This is a question that's puzzled me for some time. If one is a consistently profitable trader, than what would be their motivation to work for somebody else, whether at Goldman Sachs or a small prop shop, as opposed to just trading from home with their own capital? For me at least, the major draw of trading (beyond that I rather enjoy it) is that I CAN work from home, I'm working only for myself, I get to choose when and how much I work, and so forth. If I were able to make consistent good money this way, I think the last thing I'd do would be to take on a normal day job working for the Man, even if that job is trading from an office. This is especially the case for those investment banker types who work 200 hours a week. I can see that you might take a job with a firm in order to receive training, or because you lack the capital to go out on your own, but why else would anyone do it?
A small or large prop shop can give you much more leverage to trade with and, if you are a good trader, you can make much more. At least the capital is there for you to make more, the rest is up to you.
You have to think about risk/reward. If you are on your own, what will be the amount of capital you are trading? You suffer losses if things go wrong. if u are at an institution, you trade massively larger size, and if u are good or lucky you get a bonus that will dwarf what you would have made with your own small capital. U do not have to pay back losses or put your own at risk. your compensation is a free call option.
plus, with institutional leverage you have huge size this translates into power, and people love power.
more capital with virtually no risk think 1:10 instead of 1:2 you're using now with no additional risk.
That guy who owns the 14 room penthouse at the Ritz residence? He's not a prop-firm trader. That guy with the private jet? He's not a prop-firm trader. That guy with the second home in Vail and another in St. Tropez, etc.? Not a prop-firm trader. Any questions? I'm mostly prop, and certainly enjoy all the benefits that come along with trading prop, but one must acknowledge the exponentially deeper upside potential as it regards $$$ with running money at a bb or hedge fund. (There will always be the exception to the rule, but you get the point.)
even if a trader does make money, 99% of hedge funds arnt going to hire some joe shmoe off the street. Harvard anyone?
Depends. Very few "successful' traders I know would work at a "BANK". Most are trading for Hedge Funds or Smaller Capital Mngmt. Firms. I work for a Firm that Trades, Raises capital For Private Placements, handles Qualified Investors per Reg D's 506 Rule, for DPPs , Develops Raw land and is now looking at projects overseas in Energy. Day Trading is great if your making a Half a Million a year or more. But I hardly know any 'Daytraders" bringing home that much. (Please don't tell me about all the guys at so and so firm that bring home millions as I have been in the industry since 99 and have traded with some of the most successful guys, From Rearden Metal, to the "RUSSIAN" and his Option King".) Rearden Metal Is one of the only ones "Keeping it real" by daytrading and being successful, as a lone day trader. That I currently know of. The Russian Broke off to do his Hedge Fund, the "OPTION KING" is over in Asia. I have friends that Joined "Terra Nova" and now have started a Fund. I guess its like, "climbing" a later so to speak. SOROS, BUFFET, VN, SURFER(Had to throw my boy in there), did not make their wealth by "Day trading". IMHO, those days are long gone, the days of 99-2001. Penny spreads in equities and options has killed the major edge. Order flow passing through to the 4th market, MMs on their hand-Helds, Feds manipulation, etc.....all put the odds ever more agains the "Day Trader". I use to argue with VN about "Day Trading" to the point i got "kicked off" the SPEC LIST. Now I understand what VN, MrE and the rest were saying. And, they were correct. Much like Disco, Day trading became a fad, and has faded. Of course there are "Futures" (Unregulated pretty much, but not for much longer) There is Forex, totally unregulated. These are the new hot items to trade. Im sure there is all ways that exception to the rule, as in Rearden Metal. However, that is 1%. I am good but not that good. I'll take my current situation over "daytrading" any day.