Where do all these prop firms take money for leverage?? I'm very interested how can they afford to propose 1:20-1:30 leverage for their traders epecially their remote traders (many of them trade rarely and not generating much commission). Do brokers provide them leverage or is it prop firm's own money? Do they pay interest for this capital if broker provide them ?
In our case, all of our traders use our money (theirs is not counted as capital for Reg purposes). Broker Dealers are allowed up to 6.67 x their cash (up to the Clearing Firm's discretion of course). Each of our traders can use $1-$10Million or so if need be. We rarely have more than $600Mil or so in play, therefore we keep capital for new traders (plus our own family trading of course). FWIW, Don
So you mean that broker gives only 1:6.67 leverage for LLC's. Does LLC give 1:20 leverage for traders using their own money? For example if I started LLC, traders put 500 000$ and need 10 Mil BP (1:20 lev). Brokers give 500 * 6.67 = 3.33 Mil. And I need to have 6.67 mil$? (Assume that pending BP = real BP) Or 1:6.67 is leverage that clering house provide to broker? + Broker provide leverage for LLC. If i start LLC were traders put their money and I need 1:20 leverage for them. Do I need to put my own money ?
OK, first off you have to understand that since December 2005 the "Trading LLC's" cannot use their traders money for these calculations for net capital requirements - they have to count their trader money as a liability. So, the "owners" (Class A partner) has to to have enough money to cover all the traders use of capital. So, in essence, your thought process is correct, just the base numbers are different. Don
so don you're saying gs gives you 6.67 leverage on your money to be used by your traders? so to have $600 million of money in use you're saying bright has over $100 million on deposit with gs? i thought you had like $20 mil or so?
Your math looks pretty good, still a bit low, but good. We make a lot of money from trading, and keep a good chunk in the firm to allow our traders to make money as well. Don
BP comes the clearing firm AND OR the BD...and is obviously different w/ every firm. Some clearing firms offer more BP than others in JBO setups...the Bright 6.67 leverage isn't necessarily the same everywhere.
Also there is a great deal of haircut relief through cross margin. For example, the BD is looked at as one account. So any traders with corresponding positions cross each other out. Not to mention that many traders do not use all their haircut. And many traders hedge their positions aggressively that frees up a lot of haircut as well.
Why ruin all the tax benefits by using an entity? I have proven to many that it's just foolish to do so, feel free to call to discuss. And, 20:1 is barely enough to make any real money...for the right reasons, 50 to 1 can certainly be put to use with us. Don 702.739.1393