Sorry, I am not familiar with "prop firms" these days. I only used IB/CMC sort of retail brokers and am only familiar with Bright Trading sort of "leverage" prop firms where you basically pay for high leverage via your PL split. These days, prop firms seem to operate a different business model. Can you give me a non-frill description?
Yeah, the original Prop Firm description is when you join a multi-member LLC for the purpose of trading with the firm's capital and bypassing the restrictions of retail trading equities such as the pattern day trader rule, portfolio margin requirements, etc. Since you have access to the firm's capital, your profits are split with the firm on an 80/20 basis for example. But many years ago, companies like TopStep came along and started offering a similar offering for futures traders where you essentially pay a fee to sign up for a trading evaluation, where you are monitored closely to see how your trading performance is. If you pass this evaluation process, you are offered a "Funded Account", where you can trade with the firm's capital to increase your leverage in exchange for a split of the profits. So the name "Prop Firm" got borrowed from the original equities setup and applied to futures trading, even though the structure of the those two entities as they apply to traders are very different. I could go into more detail, but that's the thumbnail overview.
1) Pure prop is where either you are recruited for your trading or other skills ( math software etc) where you trade their money WITHOUT ANY CONTRIBUTION FROM TRADER ( and it can be anything stock, futures , options ) 2) Where you have some skin in the game 3) So called "test fee model" both futures and CFD OTC ,, this model id mushrooming everywhere, with lots of Question marks, mainly depends upon collecting test fee as main source of revenue rather than pure trading profit share .. This 3rd Category is no, where near as reputable as "True Prop"
So these "modern" arcade props operate primarily for futures, not stocks? Am I right that you pay a small fee (below $1000) for an "evaluation" (challenge or whatever stupid name) using a paper account based on some trading statistics. After you pass that paid-for paper sim, you can now "buy" a funded account (live) where the account is leveraged beyond retail broker level and any PL is split, but the "purchase price" is calculated (against max drawdown) such that the firm itself never loses any money. Once a lovely trader hits the stop-loss threshold, the entire thing starts over again. What does coupon mean? I see it mentioned in reddit.
I wouldn't be surprised if those firms as you described simulate everything and just collect dreamers' fees. Last place I worked was a traditional prop firm. Each team was its own LLC and paid fees to use the firm's infrastructure, credit, access, capital, resources, ... with various splits and payouts. at the end they introduced vesting which was no bueno.
That's Correct. But even in the case of traditional Prop Firms, you also have to put up some of your own money. So in either case, the prop business model is set up so you are only going to lose whatever dollar amount you put in, regardless of how much leverage you have access to. After that, you'll be cut off so you won't lose any of the firm's money.
That type of company does exist, but that type of a recruited trader is generally a math whiz that functions more as an employee with perks and performance bonuses more than anything else.
But for futures, you are quite leveraged already. Why need more leverage? Also, why wouldn’t people go for non-test firms in that case given the “vetting” process seems riskfree and merely pure profit for firms
it's not only the leverage but the infrastructure, resources, access, fee schedules, credit, capital. People do go for the non-test firms but not easy to get in. Read some comments here https://www.teamblind.com/ https://www.levels.fyi/
I recently saw a job posting, that fit that box. 1.Location/Amsterdam EU 2.Qualification/Minimum 5 years of experience and track record in trading volatility, in a professional capacity. 3. Base salary/80.000 Euros per annum. 4. Benefits/Free fruit/Yoga rum/ Discount on fitness member ship 5.Bonus/ Yearly on tranding preformance 6. Extent houres is expected. If I remember right There are some job interwiev from Jane Street were job apliccant have studied Game theory and math on youtube