starting a prop firm !!!

Discussion in 'Prop Firms' started by andrasnm, Nov 16, 2001.

  1. How difficult can that be ? SLK will let you in for a million deposit.
    You need some funds to run things like office, software, promotional material. Anyone interested ???
    Ideas - how much is the bare minimum cost ? Is timing very bad
    now ? or is the worst over ? Is any firm up for sale ? How much
    is the regional membership ? is it needed ? why ?
    If some guys did echo it has to be some money in it - even more
    than as a trader solo.
  2. andrasnm,

    Starting any business looks easy on paper. Just raise 1.5 million dollars , rent office space and traders will walk in-right?WRONG! Let me tell you, Jeff Dewitt , Bob Kanter, Don Bright and others who started pro firms are not just very good traders, they are smart businessmen. If you open a firm in this environment, you might not get a trader to sign up with you. Open up a firm and see how easy it is. If trading is hard, running a successful trading firm is even harder. The knowledge to run a firm includes
    accounting,margin,compliance,marketing ,cash management, software development & integration, training skills etc.....

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.
  3. Gene,
    You seem to allude to tha fact that environment, now is super tough ?
    It is, but if I had some backers, now you could do some stuff at
    a discount. Compare dollar for dollar, and I have been dealing
    with start-ups in my past 6 years in Sillicon Valley, 2 mill is a chump change. Gene, you could get more customers if you lower
    your per cent charge :)
    Traders are born every minute, just hang out here on the web-site. Kanter is a great trader. When he started he made about
    a 100k plus a year in from of the ETG crew. Of course he makes
    a lot more owning a business !!!!
  4. andrasnm,

    You are welcome to start a pro firm. This is America and if you have the capital & desire, you could be successful. Sure 2 million isn't that much , but my point is that this is not as easy a business as it seems. It's really much easier to trade then to start a trading business and make a business successful. Many SOES firms have gone out of business due to the new rules and increased competition.
    By the way, Bob Kantor of ETG is a very good trader. He was a market maker on the AMEX for many years as well as the founder of ETG. I know him very well.I'm sure you have seen his trading tapes. Sure he's out to make a living,but you can't fault him for that. He must be doing something right, he has a very successful trading firm.

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.
  5. probably has some truth but if he reduces the cost and cuts his profits in half.. then he has to have twice as many traders.. equipment and office space requirements go up.. more training is required etc.. not worth it.. if i were opening a prop firm i would look to market it as having the best equipment, best training, best atmosphere etc.. not the cheapest.. most new traders dont pay enough attention to expenses anyway.. and if you have to negotiate to get a more experienced/high volume trader you can always make a special deal..

    my .02

  6. That is the theory behind ETG (my old firm) and Leiber Weissman as I understand it. A high class of service, professionalism, nice facilities but a slightly higher cost.

    BTW, I hear Kanter still trades, although not in the trading room with the other traders. He puts out internal video memos with some of his bigger picture market direction calls and other trading ideas too.
  7. andrasnm,

    My business model, trade more-rates get lower. If a firm has to cut rates .01 to attract traders who make 5 trades a day then it isn't fair to traders who make 400 trades a day. All of our high volume traders have some of the lowest rates available and still every trader(even low volume)gets new workstations every two or three years. This is the way we run our business and it has worked for us. You can't please everyone. Most traders that complain about rates are not good traders. If a guy is a good trader , I will adjust rates to suite their trading style.

    Gene Weissman
    Lieber & Weissman Sec,L.L.C.
  8. All business is cut-throat. It's clear to me that this market doldrums
    will eventually be over. I suppose all businesses have pros/cons.
    What I find hard to swallow is the initial traders financed Kanter's
    operation from "silly" fees that he did not even have. He refused
    to pay market quotes if there was some glitch, he was very self
    serving to make his business grow on the backs of his crews !
    I used to pay $1500 a month, he had zero risk with me and
    had 12 traders or more. He had his partner "give" him space
    on a dingy room in his office (incidentally - contract agency ;)
    on Broadway !!!
    What business can get away with this behavior in the normal
    world ???? Suckers are born in every minute, as a trader you
    just as well be the suckee than the sucker. hence andrasnm, LLC
    Of course back then there was no competition it was ETG and
    schonfeld(sp ??)
  9. The trading business is like any business I guess. It IS a business. Like buying a new electronic gadget. The first calculators that could only add, subtract, multiply and divide cost $300 dollars. I don't think Texas Instruments was ripping anybody off. Economies of scale bring down costs. I would like to think that SLK's cost to the firms have come down since the early days. As Gene says, the larger traders deserve the economies of scale. There is no doubt that the early traders in this business helped to build it for the rest (like me). Thank you. Until the early nineties, the only way to be a trader was to be a floor trader. The only opportunity to break in was to work as a clerk on the floor. IS that how you started Gene? ETG has tried to repay the traders by giving them 33% of the firm. It was in the Operating Agreement I signed.

    My HS history teacher once said something that makes sense in the context of this discussion. The early traders have paved the way for lower costs, better technology etc. He said, "Do you know what you find most of the pioneers got in the old days? Arrows in their backs."

    Starting a new BD without any built up overhead could make sense to someone who has all the necessary licenses already and has experience in the field. The key issue would be the rate he negotiates with his clearing firm. Also, what percentage of the trading pool is the management's money and what percentage is the traders. Bright said that he always has 10 million up with/ in addition to the trader's money. The chance of getting blown out by a rogue trader seems slim in that case. (Don, is that 10 million figure written into the operating agreement?) Few traders will want to put up their money in a new firm without a track record that doesn't have its own money up too. What licenses are required? Anybody know?
  10. I want to be careful in my wording this time, since this is an interesting topic that has come up many times in several forums over the last few years. I want to be perfectly clear that competion is fine, and we were the "new guys" only a short decade ago. We did have around 14 years experience on various trading floors, started a professional service brokerage on a Regional Exchange, and had some pretty good overall business backgrounds (I "started out life" in Public Accounting, and have been involved in many startups in and out of this field). The same goes for my brother, who spent many years in higher management with a Fortune 500 company.

    One of the distinctions that we are pretty proud of is that we never had to go outside the family for financing. This is a gigantic mistake for the investors (obviously), and even for the people trying to use "OPM" to start a business. When you have all your own money on the line, you learn how to run all aspects of the busines. We don't waste money on advisors, accountants, lawyers, and all the rest (we do, of course, seek professional help whenever necessary).

    Another benefit is that we had an expert in the computer and telecom field as a full partner in the Firm (Edward Franco, COO is a trader, computer and network expert, business and social "networking" asset due to the fact he knows nearly everyone worth knowing in the business (and if he doesn't he soon will).

    I have done a lot of marketing through "attraction" vs. "promotion" in the past, with the help of some very good friends in the field whom I could call upon for help in "getting the word out." I realized early on that I can only "market" something I feel very strongly about, and realize that business only works if it is fair to all concerned.

    We have tried to "grow the industry" by bringing in new traders (as opposed to merely "reshuffling" the existing people by trying to grab other people's traders) through education. We have found that by teaching College courses, offering Internship programs at various major Universities, and the like has helped us grow. This type of thing takes a lot of time, and you simply cannot hire "recruiters" to drag in people with stories about making money when these "recruiters" don't even trade themselves. During our training week each month, my day consists of trading and monitoring risk and anwering phone calls and emails until 1PM, then teaching the course from 2PM -6PM, and then teaching at the College from 6:30P -9:30P (don't start playing the "poor Don" violin yet, wait for my point here)...which simply means that we care so much about the business, and that we truly love what we do, that it doesn't seem like work to us. And since we have enjoyed some success, and even have some respect from our peers, it makes it seem worthwhile.

    Another primary factor (to think about) is that we have a strong loyalty from our Clearing Firms (we have been with SLK since 1978), and have effectively taken them out of the "risk" portion of the business. They only have one entity to look at, we monitor all of our own risk, and again, have our own capital at risk, not just the traders money, as so many (past and present) have.

    Gene seems to have a good solid business model and is certainly knowledgeable and business-like in his approach. Regarding Jeff D. and others, I will bet that if you asked them they would tell you that it took considerable time, and a lot of effort to get going (in this climate especially). Many of the "established" firms have closed or are cutting back tremendously (I have even heard from the grapevine that an extremely large prop firm has cut their traders buying power by 75%, and have not allowed trading between 11A-2P...?? sounds a bit drastic, and is probably exaggerated), and others are closing their various LLC arrangements and offices, at least according to traders who have been calling here. So if these experienced firms, with capital, are having a rough time...well, you get my drift.

    We are fortunate that we have continued to grow at a 40% rate every year, and have done so because we have a good "team" of traders who help one another, and we have tried to keep the "cut-throat" competition to a minimum. We are very competitive by nature, but do our best to keep it within the limits of propriety.

    Sorry for the long dissertation, and I hope that whoever decides to help grow the industry with us is as serious about it as we are. Remember, making money is easy, but making money doing what you love to do is much more important. Take the above for whatever you think it's worth, and try to lead by example.
    #10     Nov 16, 2001