Don't prop firms in general use portfolio margin? If so, I do not understand the meaning of "firm's capital". I find the spread thing extremely risky, because of worse case hits. Imagine the stock you long goes to zero, and the one you short goes to the moon overnight. Who pays for margin deficits?
I've been expecting you ... this is clearly your type of thread. I understand that the chances of a straight directional trader using a prop firm are remote. I'm trying to prompt him into expressing his leverage in contracts ... or at least one side in contracts. If he is spreading the future against cash treasuries he can give us a better undertanding than just saying 20 to 1. I put it in my terms in the hope that he will come back with a similar clear structure in terms of what he trades. There can be no mistake about the buying power I would have reading my post. My bet is I am not alone in not knowing what his line is. Nice to see you Mav ... hope all is well.
I don't think Propex has access to cash market. Assuming he does work at Propex which I'm 90 delta on. I think a lot of these shops trying to find an edge in unconventional markets so you could approximate his leverage by simply assuming he is trading a standard spread. Let's use the the NOB spread for our example. That's the Ten Year over the 30 Year. If the margin for that spread is $750 per and he is trading 100 lots, then that would be the same as you trading 75k in an IB account. The issue here is if it's not an exchange traded spread and the margin is 2k per car or 4k per spread, then that same spread would require 400k from you in an IB account. THAT I believe is the difference along with member rates and commissions near zero.
>>No I think each Oil Contract is for $100,000. So if you had $5,000 left in the margin with your Brokerage, you would be given a 1-lot... to win/lose $10/tick >> For example every 1-lot on the U.S. tnote is a lot cheaper. It might only cost like $900 U.S. or so. Commodities and Equities usually much more expensive than Bonds when it comes to the leverage comparison. I don't know what the notional value of the Oil contract is but it's usually a nice round number like that.
Mav, your comments and opinions are always appreciated (particularly on anything prop related) but keep in mind I didn't jump in until he started to talk in terms of contracts ... here's his comment: "In the futures market, whatever capital you have you can control a leverage 20 to 1. So if you had $5,000 working capital you can control $100,000 (approximately) worth of the standardized contract. In bonds, the cost is a lot cheaper. And my firm has big economies of scale relative to a retail punter so its even cheaper for them." Rether than trying to figure out what he means I was hoping he would tell me. In fact ... lol ... I am still hoping he will tell me but he may be asleep. I find that whatever brain cells I have left should be devoted to figuring out what I think ather than a set of facts and assumptions that someone else throws out. Frankly, much of the time, I get pretty damned surprised by what they actually mean. Since it is his example let's see what he is trying to tell us. My story is a simple one. I can trade one conract intra-day for about each 1K I have to cover margin. I don't chooe to leverage out that far but could.
>> With a retail account... like I explained before, the costs are much, much higher initially. You are always better off with a prop firm at the start. This is very baby size example, I am a more than 5-times bigger than the current limits I am describing to you.... ** If I wanted to just have 60 Australian 3-yrs I would need $700 x 60 = $42,000 in Margin. ** Then I would need 20 Australian 10-yrs, so that's 20 x $1300 = $26,000 ** Just to have 5 Australian Spi would be 5 x $5000 = $25,000 ** To have 5 S&P500 E-mini would be 5 x $5000 = $25,000 We're already talking over $100,000 needed in margin... and the size I have just told you about is the BARE MINIMUM starting. I have 180 Australian 10-yrs just as one example. Prop shops require NO deposit. You get to come in and get trained up in an environment with other people, learn from others (hopefully) and grow. This is really hard to do at home by yourself. >> There are catastrophic losses sometimes but it's the prop shops responsibility to monitor it. We got a 24/7 risk team. They got thresholds to watch and call you. You nominate a dollar stop and you get called up about your plan to exit. They handle it well. >> Also, yes, sometimes some people (like someone recently) can just walk away having owing the company $20,000 to $40,000. But that's the deal. You come and you trade for no salary, and you try to find something that works with effort. When you get on a contract you sign a statement that ensures you won't do anything wreckless or excessive gambling otherwise you get chased for it. Just because you got hurt doesn't mean you were gambling. Some people do things such as... their account is -$10,000... they have one more shot left.... they're almost out the door... so they hit a Data figure wildly and hope for the best. This is obvious gambling and no-one is happy about that. >> Also the losses are obviously controlled because you are monitored day to day. Risk is on you 24/7 to make sure no-ones numbers are breaching what you say your stop is. >> In short, their risk team and management is really good and they handle it all. Like any other prop shop they know what their bottom line is, and what they can afford to lose/what they can't afford to lose. >> Also, regarding ROI... the example above I listed was my very own baby-amount of size. You need to multiple that number by at least 9 times to get my real 'retail deposit required' (there's actually more because I'm not including some products). So the number is at LEAST $1 million needed to be left in as a 'margin' with the exchange account. However, be mindful that sometimes you're just given a few extra limits for 'just incase' moments. Like queue holding, or in case some rogue announcement comes, so it's possible. Once again, the rates I mentioned are not the rates a prop shop would pay because of their sheer volume. For the volume a prop shop might do, instead of $700 per 3-year contract it might go down to like $400. Once again it's negotiable with the exchange I think so I would never know. >> Also.... no-one in my firm would ever know or have any concern because we get provided limits and thats it. Our job is to just sit there and make money. Not to focus on anything else...
each oil contract is 94k today, but we are able to day trade it with 1000 in our account per contract. so thats 94-1 leverage for us in a retail account with low margins (mb trading, etc...) \. We want to know if with his 5k working capital he has 100k buying power, is he able to trade 100 contracts of crude at a time? seems like that would not be allowed with any firm. Crude just bounced 25 ticks in 90 seconds, if they let someone trade even 50 contracts they would have been blown out already if they were on the wrong side.