Why go with a prop firm?

Discussion in 'Prop Firms' started by 95aero, Apr 21, 2010.

  1. 95aero

    95aero

    I am considering going with a prop however, I am really struggling to understand how using leverage can be used safely. It seems to me that the only benefit of using leverage is being able to risking more of the pie (capital contribution). Hope I’m wrong, but I could use some clarification. Thanks!
     
  2. I suggest a search here on ET, but some of the basic reasons are that you can "use" (not "abuse") capital for lower risk, higher reward strategies (opening only, pairs, mergers, market making etc.) vs. normal retail type directional trading. And, if you're good, with a high success ratio, you "can" trade a bit larger size.

    And, of course rules are much different.

    We call it the "Exchange Floor Trader" business model.

    FWIW,

    Don
     
  3. Kubinec

    Kubinec

    I wouldn't recommend a prop for beginners (or anyone else for that matter), no matter how good.

    Why do you want to work at a prop and what do you expect out of working at a prop?

    FYI, you don't need a prop in order to be able to trade leveraged.
     
  4. I find it interesting that so many want to be "hedge fund managers" - using other people's money while giving away 80% or so to the investors...but don't want to use our money and keep all their profits....just doesn't make sense if you're planning on making money.

    Now, if you're planning on living on the 3% "fee" to the fund manager, not not making money, then I understand, LOL.

    Don
     
  5. If you are able to fund a non-prop account at over 100k and get portfolio margin, the buying power benefits of prop diminish, depending on the trader's requirements.
     
  6. 95aero

    95aero

    Thanks for the help guys!

    I could put 100k into a brokerage account like IB however, seeing how I'm fresh out of college I seriously don't want to. I would rather learn on a trading floor with the occasional help of others vs. sitting at home thinking I have all the answers with my 100k account.
     
  7. Right. That is more for an experienced, profitable trader.
     
  8. Kubinec

    Kubinec

    Don, I know little about you and your firm, so I'm not qualified to speak about your practices or judge you. I'm sorry if my post offended you in some way.

    But when it comes to 99% of prop shops, a newbie trader would do well to start on a simulation, or a small FX/futures account for that matter, than give 1.5K+ to a prop and sit there like a moron following what other senior morons are doing.

    I say this because I was that moron last spring at WTS, which was known as one of the few honest firms out there). Beside their BOO and BOC strategies, which anything but guarantee a profit, their advice was to stare at the T&S window and AIG all day back when it was in a 3 cent range a day. Calling your guy at the exchange to make a profit at the end and beginning of the day isn't a realistic option for most beginners.

    According to my experience, there's absolutely no reason to trade at a prop as there is nothing a prop can teach you that you can't learn on your own.

    If a noob expects to go to a prop and make thousands a day off the bat, then they're delusional. It will take a beginner the same amount of time to learn to make money at a prop as it will if they're on their own, only you ain't splitting money and you don't need to get there every morning.
     
  9. Oh, not to worry...no offense taken...my post was directed more to a group that seem to think "using" OPM and giving away profits is the way to go...when there are alternatives. My point directed more to "retail vs. professional" trading. Sorry.

    BTW, our traders have "skin in the game" but do keep 100% of their profits...a completely different business model than you were referencing.

    We've found that by being surrounded by successful traders/mentors/managers/owners etc. can surely speed the learning curve up for new people...and offer successful traders the chance to stay ahead of the game..."a thousand eyes and ears if you will."

    Never promises of success, it comes to those who work the hardest for the most part....we offer access, capital, and interactivity that most firms do not (we are all connected every minute of every trading day with our mentor/manger/team etc.). I have over 400 traders on my Yahoo messenger, LOL.... it's nice to be connected.

    I realize that some like the "lone wolf" approach, and if it works, all the better (we have a few of those too, LOL).

    Anyway, I'm sorry if you misunderstood my post...probably lazy typing on my part.

    All the best,

    Don
     
  10. How much is leverage one gets under portfolio margin.
     
    #10     Apr 22, 2010