Prop Firm 101

Discussion in 'Prop Firms' started by cwjcntr, Jan 30, 2004.

  1. cwjcntr



    I've seen many, many things about prop firms, good and bad. Now, I'm curious about them, and hopefully someone can answer a couple of questions for a "newbie" to the prop world.

    1) IF you are successful, at what point does working at a prop firm begin to enable to you to stop eating into your savings to live? Any rules or advice you would give to someone who is looking into joining the prop movement?

    2) What is a good cut of the profits. (ie 30/60, etc..) Assume that person is a newbie to the prop world, and wants to gain experience. Also, this ties in with #1.

    3) What are some of the WARNING signs one should look for when talking with a prop firm? What are some good questions to ask, besides the profit cut.



    If you put up any of your own capital, NEVER split profits.
  3. Your questions all depends on where you are as a trader. If you are new to direct access trading it would be smart to start at a place that fronts all the costs and gives you a lower payout(schonfeld, first new york securities, etc). If you have experience and are willing to put up a small amount of risk capital (10k) then go to the shop with the best commission schedule and best/most reliable software for your type of trading(hold brothers, hlv, assent, carlin, bright, etc...) Elite has some broker ratings so take a look at that(don't rely on that) but above all contact the people at the firms you are interested in and talk with them about your situation.

    Good Luck,

  4. I don't necessarily agree. The prop firm is providing many services, and for someone without a solid track record, this could mean it is necessary to split profits.
  5. If you're trading futures, they are highly leveraged as-is and this eliminates the need of a prop firm, since traders go prop for more leverage. You know how to get in touch with me if you want to further discuss this.

  6. Good title to the thread, let me just say a couple of things.

    If you plan on making a living in this business, it generally requires a $mil or more capital (some like to call it "buying power"). If you simply check my "don's opening" thread, you'll see a simple example of how this works. This is something that a prop firm (professional firm is the "outside NYC" term). We provide capital to trade with, the trader simply puts up a "token" amount (maybe up to the Pattern Day Trader amount, maybe a lot less).

    Trader should keep 100% of their profits.
    Trader has access to the markets, wthout their orders going through a "brokerage firm".
    Trader pays the same or much less in commissions.
    Trader doesn't have to worry about "margin" or getting out of one position to get into another.

    We try to help potential traders learn more about the business they have chosen. Career trading IS A BUSINESS, and needs to be approached accordingly (as many do on this board).

    The other "prop" type shops that lock you into long contracts, or split your profits, are usually a bad way to go. The successful trader may give the firm 5,000-10,000 per month in "fees" and profit splits (all to save putting up a few grand). Many new people simply don't do the math. Those firms DO HOLD YOUR MONEY...they keep it forever.....via those splits and fees.

    Don't be misguided into thinking that some firm is going to give you money....

    Put up some money, keep your profits (and your independence), after you are trained and making $100K-$200K per year, then you can slowly move into more lucrative positions.

    If you are looking for a "job" in trading, then try to qualify for the handful of positions that are still left on the Street.

    Pure discretionary trading, with an unlimited upside, and a limited downside, is available in much fewer places than in the past. Continue your homework, and the more you learn about the "business" the better chance you'll have in the long run.

    BTW, when choosing a professional firm....(same advice I have given here a dozen times)...:

    Check balance sheets (get copies), check with NYSE, NAZ records for violations, be sure that the firm keeps "Millions" for trader protection within the LLC (we keep a minimum of $10Mil0...SIPC just is just not enough for professional firms).

    Yes, this response will lean towards Bright Trading...and yes, it is still all very true. The examples I give are based on what we do.

    If you're in NYC, come by the Expo and chat about any of this. A "lively debate"is always welcome..

    Super Bowl Sunday.....

  7. cwjcntr,

    I was trading for one of the top major prop firms (not WorldCo), and the head of the office told me, and this is an accurate quote word by word:

    "A trader who trades less than 10 trades a day is a wanker".

    You should ask yourself why every strategy they teach you involves going in with 10,000 shares for scalp size gains, and how come they are so generous teaching you trading strategies.

    Be aware that if you trade futures, independently, you get very very high leverage, solving your lack of funds problem.
    There are futures that trade electronically for almost every market. They are all extremely liquid. The execution takes milliseconds. There is no slippage and no spreads, so specialist intervention, no uptick rule, no payouts and no pressure to over trade. Furthermore, no matter how low the commissions the prop firm give you, with futures the commissions are always lower in relation to the position size in dollars.

    Keep it all in mind, and good luck wherever you go.

  8. patrickp


    does any one have a list of the prop firms I trade 800.000 shares a month with my own money and I feel I should looking for a better rate every .001 extra is a extra 800 beans.
  9. cwjcntr


    Thanks gents for the advice and different viewpoints. Anybody else care to share? I'm learning more and more about the game everyday..

    And yes, I have actually considered some futures prop firms, going to look into those in the coming week.

    Oh.. Don, if you read this, I'll PM you sometime and pick your brain if that's ok.

  10. Sure, give me a call, reference ET and this post...mid trading day (when it's a bit slower) is a good time to call.

    #10     Feb 4, 2004