Would love to hear some perspectives (pros/cons) of joining a prop firm vs. portfolio margining a retail account. Seems like one of the biggest downsides to becoming a 'professional' - broker certification such as series 56, is that one is now required to pay live data feeds (~$200) for each brokerage account. One of the biggest upsides seems to be access to greater buying power ... but that is a double-edged sword. Thoughts?
Give me a call tomorrow, and I will give you both sides (promise). 702.739.1393 usually between 8-10 Pacific time. edit: To give you an idea however, when we set up for Portfolio Margin with our private family group, we found out very quickly about something called "Risk Margin" - which is totally discretionary by the Broker/Clearing Firm. We found out that we were not always entitled to what we expected (about 6 to one leverage), in fact we had to put extra money in for certain positions. But, call anyway if you like. Don
I probably know as much about portfolio margin as anyone on here. My firm was the first firm in the country to start offering them back in 2007. I could probably explain a few things to Don as well about it. Ask away...
Thanks Don and Mav! Curious why a trader would join a prop firm if they can trade the ES and have 14:1 leverage with overnight margin ... and close to 60:1 leverage with intraday margin? Is the primary reason because the trading futures is way more complicated for the average retail 'investor' who would be the ideal target for a prop firm? Re portfolio margin ... I understand it's 6:1 with TD Ameritrade, but they set max position size and max loss levels. Is that correct? Can you elaborate? Thanks! M
Portfolio margin primarily deals with equity and equity options. It can also offset margin for index options using index futures. ES futures are already margined 20 to 1. No need to add leverage to that. But you will get better margin for trading SPY for example. The idea behind PM was to give to the securities side what was already available on the futures side. For example, you can get SPAN (risk based margin) already on the futures side at the retail level with IB or TOS, etc. No special account needed. But the securities side was always stuck in the REG T world. BTW, the word margin is a tricky word because you can create strategies that give you far more then 6 to 1. I use to run stuff at 50 to 1 compared to REG T.
I trade options, and which this sometimes requires using an underlying equity or futures vehicle, I think the biggest reason for option traders to jump into prop is market or capital access.
Prop firms are useless except for equity stocks. Any leverage will make great money to a good trader. It only takes less than $10,000. The trouble is everyone blows up at first, and many are so terrible at learning that it takes awhile to get it. Even worse, these people think they are excellent at learning. I think forex is better than futures for small accounts -because of lower cost, much better scaling and movable leverage.
I think the biggest advantage of working with a prop firm is you will need less capital than an individual PM account. The absolute minimum for a PM is around $125,000, going up much higher with firms such as Merrill or Goldman. The biggest disadvantage would be the safety of your money. With a individual PM account, you have to worry about only your trades and your firms solvency, as opposed to what other traders or the owners of the prop firm do. Of course there are many other factors to consider as licensing requirements, costs, etc. I think it really comes down to what products you trade, how much capital you have, what type of positions you intend to hold, and the type of help you need. If you trade VIX options for example, which trade only on the CBOE, if you are a customer you will get priority over all other traders when your order is resting in the book. There are different prices for price feeds depending on whether you are a customer or firm trader.