I think V has allready thought about this he posted this in response to a similar question. "Profitable traders have an option to leverage their time by getting paid for instruction flow...for something that they are doing anyway...."
ES, how is the firm capitalizing on your hopes and dreams? Firms are not in business to take the money of those that are not profitable. 9x out of 10, the firm will take a hit on those that are not making money. These tend to be the traders who are not covering their costs of doing business. I consider a trader to be their own business. The high majority of small businesses will fail in the first year. Is this the SBA's fault? Is it the fault of the franchise in which they bought into? No, just like it is not the firm's fault and it is not the markets fault that the trader did not become profitable. A good firm will give you the tech you need to trade, the right training, etc. But, a firm cannot push the buttons for you. How bad does the trader want to make it in this business? This is not a job were you can come in at 9am, trade, and walk at 4:05pm. The freedom of the job is what attracts a lot of people to it, but that doesn't mean it is a cakewalk. Also, look at what has happened to the industry in the past year or so. Many firms have cleaned house and one of the biggest houses on WS has gone under. That doesn't happen if your guys are making money. At the first firm I was with, it was very discouraging to know that maybe 12-15 out of 40+ guys, at best, in the office were taking home checks. These were not 5 and 6 figure checks, mind you...these were anything at all. I had never seen and industry were people come and go so fast...the turnover rate was extremely high and I was shocked at first. Traders come in, trade for a few months, lose their contribution, leave and someone else takes their spot in the office just like that. As for the profitable traders getting better deals...sure they do after they prove themselves to the firm. There are a few things that we will look at as far has how consistant the trader is, volume, risk to the firm and trader, etc. To use trade-ya1's analogy, A-Rod would be like a seasoned trader...he gets the best rates and payouts because he has proved himself. Regardless of whether or not you think he is worth his salary, he got that for a reason. He obviously is doing something right in baseball because if I were to tryout for a team I doubt I could get his check eventhough I would want it He has put in the time and has trained for years to get to where he is. I have played college soccer, so I know how hard it would be to train at the pro level. If you were an Exec IB and I was some rookie straight out of Harvard grad school and we got the same bonus, wouldn't you be a little put off. Again, I don't deny that a profitable trader gets a better deal. It's like getting a bonus from a 9-5 job...you show good performance and you get rewarded. New traders get the same thing, but you don't get a reward for just walking through the door.
Lets take it like this.... I think you would agree as to a model for a gym..... They want to attract new sign-up's.... this is their income.... Now...how is it best to achieve this....not with monthly rates only. They need to get some upfront non returnable money or a contract into the future....and no not to get you committed......they hope you do not come and fill their club to capacity. You would not believe the stats and the ratios on active member verses total sign-ups. Some say the new years resolution time of year is very busy. Their success is based on their ability to get your money and hope you do not come.... Bally's and 24 hr. fitness illustrates the success of these cold hard facts. Now apply this to trading and prop shops. It could be the same. I simply think it is a refreshing new idea, that this thread brings about.... If I were to do this...I would much rather just gather some good traders together and split the costs of everything and trade along side them myself...in sort of a co-op situation. But this thread is not about me. Michael B.
Is that realistic though? If you were earning 10 grand a week would you stay late at work to teach a bunch of newbies? If the firm's take of a 10 grand a week trader is 15%, then that is 1500 profit per week. How much of that would they have to pay a 10k a week trader to stay and teach? Also I don't see how you can avoid losses on the rest of the traders who are basically likely to be marginally profitable or net losers.
ES, I see where you are coming from now I feel that the key thing you stated was to just gather some good traders and setup a co-op. This is very similar to our approach. Quality rather than quantity. You don't need to be the biggest prop firm out there. I really stress being consistantly profitable to our guys. This will allow you to stay in the game longer so you can develop your skills. Also, on a different note, there was a small piece in Active Trader I saw today that talked about the percentage of profitable traders. Although there are no real stats on this figure they said that the number of profitable traders maybe about the same as the number of pro athletes or something along that line. In other words, a profitable trader is in an elite group.
You have a good point, but you are speaking from a different perspective. Once again, you do not have any prop trading experience which is very different from your global fund trading experience. Most successful traders do try to become the house by forming their own groups or trying to get higher and higher within the prop firm. But apparently that does not turn out good. Ok, start a hedge fund? Their success rate is not something to be at all excited about. So what then? Go Wall Street to institutional trading and join the corporate machine? That kinda defeats the whole point of becoming profitable day trader and being your own boss. Nobody is trying to beat the house by asking for lower and lower rates. You need to understand the whole commissions factor in a day trader's P&L equation. Commissions alone will decide what types of trades you will take and which you will not. They determine risk levels that you plan to take. That's all. NYSEat21 Great points BUT We all know how the churn and burn strategy, exactly the one that you say works, really performs in real life. Running traders through like cattle for their initial caps just does not work and will put the firms out of business. Apparently, there does need to be some kind of investment in the traders. In other words, it seems that in your view, a trader that trades a large number of shares is more valuable than a trader which trades a low number of shares but is twice as profitable as the first. Considering everyone involved in financial instruments is trying to make money, that type of thinking is simply stupid. Vaquero is trying to create an entity that simply makes money and forgets about volume requirements and all that BS prop firms carry with them. It's idealistic yet unrealistic but you never know. All I know is that the cattle churn and burn does not work.
Mecro, my previous firm ran them through like cattle not the firm that I am part of now. That is the major difference. I understand that a trader might be more profitable on small amount of shares relative to a trader that trades any type of size. We have guys and girls that tend to position trade throughout the day which leads them to trader fewer shares. If that works and they can make enough money at it...then I am all for it...green is green. But, I can count on one hand that amount of traders I have seen that have made it as a full time trader trading small shares each day. What tends to happen is that traders become complacent and will get comfortable with a certain total share size...which is not a bad thing in itself. But, this becomes a problem when you are doing the same size lots when you were positive. Now you are doing the same size lots to the upside and downside or worse bigger lots when you are down. You are not adjusting your size you how you are trading...you are adjusting your trading to your size. In my experience those traders that trade some size ( and not even big lots...500-2000sh) on an average day had the experience to lay into the market on a volatile day and clean up. Up to a certain point, I strongly believe the volume will directly effect the profits. Once you are overtrading, then you are shooting yourself in the foot. But, undertrading isn't getting you anywhere either. At best you will be treading water. How many true prop traders do you know that are making a living trading 5-10k shares a day? (There is a HUGE difference between trading 10k retail and 10k prop in order to keep the lights on) On the other hand, a guy running a grey box pumping out 300k a day and 50k in bullets isn't going anywhere either. More is not better. QUALITY IS BETTER! A good trader will trade what the market will bear. If there is nothing going on...you back off. If things are rolling you lay into stuff and you can make a whole year in a month or less. Finally, since my thinking that size correlates with profitability is stupid I wouldn't mind putting my sheets side by side with yours.
Nyseat21 has the right idea, and realizes that it is imperative that they align with a solid firm (note; They are NOT with Bright Trading)...to keep costs low. All of that is basically academic if the traders aren't kept up to speed on trading skills, work together, and keep an open line of communication between themselves. In our earlier years, we lost a few traders due to some indifference by a couple of managers...we sort of wrote it off to "growing pains"...and learned a lesson. Now we keep the doors (phones, emails, etc.) wide open right to the corporate headquartes. Not a day goes by that Bob, Tammy, and I don't answer dozens of inquiries from our traders. We do our best to keep our Managers up to date on a daily basis, but if they don't know the answer, then we're here. My discussions with Nyse21 gave me renewed faith in the "next generation" of trader/managers ... Don