Most prop traders who hang up their gloves are not big swingers who put on multi-million dollar positions and one day just blow up. I've been in the business from 1999-2004 and most guys just get so caught up in the trading dream. Magazines like Trader Monthly (just a glorified Robb Report) just reinforce it. These guys made a few thousand a month, lose it the next month, so on and so forth, but resolutely hang on to the "dream." They are in denial and believe that the next month they'll turn the corner. They hear stories and see examples of a few experienced traders who hit the occassional home run in trading. They read about the Trader Monthly 100 top earners and put up pictures of Ferraris on their walls. This gives them the tenacity to soldier on. It's a classic gambler's mentality.
The market has drastically changed over the past few years. 99% of the scalpers that I knew in the late 90s have either gone on to other careers or tried to launch their own sub-LLCs at various prop firms. But the business model is not ideal since you're really selling a dream as opposed to a viable career. Hence, the "revolving door" of trainees at prop firms. There's just no solid foundation and prop firm owners have to resort to road shows to attract more warm bodies to fill the constant vacancies. Prop trading nowadays is really just multi-level marketing. Only those at the top of the food chain make the serious dough. They make money off of the commission overrides from their trading teams (aka "downstream"). Have you ever heard some of these snake oil presenters? Their primary sales pitch revolves around the "be your own boss" and "attain financial freedom angle." They don't tell you that 95% of you will fail to make a decent living. They don't tell you that your "freedom" will involve you becoming shackled to a computer like a junkie behind a slot machine. Your "equity contribution" becomes an initiation fee and you have to constantly replenish your account to continue playing the game. Your trading "mentor" will whisper sweet encouragements in your ear and tell you you're making some progress. Once you're wiped out, your mentor will shake your hand, wish you good luck and make room for another fresh-faced newbie. The prop game will continue on. The Brights aren't called the Kings of Las Vegas for nothing!
If you really want to make a career out of trading and make big money, I believe you have to look for a traditional job at an established broker-dealer or buy side institution or hedge fund and pay your dues. From there you can become an institutional trader or start a hedge fund. Unfortunately, not too many of us have the educational or networking pedigree. Otherwise, trying to make a good living from scalping at a prop firm is going to be an almost insurmountable challenge. Unfortunately, for many people, they have very limited career opportunities to make six-figure incomes and they are easily sucked in to "the dream." These are the same people that buy the Carlton Sheets or Don Lapre money making systems. Let's face it, get rich quick schemes are a multi-billion dollar business. Prop trading firms are capitalizing on this market, albeit indirectly.
For me, it took about five years to realize that the way for a newbie to make good money out of today's stock market is just good old fashioned value investing. Buy and hold or sell and hold. CANSLIM strategies are tried and true and will make money in the long run. The most successful equity hedge funds understand this. You don't have to trade tens of thousands of shares per day to make money. Of course, prop firms don't want to hear this since their mandate in life is to make you pay commissions, commissions and more commissions.
I hate to sound like a disgruntled trader trying to spread sour grapes but I'm just sharing my experiences. Some of you will flame me but maybe some will become a little more enlightened.
Peace out.
