Why would a Prop firm want me?

Discussion in 'Prop Firms' started by warrick, Oct 31, 2006.

  1. warrick


    I am new to the prop business, but not new to trading. I have been trading a dollar neutral strategy for a couple of years with very good results. I hold a position anywhere from a day to several weeks.

    I have been talking to a couple of prop firms and it seems that there is no problem getting access to capital. After doing some math however I starting getting sceptical.

    Lets say I trade 1mm, I would turn over 10-15k shs per day. Using the high estimate and paying $.005 all in I would generate $75 in comm per day, lets call it 20k per year.

    So the firm would only make 2% from my trading, hence my question....Why would they allow me to trade their capital when they can make more money holding CDs?

    Surely I must be missing something here because it doesn't ad up, what gives :confused:
  2. There is no such thing as a free lunch, do you really think that the capital is free?

    Let me clarify, Intraday capital is free...overnight....you are going to pay, and pay quite a bit.

    EDIT: If you find a place offering free overnight capital...please let me know. :)
  3. warrick


    sorry about the duplicate post. I had some problems with another login.
  4. They don't have to pay for intraday leverage and any cost for overnights gets passed on to you. Also, they will probably charge you more than .005 if they can get away with it.

  5. warrick


    What is a typical charge for overnights?
  6. Usually it's just an arm and a leg!

    You pay interest, plus you pay a fee for use of the firms capital.

    Fed funds + 2 points or so for longs, you get paid for shorts, and then a capital usuage charge of a few points. You are looking at 10% and perhaps as much as 30% for capital used.

    There is not typical charge....each firm has their own charges worked out.
  7. warrick


    10-30% phew!!!

    So I have to make 20% per year just to break even :eek:
  8. warrick


    By the way, it seems to me that not everyone pay you for the shorts.
  9. Yeah, let me know too.

  10. 20% of what? There is a lot of confusion on risk fees (haircut).

    6 times your equity = free

    6-12 times your equity = 2% per YEAR

    12-18 times your equity = 4% per year

    18-30 times your equity = 6% per year. All this for hedged (within 20% of $$ value, long vs. short). Over 30 times, we discuss.

    1% per month for "naked" overnights.

    We pay interest on short stock of course. Long short differential interest varies a bit.

    (Just keeping it real)....

    #10     Oct 31, 2006