Proprietary Firms beginning to contract?

Discussion in 'Prop Firms' started by Rune Walker, Apr 25, 2002.

  1. I live in Austin, TX -- and, OK, not the center of the universe for trading or proprietary firms. But in the last month the Momentum branch, and now rumored, the Hold Bro. branch are folding up their presence here.

    So is this a larger trend where the pro trading firms are not profitable and are beginning to contract? If so, why? Tough market, decimalization, thinned trader ranks ...?

    Zone Trading Rumors. Information that follows is merely street rumors and can not be confirmed.

    The cat that sold his software/trading platform to Instinet for $100MM + $50MM in stock spun out the proprietary functions of ProTrader and is trying to grow that Co. It was renamed "ZoneTrader". Just leased a bunch of sq. footage at space abandoned by Dell, and had a stated ambition of growing the shop to 200 traders.

    However, he changed the compensation scheme and non-compete clause for traders and his best traders walked out en mass. After that the CEO of Zonetrading was fired and the CFO elevated to CEO. They appear in disarray.

    Anyone know of propritary opportunities in Austin, TX or should I just concentrate on learning and launching on my own.
  2. Most of the "business models" that were working for a short time were based on bringing in new traders vs. trader retention (via making money). This model just was destined for failure when the Naz shook everyone out (not just financially, but emotionally as well) this left a few firms that focus on trader profits rather than "gimmicks'.....

    I know some of you will construe this as an "ad" for BT, but the point is that there are several good firms that have been around for 10 years or more, and will be around for many years to come. We have lost around 90 firms since 1999 (most were "subllcs' or franchises of these smaller firms.

  3. Ok. So there is an industry shakeout once the easy money days were over. Tell me a little more about what type of "business model works for a proprietary firm.

    I infer from reading some of your posts and the responses/questions that your model is not a provide-the-capital-&-split-profits type, but I may be wrong. Not being awash in capital, this type of business model is attractive. However, I keep wondering why firms would do that.

    Where do the cash flows from firms emanate. Why would knowledgeable, market savvy proprietary firm owners invest in bricks, sticks and infrastructure/overhead, instead of using that capital to make money in the market. Or can more returns be realized by recruiting traders whose productivity offsets the investment and operating expenses? ... I guess if the firm is not providing trading capital, then offering the backbone and letting traders ride with self-funding would spin off some revenue. Do firms garner a transaction fee ride? What are the main incentives for prop firm owners to invest in and grow their businesses?

    This same scrutiny could be applied to the trader training operations and chat houses. Why waste time and capital on these business models (selling training, selling tutoring, etc.), why give up your secrets, if there is such abiding opportunity in making trades?

    Ok, these are stupid questions, but enquiring minds want to know.
  4. Since it takes 1-3 million, intraday to make a decent living in this business, and since (when) a trader puts up some money (which is still theirs, not a franchise fee or something), and a firm allows the the free use of this capital, and allows the trader to keep all the profits, and gives great pricing (that they could not get elsewhere, without buyin a membership on an exchange), and provide training and the tools seems to be a real "win win" (I hate that term)..

    This business model only works when the traders make money, stay a long time, and continue to do well.

    Been working for us for a long time....
  5. Well said Don.

    BTW - Zone Trading closed the San Diego office and LA closed this week. The former Zone Traders that joined our firm here in San Diego recently told me that they were told one week that they had the choice of moving to Austin or be without a job - so they left. The office closed the following week. I got a call on Monday from a friend that traded with Zone in LA. He said they had a huge office (5000 square feet) with only 13 traders. It is now closed and those traders are now on the street looking for a firm.

    It seems the whole business plan of letting the company put up all the money and let traders "have a lottery ticket" days are over due to the firms losses, yet so many traders out there come in and want a "zero down" deal...anyone else out there who is offering that deal? Are their days numbered as well?

    I have to agree with Don's earlier posts (way back when he only had about 200 posts) that he did not understand that business model and "time will tell" (paraphrase).

    ECHO and Bright keep growing, could it be because they are not taking traders with ZERO DOWN and they can stay in business by providing a great place to trade with fair commissions. I would rather be with a firm that is not offering everything for FREE, at least I know they will be in business in the future...

    :) :)