Through all the talks about the churn-and-burn shops, I still cannot understand one thing. My firm backed me and charged me 0.0075 per share. So, the firm was risking its capital to churn me? That does not sound right. I think they are better off depositing that money in the bank.
As long as you are gross positive it's a good deal for them. If you gross $10,000 in a month and average 60,000 shares a day, you'll net: 60,000 * 22 days * .0075 = $9900 in commissions for them and $100 for you. Heck, I bet they'd even let you keep trading if you went in the hole a little. Most traders, with a bit of work and a modest level of intelligence, can figure out how to be gross positive. If you can't do that, the'll probably fire you.
jellob use the example above from lescor. they make 10k a month on you. the first 4 months you "lose" 2k a month. so in 4 months your firm make 40k and you lost 8k. but your firm is net positive 32k. so in reality they would let you lose 2k every month as they net 8k on you a month. so at the end of 6 months you're down 16k and your firm has made 48k. so at the end of 6 months they pull you in the office and "forgive" your 16k lose. so you feel indebted to them and stay another 1 or 2 years and make them big money
Thanks for the clarification and I know that I will not get suckered in again. I was gross positive, but with that kind of rates, no wonder so few people succeeded.
So just to clarify, as long as your draw is a function of volume traded, it is pretty much a prop shop business model? As in as long as you are being charged commission for trading you are being taken for a ride. Is that right? So the only legit trading firms would be investment funds and banks (pays base + % bonus on p&l).
A few days ago another firm asked me to recruit for it and would compensate me by depositing the commissions into a trading account. That guy really thought that I am stupid. I told him that I had prop experience, but he still went on to tell me that all new guys need to make a deposit and get charged 0.008. In another word, he was telling me to work for him for free! I should have taken the cue when the secretary was flirting with me. Needless to say, good riddance!
Incorrect. In the above example if the trader can gross the same on lower volume, or get a better commission rate, he can make decent money. Almost all the prop firms you read about on this site operate with that business model. There's nothing inherently wrong with it, the traders just need to know what kind of deal they are signing on to. Your trading is a business. Like any business you should be looking at your overhead, revenues and margins. In the above example, revenues were good, but there was so much overhead that the thin margins resulted in no net profit.
Lescor >> I see, so the difference between a decent prop shop and a scam lies in the commission rate. Then there isn't an inherent way for the candidate to determine if the firm is decent or not until the point of the contract being issued? Has there been cases where the rate is good, you deposit 10k of your own money, but decide to pull out and the firm refuses?