Aren't they just a better retail broker? More leverage, lower commissions, better software, etc. Even if you make a personal contribution, you can always quit and get whatever you have left back. Am I right?
As far as I understand normally at a prop trading firm you are backed - trading the firms money - and you split the profits with the firm. An arcade is an office where you come in with your own money and may get competitive commissions, support etc. and the arcade makes money off the brokerage ...
Some prop firms run ads in the help wanted section of newspapers under the guise of hiring traders. Some of them charge thousands of dollars to teach you how to trade with methdods that even they don't use themselves. They used to, (and maybe still do), get the winning traders to loan money to the losing traders.
Real prop firms are exactly as described here. They exist, but are mainly in futures. Firms that are seen in a bad light are 'arcades' that try to act like prop firms. Most stock firms are in this category. I wish people would get their terminology straight. Unless you're backing a trader with capital you are not a prop firm.
part of the problem is that most of these firms business model is predicated on making just as much money form a lousy trader as from a good trader.
Generally speaking, they're lying manipulative sneaks and conmen who have no limits to the extent of the tactics they will use to part you from your money. Mental abuse is very common. Controlling the traders is a crucial part of their business model. Traders are viewed as propery, not people, and if someone destroys his life churning commission dollars for your firm, as long as you can get him to stay for two years, whatever happens to him doesn't matter. Many of the practices and behavior which are routine amongst the prop firm management would be subject to class action lawsuits in the rest of corporate America. What I am saying is not me making unfounded generalizations based on a small sample of data from negative personal experiences. It is how the industry is. There are straight shooters out there. People who you can rely on to pay you, who don't employ manipulative controlling tactics too much (I think ALL firms want at least some control), and people who charge decent commissions. They're very, very rare, however. This is a business of con men. To anyone who replies "A prop firm is just a leverage providing broker, maybe you have too high expectations for what they should be doing," you are totally missing my point and out of touch with the industry.