It seems like much of the appeal of trading with a prop firm as opposed to independently is the chance to "trade the firm's capital." At least that's one thing several firms seem to use to market their opportunity. However, in actuality, one thing I've noticed is that with at least some of these firms (the one's I've spoken to so far), is that if/when you lose your initial contribution, you have to replenish it or you can no longer trade with them. I may be missing something, but how is that trading the firm's capital? It seems like I'm just opening an account as I would with any broker when trading independently, and once the money is gone, the only way to keep trading is to put more in. In other words, trading my own money -- just with a prop firm. Does anyone know of any prop firms in which you are TRULY trading the firm's capital (or at least after going through your own contribution)? Furthermore, if there are firms in which you are trading the firm's capital, why would anyone go to a firm in which you are not? Honestly, sometimes I feel like understanding trading is easier than understanding the prop industry! Thanks.
Usually it's the payouts that are different. True prop firms with no capital have much lower payouts. Like 25-30% of the net.
blackmamba, I assume you mean prop firms with no capital CONTRIBUTIONS, not prop firms with no capital. A prop firm with no capital doesn't exactly sound too enticing! But really, I wouldn't necessarily mind the much lower payout if I'm truly trading someone else's money -- in fact, I think it's fair. If I'm essentially trading my own money, though, I don't really see why I should have to give any of it up -- one of several things that bother me about most prop firms. Also, I figure that if the payout rate actually becomes a factor for me, it means I'm making in the first place, which is really my goal for joining a prop firm anyway. Most importantly, though, do you actually know of any such firms -- firms with relatively low payout rates but in which you actually trade THEIR capital? Thanks.
I'm not a prop trader, so I am summarizing what I have read here and elsewhere. There are firms where they supply all the capital, but getting hired is extremely difficult for obvious reasons. That is especially true for the big-name investment banks such as GS and MS. With firms where you guarantee their capital, they have almost no risk as you noticed. The main draws seem to be that you can trade with greater leverage (which is very much a two-edge sword), and they sometimes provide training (which can vary widely in quality). The biggest disadvantages seem to be that you would likely need to be licensed (which is a hassle), and you have no SIPC protection of your money since you are a partner. With any trading room (prop or arcade) you get hardware, software, and back-office support. That support can be very expensive. Somebody else please add what I am missing. . .
rwk, Exactly. It seems like, from the prop firm's perspective, a "heads I win, tails you lose" scenario. If you (the trader) make money, they get a cut of it. If you lose money, it's only your contribution you've lost anyway, and the firm still gets the commissions and desk fees, etc. Yes, of course it's extremely difficult to get hired to trade by a GS or MS. But my hope is that there's some kind of middle ground (that's really the operative term here) between the two. Is there?
No... I think what you wanted to say is 25-30% gross... and up to 70% net. That's my deal and I trade 100% firm money. No contribution and financial risk from my side whatsoever.
most of these prop firms are glorified day trading shops. seems if the can give you a prop trading title and tell you your trading firm capital you'll sign up and pay their huge commish rates.
In case you guys missed it, I thought I would post this article agein from the current month's Stock and Commodities. Hopefully to help explain the various trading options currently. Starting To Trade For A Living by Don Bright Ever thought of trading for a living and didnât know where to start? I receive dozens of phone calls and hundreds of emails each month from those who think they want to get involved in trading for a living. So much of our industry is simply misunderstood that I thought it was time for an analysis, hoping to help those in their quest. .... .... ... Full article http://www.traders.com/Documentation/FEEDbk_docs/2009/10/close.html FWIW, Don
There are many prop firms out there that require a capital contribution and take a cut of the profits. - Charging 0.20/1000 and the bare minimum monthly fees (Sterling + exchanges), how else can they make money if they do not get a cut of a trader's profits ? - For many firms, their share of the traders profits is their ONLY revenue. - They let you trade their capital because you deposit 2000-5000 and get 100k-200k-300k + in buying power. Where do you think that money comes from ? - They need to protect themselves by letting the trader be responsible for his losses because 90% OF PROP TRADERS LOSE MONEY. Of course if you look at a firm's CURRENT traders, the success rate will be higher. That's because MANY have come and gone and you'll never hear about these guys burning through 3k-5k in 2 weeks and leaving. The firm makes ZERO off these guys if it charges dirt-cheap commish and doesn't profit off monthly fees. In fact, it requires a lot of time and effort on their end only to come up with zero profit and, most of the time, a frustrated trader bad mouthing because he can't figure out why he lost. Now please explain to me how you expect a prop firm charging 20 cents per 1000 shares and making 0 on monthly fees to survive if they get a cut of their 10% of profitable traders, but have to assume a cut of 90% of negative expectation traders. There are so many threads created every week on a variation of this topic, but the fact is that this is very simple to understand, once explained correctly !
Yeah, okay, that's technically true, but I don't think that's what most of think of when they hear the words "trading someone else's capital." I mean, if you look at it that way, whenever you buy on margin when trading independently, you're trading your broker's capital. Yet I don't hear brokerage firms advertising the chance to trade their capital! I'm sorry, but advertising the chance to trade the firm's capital when all you're really doing is gaining more leverage (a double-edged sword, obviously) in trading money YOU put in is deceptive. Not false, but deceptive. There's a difference. Actually, since I started this thread (a few weeks ago already), I've become a little more educated about this "world," and have discovered that there ARE in fact firms out there in which you are TRULY trading their capital. There are even some in which you get a base salary too! The catch? They're extremely hard to get into, especially now, but that's a different subject. The other catch is that they take a lot more of the profits, but I don't think that's a problem if you're trading some else's capital and have the chance to trade more of it as you improve. But my point is that there IS a business model in which the firm can let people trade their capital and make money themselves -- they're not charities, so I'm sure they do in fact make money themselves. To sum up, the main point I've become aware of only in the past few weeks is that there are two kinds of prop firms out there -- actual prop firms, and trading "arcades" that call themselves prop firms. I actually wasn't even familiar with the term "trading arcade" when I started this thread. And they're what you seem to be defending. Which is fine I guess -- I'm not saying they're evil. They're a certain kind of business, and like all businesses, they try to make money. Fine. I just think that they should be more upfront about what they are and what they're offereing people. Some of them even advertise on Monster.com, by the way, which I think is extremely disingenuous. A non-salaried job would be one thing -- there are sales jobs like that, but they're still jobs. But these firms are advertising on job sites, but only offering you the chance to become a customer, not just a non-salaried employee. If they were, in fact, more upfront, it would avoid a lot of confusion from people like me a few weeks ago!