $40k on the backside (a % out of profits) to be conservative, that's $120k a month. You could hire one hell of a staff. And fly out top instructors to give lectures every single month. You could then justify that additional cut from profits for better staff, better equipment, better training/lecturers and better risk management.

    Now assuming another 9/11 thing did happen. You give the worst case scenario that you are locked in long positions or can't unwind them fast enough but again I think with stops, a risk management staff member closing positions, and traders closing positions, you could hedge that risk. If you really wanted to hedge some risk, you could also take large positions in options on a monthly basis. Let's say $10,000-$20,000 in index puts every month (maybe even leaps). It would be like you are esentially throwing away that money but it would hedge some risk as well. This again would be justification for taking a cut from profits. You could state a portion is also spent to hedge the firm with puts incase of a market collapse. You'd have to run the numbers though and see how it works. It might not be a viable method, just a suggestion.

    You could also have a set policy on holding positions overnight to hedge the risk. Most drop down the leverage on overnight positions. You could have your monthly put positions in contrast to the overnight risk that you allow. A percentage of the risk possibly.

    Here is the thing though, what if you are locked in very large short positions? Halts are based on circuit breakers. The Dow has to drop some before it's halted. Granted in pre-market it could be different, but primarily your overnight positions would be effected and you can limit that risk.

    If your age is a concern, I think if you have a great staff, work closely with traders long enough that they understand common pitfalls and risk management, and place the proper limitations on leverage/margin, you could hedge your risk and even spend less time in the office. Your goal would then be to get the firm to a point where you had excellent traders and a capital pool that had enough reserves, possibly $10 million (like Bright Trading states they have) to offset some of the risk so you can sleep better at night. :)
    #19     Jul 31, 2006
  10. luckydan


    I am interested in working at a prop shop in Dallas. Someone please PM me if one ever opens.
    #20     Jul 31, 2006