I like the position of the prop firm owners. An interesting discussion could be the identification of free puts and free calls that a prop firm owner may hold. If you were given the choice of which side you would be on, would choose to be in the position of a prop firm owner?
I would rather own JP Morgan Chase than be a customer and I would rather own Con Edison and Time Warner rather than buy electricity and cable services from these firms. Put up a some millions of dollars and you too can start the process to own a prop firm. After you have the money assembled set up a solid clearing arrangement, be smart about how you will use tech and hire the right guys to lay it out etc., etc, etc. C'mon ... let's think real world here. Putting together a prop firm is not like planting some seeds in the back yard and tending to the plants so you can have some beefstake tomatos for the table. Starting and running a succesful prop firm is a significant undertaking and requires people to shower, dress and leave their apartment to make it work ... which leaves out a lot of guys here. BTW ... not to leave you in suspense I would rather own Morgan Chase, Con Edison and Time Warner than stay their customer except to get there I would need many billions in capital and a brain many levels up from the one in my skull. As I said ... let's keep it real.
Somewhat off topic but a study i read a few years ago showed that brokerage firm stocks did better than the funds they manages. This was before the bubble as our financial industry went from a small segment of the economy to the largest. Edit: on topic now, running a real business is way harder than running a portfolio even when the portfolio is 10x the size of the market value of that business. It's foolish for people to talk flippantly about starting hedge funds, prop shops, market making firm, etc.
I don't want to continue this off topic nonsense and this will be my last comment on this: It is even more foolish if someone has never ran a business of substance and most that are flippant about it have not. Starting a prop shop is not a small undertaking.
>> I should be more clear about where my $4k desk comes from. $2,200 comes just from X_Trader Professional package with autospreader.... $1,100 comes just from CQG charting because I want one for myself only, not shared so I can always leave the login running from home or office. >> And the rest is office desk and financial news stuff we subscribe too. >> If you really want to, you can 'downgrade' and drop your desk to like 2.5k/month >> But even after all of those costs and the little variation of prices you get, if you have less than 5 years experience it is ALWAYS better to trade with a prop firm. You get I.T. Support. You get risk 24/7 contactable. You get informed about markets rolling over, important holidays, if there's Chinese data over a weekend (you can check all these but sometimes we are so busy trading its hard to keep track of every single thing). We're told about upcoming news/events. >> It cultivates an environment of learning. Sure, lots of people are secret c*nts and I wouldn't trust them with anything. But you will make a few friends and share ideas, some will progress fast. Hopefully you make nice, generous friends, who will help you out and are honest when you ask them for help. There are some pathetic losers out there who just wanna say "ohhh yeahhh nahh just got long, then got short really" they don't want to explain anything because they're selfish c*nts and don't like helping anybody. >> The prop firm capital is an extremely beneficial step-up than self-managed capital because of the growth potential factor. The prop firms allow so much more risk to you then what you can get on your own. And probably cheaper brokerage. Here's the best part. If you are really consistently profitable then you don't really have to beg the bank for more money. In this case, just talk about your confidence and show results to the shop owners and they will always be happy to discuss your performance. If they really believe in you they will bypass some rules here and there and take your risk up by pretty good amounts. You can't really go to the exchange and beg them for more limits and promise you won't lose money...
>> This is a very wise post and very true. If I was a retail trader by myself I would almost completely be convinced the game cannot be won. I would be convinced that you need to either be a Mathematical Genius and Statistician with PHD level education, or inside trading and that the game is rigged with bots. I got no incentive telling people here that if you work really hard, without quant stuff and exogenous 'variables' and graphs and models, you can still make it. Im just being honest. Because I like sharing information, as sometimes I come across gems on this site too. >> I will also admit my enthusiasm for this job comes from a few things. Firstly, I am young and haven't been worn down by a family yet. Secondly, I've saved up just enough to live with reasonable means and aggressively re-invest in my own account. This is not something easy to do. In fact I did the numbers, and if we want to be conservative, for someone who isn't a highly-active inefficient trader, you are going to need a ~50k pain threshold stop if you want to get the 400-500k/year mark. And at my (generous firm) that's 100k sitting in there. Is it worth it? Well the numbers are really against you. But it can be done. I did okay in school, but there are geniuses that walk in and out of my office every day. And of course, who can forget the dreaded fact of NO superannuation, NO holidays, NO perks, NO guaranteed salary. >> But from all the war stories I've heard, I can tell yas now that trading is seriously 90% fighting spirit and 10% copying good parts of other trader styles that work for your execution. >> True from start to finish. I explained a simple risk/reward system earlier. If you're a trainee, profit split starts 50%/50%. If you make 10k, the firm gets their 5k. If you lose 10k, they lose the 10k. >> If you're a 7-year veteran with 100k stop, your split might be 85%. If you make 200k one month then the firm only gets 30k. But if you lose 200k... do you really think they're going to accept a no-deposit policy and let you punt on 200k for a possible return of only 30k? >> It's not charity and never will be. There are people with good intentions you just have to make good friends and be open & honest with people up front and they will be the same to you.
>> Friend it took me a good 1 year of listening to my mentor telling me about time-stops to actually 'click' into my head after multiple experiences. So I would always SAY they're useful but never do them. Then after I go through some pretty terrible swings over time I always go back and check "wow why did i hold that long it was clearly not working and it had been many many hours just give up and look for your tick somewhere else." >> Some things can be taught but you really need to 'feel' the pain before you become accustomed to doing the right thing. >> First you need to ask yourself the question, why are you holding through multiple market opening/closes? If you're a multiple-day trader or weekly trader then you should always factor in possible gaps into your risk at any time. >> Trading just involves a lot of fire-emergency situations. What I do is often have nightmares about certain scenarios and I imagine what exactly I need to do 'if' a certain gap scenario happens. Usually it involves cut and reversing and going with the momentum for the first half an hour and making a quick decision to take some small loss and thank God its not a big chunk. You will ALWAYS, ALWAYS, ALWAYS be better off you plan the gap/scenario/action that you will do if scenario A, B or C happens. >> Over thousands of days, the gaps you experience will sometimes give you nice profit, other times will give you damaging red. It should net out to about even over the long run. Just make sure you make plans and scenarios and act accordingly on them the first time so that you make it to the 'long run' >> Are you really jealous or are you just trolling? If you actually go through 99% of the information in my post, they are observations that the BEST traders at my firm do. I don't have a braggable record and I have nothing to show for it. Hell if you saw where I lived you wouldn't believe I knew how to use a computer. >> This isn't a lecture. I'm being generous here. You don't have to read this thread and you don't have to reply. I'm sharing what I consider valuable information, for free. Maybe someone else who was able to get close with some of the greats would find different observations? But there are a lot of c*nts in this industry and they would keep it to themselves anyway. >> Always. Always be the prop firm owner. Prop shops are essentially brokerage houses these days anyway. Whether you win or those, their biggest and best are reasonably winning over time anyway. They thrive on new young blood feeding the system with high brokerage activity and trying their luck out. The statistics are bad. Maybe 1 in 15 make it past a 'great' bank salary by 6-7 year mark. >> But prop shops have high start-up costs. And you gotta scam a lot of people into thinking they can all do it and 'live the dream'. Your biggest/most important clients will be the long-term veterans who have enough money to retire and are just trading for the game and coz they don't want to do anything else. >> Basically you need huuuuuuge backing and you need to know a lot of people in the industry. The type of person to start a prop shop or own one, has the capability to do ANYTHING business-related like that because of the 'connections' needed but just so happens to want to own a prop firm for passion.