becoming your own broker dealer

So, do I understand correctly, that if a B/D is not FINRA registered, they're not subject to the maximum 1:7 leverage rule ? And if a B/D is FINRA registered and their clearing firm would WANT to give them 1:20, their clearing firm is simply not allowed to do that ?

Also, what I don't understand: for every dollar that's been trading, must there be a dollar 'real' money in somebody's account ? Or can a clearing firm give leverage to a client without having the total sum of money in their own account ?

For example, a clearing firm wants to give a client $4 to trade with. The client deposits $1. Does this mean the clearing firm has to supply the other $3 ? Because if this is not the case, then the clearing firm is actually 'creating' money, right ? They then could 'create' money and invest this themselves ...

Also very confused here ...
 
Quote from the_whistler:

So, do I understand correctly, that if a B/D is not FINRA registered, they're not subject to the maximum 1:7 leverage rule ? And if a B/D is FINRA registered and their clearing firm would WANT to give them 1:20, their clearing firm is simply not allowed to do that ?

Also, what I don't understand: for every dollar that's been trading, must there be a dollar 'real' money in somebody's account ? Or can a clearing firm give leverage to a client without having the total sum of money in their own account ?

For example, a clearing firm wants to give a client $4 to trade with. The client deposits $1. Does this mean the clearing firm has to supply the other $3 ? Because if this is not the case, then the clearing firm is actually 'creating' money, right ? They then could 'create' money and invest this themselves ...

Also very confused here ...
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Don't be confused.....here is how it works...

a b/d has a cleint with 25k in an account...the clearing firm will allow him ( create) to trade up to 100k in intraday bp ( open positions)

Some B/D's put up $$ (millions) with the clearing firm and buy a small % of the firm as a Joint Back Office.....then the firm is extended about 7:1 leverage by the clearing firm.....you are correct though in that the clearing firm is supplying the $$$...
 
Quote from TM_Direct:

Don't be confused.....here is how it works...

a b/d has a cleint with 25k in an account...the clearing firm will allow him ( create) to trade up to 100k in intraday bp ( open positions)

Some B/D's put up $$ (millions) with the clearing firm and buy a small % of the firm as a Joint Back Office.....then the firm is extended about 7:1 leverage by the clearing firm.....you are correct though in that the clearing firm is supplying the $$$...
More...

What I don't get: in the (equity trading) prop business, a 15 % yearly gain on your BP is considered pretty good (e.g. with 2 M buying power, you're doing WELL above average if you're making $300,000, in fact, you'll be with the 10% best prop traders at your firm). Now, let's say this propfirm gets the best leverage out there, 1:7, that means the clearing house has to put down $1,710,000. Let's say the clearing house would want at least 6% ROI on that (which is VERY moderate), which is more than $100,000 in interest. The propfirm itself receives 25% (which is average in the prop business) from the trader's profit, totalling $75,000.

So the prop firm is losing $25,000 on their top traders ! Not even talking about the less capable traders here.

As you know, prop firms (like Swift) are not losing money (swift even cut their own share of trader's profit to 17% recently instead of the average 25%), so what am I not getting here ? Also, at my current prop firm, they're making distinction between "night time" and "day time" buying power. Maybe this has something to do with it ? They're not difficult at all to give me 'day time' buying power, but 'night time' buying power is a LOT more difficult to get from them.... So I think this has to do something with it, but I'm not sure yet how exactly (e.g. I don't know what the exact difference between these 2 types of BP is)
 
The firm does not charge interest like you think...actually...since most DT firms are flat at night the firm can then use the cash ( say its 20 mill) and then loan that out to retial firms and accounts using margin at 8,9,10%....Also...Many of these firms utilize 3rd party bankers who will put in a milllion or so and then inflate the leverage in the account...as far as the clearing firm....as long as thier flat at the end of the day, they really are not lending per se...un less of course you get a DTC 'risk call" due to some large trades
 
Quote from TM_Direct:

The firm does not charge interest like you think...actually...since most DT firms are flat at night the firm can then use the cash ( say its 20 mill) and then loan that out to retial firms and accounts using margin at 8,9,10%....Also...Many of these firms utilize 3rd party bankers who will put in a milllion or so and then inflate the leverage in the account...as far as the clearing firm....as long as thier flat at the end of the day, they really are not lending per se...un less of course you get a DTC 'risk call" due to some large trades
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You have the patience of a saint to keep rehashing this...
 
Quote from TM_Direct:

The firm does not charge interest like you think...actually...since most DT firms are flat at night the firm can then use the cash ( say its 20 mill) and then loan that out to retial firms and accounts using margin at 8,9,10%....Also...Many of these firms utilize 3rd party bankers who will put in a milllion or so and then inflate the leverage in the account...as far as the clearing firm....as long as thier flat at the end of the day, they really are not lending per se...un less of course you get a DTC 'risk call" due to some large trades
More...

Makes a lot of sense, thanks !
 
If a firm (such as swift) doesn't operate in US, they don't have to follow US regulation, right?

Will a clearing firm give them a higher leverage than the one allowed by US regulation?
 
So just to clarify. Say i have 20m bucks, i go to penson and i say i do 100 million shares a month and have 20m. They give me a rate of whatever, and 80m bp. I get 80 traders and give them all 1m bp. I sit my money with penson during the day for the bp, lend it at night and make a decent return, and pay no (or nominal) fees for the 60m they give me during the day? Seems to good to be true!
 
Quote from metooxx:

You have the patience of a saint to keep rehashing this...
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:D :D :D

Like i said before....I have no problem helping these guys learn the real deal and also giving some guidance...If anyone sincerely wants to know what really goes on im here to help
 
Quote from yip1997:

If a firm (such as swift) doesn't operate in US, they don't have to follow US regulation, right?

Will a clearing firm give them a higher leverage than the one allowed by US regulation?
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Therein lies the ultra gray area....Technically you must be registered in each province in Canada that you do biz in...I know that many clearing frims ignor this and accept canadian accounts but ocasionally NASA (north american securities assoc.) will ding up some firms for not being registered...Now Penson does have a Canadian unit so they may be exempt from many of the US rules....there are also MANY offshore groups who trade here with ultra hi BP....but like i keep saying...if the shit hits the fan don;t cal the SEC or FINRA..they wll snub their nose at you
 
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