Prop trader vs Day trader. 50/50 vs 100%

Discussion in 'Prop Firms' started by CarolinaCpaGrad, Aug 21, 2009.

  1. i'm just trying to get a handle on the psychology of the average newbie trader out there.

    i'm a prop trader. i have a 90% payout but my capital is at risk. my firm has a no capital in, 50/50 ish payout plan but i cannot fathom how, why it makes sense.

    sure, they claim they'll eat the loses but don't people realize they'll never let you draw down any significant amount of money? for most of the traders, their systems have auto liquidate feature when they lose a grand or so.

    seems like if they can join a "prop" firm as a "prop" trader, put up no money, pay a high commish rate and then get slammed with a 50/50, 60/40 payout then that it is a great deal. not to mention the onerous contracts that these firms usually make u sign and lock you in indefinitely.

    is it a just the label and the fact that they haven't any of the money up ? their paying .008 or higher commish rates and label the shops such as Bright as an "arcade".

    aren't people just selling out their long term profits to protect a small amount of upfront risk capital ?
  2. Let's assume you are a recent college grad and you are interested in trading. You applied to a lot of investment banks and hedge funds with no luck. You basically can't find any finance related job you would like to pursue as a career.

    So you get interested in proprietary firms. With little money in the savings account and college loans to payback what do you do as a new aspiring trader? Your options:
    A) Invest $5,000 of your own capital ($25,000 at Bright) at a arcade that pays out up to 99%.
    B) Go to a firm where you have zero financial risk. No initial contribution, no training fees and no responsibility for losses. You may also have the added bonus of getting a small monthly salary or a draw which is enough to cover basic living expenses. In return for this deal your payout will obviously be less (50/50 or better).

    So you think to yourself... considering you are new and do not know how to make money in the markets. How will an arcade make money of me (choice A)? Well with 99% payout, the arcade ONLY makes money from commissions. So my initial contribution/training fee will go towards both loses and commissions.

    How will firm choice B make money off me? It will make money only if I make money in the market. It will take a % of profits. And then it will take a cut out of commissions. If I am not profitable, at least I will not lose any of my own money to the markets or commissions.,

    Now it brings us to the next logical question... which firm is more invested in making me profitable? Choice A needs my business because I will generate more commissions for them. Choice B on the other hand have invested their own capital in me. They will only get paid if I am profitable in the market. Then I can pay a % of profits and commissions.

    The choice is a no brainer for a new trader. Choice B is more invested in making you profitable. Hence, the training will likely be better in Choice B.

    In terms of higher commissions (.008/1000), well when you get profitable your rate will decrease, especially if you make a lot of trades.

    (CPA, the guys in the office are also allowed to swing... I talked to one guy who makes/losses substantial, thousands of $s off his overnight positions while only being there for a year.)
  3. granted on your first points. so basically, no way to get into the game - so any deal is better than zero.

    good luck trying to get your commish below .008/1000. i can tell you that will never happen.

    you'll only be allowed to swing when you built up a decent P&L for your firm which includes commish. so basically, your risking your own earnings anyhow.

    don't kid yourself that your in a different situation from a firm that only makes money from profits vs commish. granted both is preferred but the later will suffice and is most of what is being produced by the majority of the guys...........

    so, next question. at what point does that deal go bad given that most (IMHO) professional traders are not big swinging d*cks ? making anywhere fro $100k-700k a year year in and year out.
  4. spd


    all the prop firm debates on this board make me glad i never bothered with them.
  5. there is nothing wrong with prop firms. they can provide you capital and leverage well beyond what you may be able to self fund. in that case, their splits are justified. 90/10 is one thing, i just don't see 60/40 or so.
  6. l2tradr


    Agreed. It's the ones that prey on the newbies with 2K and a dream is that you have to watch out for. Which most would probably fit under :(
  7. which firm are you guys talking about?
  8. don't know what firm he is talking about.

    these number are just my opinion, but, i think the average trader pulls down $10k-40k a month banging stocks around. not taking huge risk, huge positions and p&L swings.

    not a rock star, not a big swinger, just a guy scalping, taking some positions and opportunities when the market presents them. imho, if you can do this year in and year out, sounds like a decent living away from the corporate grind.

    ideally, this guy should be self funded but u can also make a case for 90/10 for the services provided and atmosphere especially for the guys at the low end of that range.

    at a 60/40 split, doesn't seem like such a good living.
  9. Carolina,

    When I first started trading in the late 90's, I traded prop in the real sense of the word and took home 40% of what I made and you can probably guess what shop I was with even though I won't mention it up here. Why do you ask would I have taken a 40% payout? Firstly, I was just out of school and didn't want to risk my own capital. Secondly, why the hell wouldn't I want to learn on someone elses dime with no money up, thirdly the house I was with probably is one of the more prestigous and has the best day traders on the street and lastly b/c they let me swing a 8 digit line. If you've been trading for a while I'm sure you know what house I was trading out of and taking home 40% of a 8 digit line is a hell of alot more than taking home 100% of whatever I would have made trading my own money. This is not b/c i didn't have enough to trade on my own, but instead it was b/c i didn't have millions to trade on my own.

    If you can't see the benefit of trading at a real prop outfit, and I put an extreme empasis on the real part, then you're too narrow minded and in all likelyhood was either never offered the opportunity or you're simply just a moron. You've obviously never traded any substantial size or you would realize what the difference is.

    You shouldn't be putting these kids down b/c for a lot of guys who actually are smart and talented, they may not have enough money to trade the way you're talking about and that shouldn't hold them back from persuing a trading career. And for beginners, if you're trying to say that they should make 10k to 40k "banging around stocks" then you have never traded before. You seem like the narrow minded moron that would rather have a hundred percent of a 10k company instead of 50% of a million dollar company. I would like to know if you still don't understand why someone would go the prop route? B/C the only way you're coming out of school and trading right away is if your mommy and daddy gave you money, there's nothing wrong with these kids trying to make it on their own.
  10. EPrado


    While I have no dog in this is my 2 cents:

    If a newbie has a choice between trading his own money and getting 90-100% or going to a prop firm that backs you with their capital but you get 50%, it's a no brainer. GO PROP. New traders always lose at first, and some never go positive. Prop firms take 50% of the profits for a reason...they are taking on risk that guys won't make it/will fail. If they knew that every guy they took on was gonna be profitable they wouldn't ask for such a cut.

    As far as some of Carolina's comments. I agree that there are prop firms out there that won't let traders take out any "real" money, that will not tolerate any risk, and liquidate you once you lose a grand (which is a joke). Those firms are a joke, and unfortunately they are out there. But honestly, if a trader does his due diligence and asks the right questions , he shouldn't end up at a firm like that. It's his fault if he gets stuck there. Trust me...there are some very solid prop firms still out there that if you show them you have a good plan and more importantly have excellent money mgmt skills, they will let you trade very big size. The ones that have guys "put up" 5-20k and give you leverage, pay out 100% are most likely gonna just watch you churn your account to death, while they end up getting your 5-20k in commission. You really think that they expect a guy with 10k in an account to go anywhere?

    What it comes down to, if you can get in with a real firm that lets you trade real size, than you can make a hell of a lot more getting 50% trading a big account, then getting 100% trading your own smaller account. Getting a 50% cut of trading a large account is not getting "slammed" as Carolina says. It's industry standard. If you are trading a tiny account that some of these joke prop firms offer, then 50% will get you nowhere. Comes down to what firm you get into.

    As far as firms charging a "training fee" ? I don't want to waste much time on this...but newsflash guys........if a firm charges a fee to teach you "their method"....guess what ? Their method sucks. They obviously dont have confidence in it.....if they did they would bring guys on, teach them the ropes, then make a killing once their method was put into play. Training fees either show that the firm doesn't have a good method/technique.......or they have zero confidence in the guy they are making put up the money. Either far away from these places. I have been trading for 18 years now....I have NEVER seen a firm that has a "training fee" that is any good or has guys that go anywhere. Most likely they don't have real capital to trade.....have no profitable method of trading...and no confidence in their guys.

    I think Carolina is misinformed on a few things. The banging around 10 to 40 k just scalping aint happening unless one has a bigger account. Most average traders dont have this kind of account. Also this isn't 1998....volatility is a lot less.

    As far as a 60/40 split not being a good living? yeah..if you are trading for a rinky dink firm with no capital sure. But If you can get into a firm that lets you trade size than making 60% can make you a hell of a lot more than trading your own account for 100%.

    All of the guys I have known/traded with who have made big money are the guys who were backed by the right prop firm/ hedge fund.......not the guys who put up their own money and got 100%.
    #10     Aug 23, 2009