I can see the desk/commission fees being a source of revenue, though idk how much commissions really are these days for those guys Can also see more frequency and round trips leading to more practice and sorting through the herd more quickly for top talent.
If you by prop firms mean the pay-to-trade-in-simulator-and-maybe-we'll-give-you-a-shoestring-to-trade-on-firms I'm sure the answer is that their business model is based on the very high failure rates of would be day traders and they're not really interested in seeing you succeed, but have you on the hamster wheel with continuous attempts and resets collecting risk-free money and never risking any firm capital at all. From the bottom of E2T's page (I don't think other firms publish this figure, but I'm sure it's similar): So, less than 20 % pass. And I'm sure the few who pass mostly mess up before they're ever paid. If E2T sells 1000 evaluations at $350 - that's $350 000 right in their pocket. With the few who's actually funded - E2T have them trading either in simulator or real money on a $4500 drawdown. So, if 10 % of the ones who pass blow their account, that's $4500 x 100 = $45 000 in losses. And for the few who may be able to actually trade profitably, E2T takes a 20 % share of the profit which is more money in their pocket. Now, even if we assume a 100 % failure rate of the 20 % who pass, that's still $350 000 - $90 000 = $260 000 right in their pocket. Either way E2T should be running a decent business just collecting fees and resets. I've no idea how many subscriptions they're selling, but considering the scope of the financial markets and that it's a worldwide customer base I'm sure 1000 evaluations per years may easily be a conservative target. Why d**k around trying to cultivate or grow successful traders when you can feast comfortably on the failure rate of the huge majority of fantasy traders?
You need to separate a traditional Prop firm from the JBO type Prop firm. The Traditional prop firm hires traders of all types an makes an allocation toward that strategy. 100% of the risk is on the prop firm and their owners. The JBO type prop firm generally takes first loss deposits from its members. The member is registered with the firm that is a Broker Dealer and is responsible for losses up to their deposit, unless contractually obligated after. In this JBO type firm, revenues generally come from charging for classes and commission from trading. They promote day trading because it creates more revenues for them and little to no overnight risk from leverage. The traditional prop firm only makes money when you do. An example of a JBO type prop firm is T3 while an example of a traditional prop firm would be Susquehanna International Group (SIG).
Robert, that's a gross simplification. JBOs have evolved over the years and firm structures vary. I know of multiple JBOs that back traders. The answer to OP's question is risk management and overnight margin. The large well capitalized JBOs carry a good chunk of their books overnight.
Nailed it. Most “prop firms” that people think of that don’t require an extensive skill set, are making money off of your trading activity, not your pnl. While some do allow for overnight, the bulk of their traders and, and what they recruit for, are day traders. Legit prop firms are mostly market makers, like optiver, susq, student, etc. There are some others that operate similar to a multi strategy hedge fund, such as first ny and a few other shops. But the vast majority of prop firms discussed about on this forum and thread and are simply profiting from the trading activity of the daytraders. It’s like casinos recruiting gamblers lol.
This is the most bullshit line I have ever seen in my lifetime from anyone, ever... "The Trader Career Path / Gauntlet Mini™ examinations are realistic simulations of trading in actual market conditions and are difficult for any experienced trader to pass..." No, you MAKE IT DIFFICULT for people to pass because of... (A) The BS of having to close positions before overnight session, which is NOT a realistic simulation of what goes on in REAL LIFE... (B) The idea that you should let someone trade 10 contracts of an equity e-mini with a 50K account! (No, the limit should be ONE, TWO if they are advanced!) You guys have a whole bag of screws loose if you think that is going to manufacture a successful trader. You are tempting people to lose, you WANT people to lose, you NEED people to lose. You do not want to foster profitable traders, you want to foster the never-ending conveyor belt of new money being dumb money. You have no redeeming social value in the trading community, and should be banned from your misleading BS about drawdowns on these 25, 50 and 100K accounts!