I was hoping to get some insight on whether or not starting trading group is such a good idea? I have no plans of creating a prop shop or anything, just an office with a good group of traders helping one another out. Personally, I like the office environment more than trading at home, thus my interest in creating an. I currently have two other traders that would be interested. Economically, would it be a good idea? I think a group approaching a retail/prop firm would get a better rate than individually. Also costs such as office space and internet connectivity would be split equally with one another. Am I missing out on anything? Are there any other bigger costs I am unaware of? Any helpful comments would be greatly appreciated. Thanks xbrxx
We're doing the same thing here in Moscow. At office we split all the charges between 3 of us. Our next plan is to expand up to 10 people and to rent a more upscale place, may be a penthouse or a loft in downtown moscow. The only problem is- we're only looking for traders who make it, (read can afford to rent an office) and there are none so far. Also make sure to collect fees from your partners (rental, internet, electricity etc) for at least 6 months ahead. Because when (if) fit hits the shan (you or your partners go belly up) you dont wanna be left holding the bag of bills for the whole gang.
I do the same thing here on the North Shore in Chicagoland. Sharing infrastructure costs is a big, big deal.
I'd say the things to watch for have nothing to do with trading. They are more like the problems you would have with roommates: someone doesn't pay their share on time, someone ends up owing, someone says they shouldn't pay for this or that, a member or two drop out and the rest now have to pay more, who's going to clean the bathroom and someone snuck into the fridge and ate your pizza.
Run a spreadsheet: Is it cheaper ? Is there some advantage to partnering with the people you have in mind ? If they addd nothing other than sharing infrastructure costs and you already cover these then I would think twice. On the other hand pooling your volume amonst multiple participants may allow you to cut a better clearing deal etc. and perhaps add capital for expansion.
We've had several groups form within our infrastructure, from a couple of traders, to a half dozen in a garage, then through "attraction" and comaraderie, we ended up funding full office operations for them. I agree that an environment of "successful" (serious) traders makes a lot of sense....but one bad apple, negative person can drag the whole place down. Some of our affiliates pay their own rent, utilities, and telecom (usually only about $5,000 per month or so), and we give them a good rate for trading. Some affiliates prefer that we pay everything (overhead), and then they pay a little more .... Any business relationship has to work for both parties. I agree with the other poster who expressed concern about the "room-mate" situation possibly becoming a problem...especially if one in the group loses money. Don
Unless you're all on the same level, I don't think it'll work. I tried it with myself and 3 other supposedly successful traders in my basement. After a few days it became clear I was the only successful trader. The others hung around my screens and pumped me for trading ideas. I kicked them out after a month because it was so one-sided.
Maybe I can sit next to you? Always need a little help!! You point out the perils to being "too" close, without a central focus "management" type trader. Part of what I have to do here in Vegas, is keep some of the new people from helping each other....you know, the "blind leading the blind" concept. On the other hand, the building of "boot camp" friendships has worked well when they head back to their seperate locations. Don
It's an interesting topic. Depending on what you do, you may have some regulatory issues, but this is not likely based on what I infer from your post. The question is, "How are you going to cover your expenses?" If you are going to be charging a flat seat fee, that's not a problem. You are essentially in the computer-time-leasing business. If you are going to charge the users based on their performance or you are going to be getting a portion of the commissions they incur to the broker/dealer that you choose, that's where you start having regulatory questions arise. But those sorts of situations are my definition of a prop trading firm, and you said you didn't want to do that. Other than those issues, it really is a straight business decision. What's the total of all the rent, data feed, communication line and equipment expense, and computer purchases? Will you need a T-1 line? That can be expensive depending on where you are. Do you want/need slip/fall insurance? If you take all that and divide it by the expected number of traders, you have your base seat fee. Add to that what you need to earn per trader to cover your hassle, and you have a seat fee. Will your prospective traders pay that much? If you want to talk about a prop trading firm or one where you are participating in the commissions, it can become a better business model because you make up the seat fee if your traders make enough trades. It's not a big deal to set one up at all. You do need to be careful about the compliance issues, though. Just take care of those at the beginning, and you are all set. Good luck with your plans!