The Perfect Prop Firm

Discussion in 'Prop Firms' started by Maverick74, Jan 20, 2012.

  1. It wasn't that long a thread :). I never said you were giving bad info. I just questioned the idea of a "perfect prop" from a trader's standpoint and if could survive given this low volume market. To me a perfect prop is just leverage + low rates and open access to your own money- is this still viable? In any case, I would definitely pay up more rate wise to maintain max payout. Higher rates for leverage? That's a great trade off for traders.
     
    #131     Jan 22, 2012
  2. Maverick74

    Maverick74

    Sure, Don Bright is still running that model. But even Don told me, the writing is on the wall and he is unsure how long they, as a firm, can sustain that model. We have had private talks and I told Don those talks would stay private, but it was about the math that firms currently have to deal with and the numbers really aren't there. Every year Don has to cut his rates and every year, he has fewer traders trading less volume. This is a race to zero. This doesn't affect you personally only in that perhaps the firms like Bright Trading may not be around in 3 years. I've asked Don repeatedly why even bother. The numbers are horrible. I wouldn't recommend anyone to start a deposit prop firm today. One of the worst business I can think of.

    What I see happening is this: the model is going to change. It's going to a zero rate model, this means you trade at firm cost. You give up a bigger % of your profits, but in return you get access to better technology and customized software (not off the shelf stuff like Sterling or Lightspeed). The technology would not be on par with say Citadel, but it would be top notch. This would be paid for through "some" of your p&l, and not from your commissions.

    You would still get the leverage. But the focus would be to tap into the huge over supply of talented programmers out there and offer access to real customized solutions and zero to low cost of doing business. That is where I think the model is going in my honest opinion.
     
    #132     Jan 22, 2012
  3. and how in the world is that any different from retail, outright, directional trading? You want to go from being the casino to betting on the gamblers? What's more likely to be profitable, betting EURUSD will go up or some trader will be profitable? With that model you'll have no trouble attracting "talent" but good luck finding investors.
     
    #133     Jan 22, 2012
  4. for crying out loud, at least tell me you're going to take the other side
     
    #134     Jan 22, 2012
  5. Maverick74

    Maverick74

    Investors in what? I don't understand your question. And what does this have to do with directional trading. In my opinion, these firms would not even cater that much to directional traders. Why would a guy scalping e-minis need better software then say TT or CQG? I'm not sure what your asking to be honest. Ask it a different way.
     
    #135     Jan 22, 2012
  6. how does the prop firm make money? Investors? where's the money going to come from to back all this talent?

    The current model makes money even if the traders lose. Your new model only makes money if the traders make money. That sounds pretty directional to me.
     
    #136     Jan 22, 2012
  7. Maverick74

    Maverick74

    No,no, no,OK you are not getting this. Let me try again. I'm going to try to walk through this in steps OK. We have about 50 or so of these firms in Chicago and NY and London let's say that have very viable, very profitable operations. However, over the years, they have added machines and reduced people. They are still making money. They have invested a lot in technology and routing and so forth. There are two huge surpluses right now. Traders who have been squeezed out of the game but are still profitable and programmers which there seem to be a never ending supply of.

    OK, next step. Prop firms don't have investors, they have partners. These partners leave equity in the firm and they get piece of the p&l of the overall firm.

    Next step. Some of these firms will look to bring traders back onto their trading floors but they are not terribly interested in backing them. Remember these firms are already making a lot of money in the HFT space. The problem is, they can't make money on commissions because it's a dead model. Plus some of these guys have such thin margins that high commissions would kill their edge.

    So what is happening here is a basic economic solution where the marketplace is taking what they have too much of (technology) and combining it with the over supply of traders and programmers to create a synergy.

    The commission model is dead. Don Bright will happily tell you that. So the idea of playing the casino and making money on order tickets are over. The regulatory costs alone each year doesn't pay for the little these firms make in commissions. So what has to happen is the industry has to evolve to utilize it's existing resources to generate a profit.

    The small little guy who is trying to start out in this business is going to have to go the way of SMB and other educational models. I don't like that model but that is really their only shot. The other model is going to be for guys who actually are profitable and can utilize lower rates and better software to capture their edge.

    I hope this explains it better.
     
    #137     Jan 22, 2012
  8. mav, given your experience with the industry, do you think the prop firm will exist 10 years from now?
     
    #138     Jan 22, 2012
  9. Maverick74

    Maverick74

    Absolutely not. Not in the same form as it does now.
     
    #139     Jan 22, 2012
  10. Hi all, not sure what's going on here in general, but let me say a couple of things (since my name has been mentioned a couple of times).

    The "floor trader model" which we engage in has a few good years left in it, IMO. Trading is a business, and if your trading business has only about $20,000 but good trading ideas, and more capital and tools would help, then we can be of service.

    The 'pure prop' model has the inherent trappings mentioned in a couple of posts already.

    If you're trying to trade retail, with wash sales and all the rest, then going with a Firm like ours (not many left) might be a good idea.

    I have spoken with Maverick, and we discussed the future of trading overall. I think we agree that traders need somewhere to trade, since not everyone can buy a BD, an exchange membership, and fulfill all the regulatory requirementsl to go completely on their own. Again, that's where we come in. Sorry if this sounds like "selling" or "marketing" - I like to think it just "is what it is" - as they say.

    As Maverick inferred, access to your money, safety, and all the rest, is what most traders look for in their "partner" - their trading firm.

    All the best,

    Don
     
    #140     Jan 22, 2012