This Is How To Judge a Potential Prop Firm's Operation

Discussion in 'Prop Firms' started by WinItAll, Oct 7, 2009.

  1. I just wanted to write a little blurb here about Prop Trading/ Intraday Trading Firms and how to select one that is both good for you short and long term.

    I have received many PM's over the last month from lots of new traders that had read previous postings of mine about this subject so I thought it may be helpful for me to just post what the overall response has been.

    Some background on myself is that I've been trading about 15 years now, 10 in equities and 5 in fixed income/credit default swaps and debt. I currently have no allegiance to any firm and trade only for myself with my own money. So I have absolutely no dog in this fight and I'm not looking to promote any firm.

    That being said, the following are issues that should tell you that you've joined the wrong outfit.

    1) If you put up your own money YOU should be the one to have final say over your daily risk limit and YOU should be allowed to withdraw your money, as I do, at any given time you feel the need to. Putting down money, whether it be for a teaching fee or a risk deposit is the same thing. YOU ARE FUNDING YOUR OWN TRADING NO MATTER WHAT WAY IT IS SOLD TO YOU BY A MANAGER OR RECRUITER. And when trading your OWN money, you should always have the freedom to do what you please with it or you basically just handed away your 5k or 10k deposit.

    2) The owners or managers should give you their input on where they think you risk, share size and bp are set but it should ultimately be your final say unless you run out of money or are dangerously close to doing so. I get PM's from way too many traders that are getting choked to death by very stringent risk limits and share limits. Most of the traders that PM me seem like they are trading a demo account if they make one or two bad trades early on.

    3) This is possibly the most important..... The two biggest questions you need to ask yourself------ Are the guys teaching me traders and if so are they successful at it? This question isn't whether they have money, It's whether they still make it trading. Any trader will tell you that the way the market moves has vastly changed in the last year or so. Former tape readers are losing money, former big time exchange traders are retiring b/c order flow has left the brokers, etc. It is emphatic that the people teaching you can show you that on profitable days they are making atleast 5-10k consistently. Any owner of a firm or teacher that can't show you that amount of money on a winning day is making money from training fees and commissions NOT FROM THEIR OWN TRADING. And if they can't make a living for themselves then how are they going to teach you.

    DO ANY TRADERS THAT ARE WORKING THERE WHO HAVE TAKEN THE TRAINING PROGRAM MAKE ATLEAST 10K A MONTH AFTER A YEAR OR TWO TRADING...... If the answer to this question is no then you better get packing. If there aren't groups of traders that fit this criteria and everyone there is trading for pocket change, then something is very wrong. There should be atleast a few relatively new traders that are taking home a respectable living after the first year.

    Next question is Are you progressing at all? Can you trade stocks that are volatile? I've got alot of complaints about this question as well. If you are not allowed to trade stocks that are volatile or in the news then you are trading with out an edge. Yes for the first few weeks you should just get comfortable and familiarize yourself with the market but after that YOU ARE DOING YOURSELF A SERIOUS DIS-SERVICE BY TRADING ARBITRARY STOCKS. For ex-ample, if you haven't been trading AIG, RIMM, FAS and in play stocks such as St. Judes today, then you are not giving yourself the opportunity to suceed. People who don't know what they're talking about will say that you can't learn by trading those stocks and I will contradict that completely and say that is the only way to learn. I hear from guys that trade random dead stocks that don't move all day instead of the market catalysts.... That's a great strategy if you don't like money. The only way to learn how to trade active stocks is by actually trading them.

    By not trading active stocks, in the news or at major chart levels, you are completely taking away any advantage you have as a trader. At this point you might as well go bang your head against the wall.... Atleast you don't have to pay any one comissions to do it.

    This was just a raw and brief response to alot of questions in the form of one answer. If anyone has any specific questions then feel free to PM me and ask.

    Good Luck in the Markets.
  2. mokwit


    Just out of curiosity are there any prop shops that don't rely on desk fees, commissions and training course fees to pay their costs. Seems to me that is the industry model, and whether a trader makes it or fails is immaterial (so long as he churns through his deposit in commissions). There will always be some who do and are 'proof' (while it is working for them). The prop shops money is never at risk because in a drawdown it is the traders deposit that is drawn down - sell out point is when the shops money becomes at risk.
  3. There are a small handful of shops that are not reliant on deposits and such.... but it is only a very small few and the barrier to entry is extremely high, relatively speaking. First New York, Schoenfeld and Carlin are the only real prop trading firms I'm currently aware of that actually provide you with a substantial amount of money to trade with no deposit or training that's to be paid for. There may be a select few smaller firms that also let provide this but probably not for beginners and if so the amount of money you're given to trade is extremely negligable. The only downside to trading with one of these firms is that they take a very high profit split..... In reality, it's not really a down side b/c you'd be trading alot bigger than you would be able to funding yourself or at a smaller arcade desk.
  4. you can sum up the interview process along the lines of these qualifications:

    1) do you look like me?
    2) did you grow up where I did?
    3) do you worship or act like you worship like I do?

    you're hired.

    other than that, there must be some problem,


    (sorry, that's the reality)
  5. rmessner


    I am looking for a futures shop in Chicago. Any ideas or recommendations?
  6. I'm considering a prop firm because of leverage. Even if I were to trade futures & futures options, I would still get more leverage with a prop firm.

    The prop firm I considering is willing to offer 3:1 leverage on options, up to 50:1 leverage on stocks, hold positions overnight if they are completely leveraged (i.e. protective put or straddle). The big problem is that they want at least $20k, my money will be tied up for one year, and they get 15% of my profits (85/15 payout ratio).

    Do you think this is a worthwhile deal, or should I seek to make a living trading futures and futures options? My trading style is predominantly delta neutral long gamma scalping.

  7. You have to think of it like a business transaction. Forget about what they are making off you and just concentrate on what you're making without the leverage and what you'd be making with it. Don't get caught up wtih that.... If you think that keeping 85% of what you make with leverage is far greater than 100% of what you make with leverage then that's all that matters.

    And as soon as you make enough money to trade on your own you should do it right away.

    I would suggest calling around though, there are certainly shops that would leverage you out and only make on your commissions.... Not on both commissions and a piece of your profit.
  8. Limit Down,

    Not sure if you think you got rejected from a position b/c of your race or religion, but in the trading world the only thing that matters anywhere you go is if a firm can generate money off of you being there. It's the most cut and dry example of business there is. I've traded with Israeli's that sit next to arabs and they get along great b/c they make eachother money.

    Maybe you should take a look at yourself and figure out what about you in particular they didn't like..... B/C I have never seen a trading desk that wasn't all over the map with religions and races.

    That's the reality of it.
  9. uh, I'm on the inside, and not trying to get in somewheres, already there, so no, those are not comments from or about me or my experiences

    I too have seen same, regarding trading desks and the variety of those who get in for a while, what allows someone to stay remains more substantive and has a lot to do with their disposition, education, personal makeup and other intangibles that allow one to succeed.

    in senior management meetings and in supervisory consultative reviews, the attempts to quantify those intangibles results in something that is very akin to what was said, and is a reality, and is practiced, and sadly remains the norm.