prop firm's profit/loss

Discussion in 'Prop Firms' started by cfets, Jun 14, 2010.

  1. cfets


    just wonder how the prop firms running their business ? except the rebate from the exchange , does they really have the real cash on hand to support the remote / inhouse traders for trading ?

    or actually , the prop firms is just offer some leverage while all of the trading loss would be paid by the traders themself ?

    thanks for all of kind advice.
  2. cfets


    by the way, up to now i just spoke to one of prop firms which is in canada aound 2006. the feeling was the owner just wanted to charge a lot's of so said training fee from me who is prospective branch manager .
  3. It's my understanding the prop leverage will come from their clearing relationship. For example 40:1 intranet day leverage isn't unheard of if your flat each day. ThE risk is off and finished before it's cleared. It's the overnight leverage that shows the financial strength of the firms capital and leveraged risk.
  4. GregoryG


    This is probably the stupidest thing I've ever read.
    The OVERNIGHT LEVERAGE shows the financial balls and complete disregard for risk of the firm (and the capital of its members).

    I would NEVER trade in a firm that gives that kind of leverage.
    The ONLY way to at least try to mitigate the blow up risk is to charge enough and use the premium to pay off losses.
    But then you are overpaying in commissions, while the black swan is still lingering. Think Bright Trading. Very high commissions and you never know when that 15:1 overnight pair gets divergent because some other stock made an MA hostile bid, and 1/2 the traders holding that pair.

    Most people don't realize that while its good that YOU get leverage, the other guys who are NOT YOU get leverage also. Even if you trade well- what if the other guys go on tilt. Even intra-day. And market becomes stupid a-la- flash crash. Enough of that and guess what - firm is POOF.
    And its not about capitalization. Its about LEVERAGE
    Bear Sterns, Lehman,
    or in our business
    Worldco, Broadway

    The intraday leverage is "not" passed down from the clearing firm - it could be in cases of JBOs, etc, but in most cases is not, because clearing firms are not retarded and don't want to blow up.

    40:1 intraday leverage - true its not UNHEARD of but, but its 99.9% retarded - only in certain cases is it warranted - and even then its very dangerous.


    to the OP question.

    they make money on fees and pnl splits.
    depends on the firm - if they take deposits or not.
    if they don't - the split is more in their favor and fees higher
    if they do - the split is more in the favor of trader (much more actually) and fees are lower.

    losses are eaten by trader's account (if it has anything), then by firm.
    They have risk admin to watch losses so they don't lose a lot.


    Another note on leverage.
    Some firms provide INFINITE leverage.
    Such as schonfeld, first ny, because they dont require any deposit.
    Those firms ARE well capitalized (well very well)
    they commissions are INSANELY high, the SPLITS are insanely in the favor of the firm.
    Those could be good for some traders. Blow up risk is huge, but ur not really risking anything except your month or two pay.
    but b/c of high commish, and profit split - gotta make a decision on the $ - whats more worth it.

  5. AMEN!

    finally someone with some foresight.
  6. GregoryG

    Considering your necessary need to speak on the dangers of leverage (which wasn't the thread topic) and call my comments: "This is probably the stupidest thing I've ever read." Please expound on what clearing firm relationships you have established,- and the minimum needed to clear,- and leverage that minimum provides intra day and overnight. The lowest offer i have ever gotten was 250k and up from ETC clearing Los Angeles based. I have had past relationships with Goldman excution and clearning as well as MF global. Where are you comming from, I hope your not confusing a broker dealer relationship with a clearing corp.? Thank you in advance.


    p.s. note and re read his original question.