Why would you want a prop shop?
If you have a profitable trading plan
then you don't need traders
you just need programmers
If you don't have a winning trading plan
the traders you hire will make you lose money.
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Business models of prop-shops?
- Thread starter mizhael
- Start date
If you have a profitable trading plan
then you don't need traders
you just need programmers
If you don't have a winning trading plan
the traders you hire will make you lose money.
Is there much wrong with setting it up like a bank prop? hire grads, pay salary, pay bonus, give out non-competes agreements and an air of elitism to promote loyalty, make money from the strategies themselves?
2 key differences:Quote from Elitist Trader:
Is there much wrong with setting it up like a bank prop? hire grads, pay salary, pay bonus, give out non-competes agreements and an air of elitism to promote loyalty, make money from the strategies themselves?
1) In a bank there is lots of work linked with client business. So, the graduates are overloaded with spreadsheets, presentations etc. The graduates are a highly motivated workforce who are prepared to work long hours (and don't have family commitments that interfere) for a relatively low reward in the hope of advancing the corporate ladder. Those who are hardworking and meet a certain psychological profile make it through. The others are a very cheap workforce compared to qualified temporary employees. A typical prop firm doesnt have these huge amounts of work that requires skill and smarts but is menial by nature. So, paying all the graduates is a gamble (that they become good traders and stay with the firm), not a way to acquire cheap labour.
2) Pure prop trading is on the outskirts of banking. The most successful bankers make money buy collecting commission, being on the right side of bid/offer spread and selling unwanted positions to gullible customers. None of these luxuries are available to a prop firm.
Quote from Maverick74:
D
ps Bright is making more then 500 bp on that spread. I was being very conservative. [/B]
Sorry Mavbut if you think we're making something like that, I wonder what your firm is doing. Hell, we move money to GE capital just to get 1.3% (130 basis points)...yes, away from GS. Since it's all 100% Bright (not using RegT or anything - we have to literally wire funds in and out just to get any interest at all.
IF you can show me 5% on intererst differential anywhere, let me know.
Sure, we have a slight spread, but nothing like that.
Don Now, if you meant 50 basis point 1/2% you would be closer. Sorry, I wish we were as good as you give us credit for, LOL.
Quote from Don Bright:
Sorry Mavbut if you think we're making something like that, I wonder what your firm is doing. Hell, we move money to GE capital just to get 1.3% (130 basis points)...yes, away from GS. Since it's all 100% Bright (not using RegT or anything - we have to literally wire funds in and out just to get any interest at all.
IF you can show me 5% on intererst differential anywhere, let me know.
Sure, we have a slight spread, but nothing like that.
Don Now, if you meant 50 basis point 1/2% you would be closer. Sorry, I wish we were as good as you give us credit for, LOL.
Don, I'm referring to your "haircut" charges. I can do the math for you if you want me to.
BTW, I'm not saying there is anything wrong with that or you are doing anything illegal. It's your money, you are allowed to lend it out at whatever the market will bare.
Thank you Don.
It's only for overnight leverage though, isn't it?Quote from Maverick74:
Don, I'm referring to your "haircut" charges. I can do the math for you if you want me to.
BTW, I'm not saying there is anything wrong with that or you are doing anything illegal. It's your money, you are allowed to lend it out at whatever the market will bare.
Quote from LeeD:
It's only for overnight leverage though, isn't it?
Yes. But all or most of Don's traders hold positions overnight as do most of our traders.
Which btw, is why most daytrading shops are struggling. If they are not getting this money and are relying solely on commissions, then they have a tough road ahead of them.
So, is Don's shop somewhat unique in that they charge a haircut? Do most prop firms pass to traders whatever rate they get from the bank/clearing house without any surcharge?Quote from Maverick74:
Yes. But all or most of Don's traders hold positions overnight as do most of our traders.
Which btw, is why most daytrading shops are struggling. If they are not getting this money and are relying solely on commissions, then they have a tough road ahead of them.
Annualised 5% is huge as interest in the current low-rates environment. However, I understand during better days prop shops were looking at more like high double-digit per cent return on shareholder's capital. Where did that come from?
Quote from LeeD:
So, is Don's shop somewhat unique in that they charge a haircut? Do most prop firms pass to traders whatever rate they get from the bank/clearing house without any surcharge?
Annualised 5% is huge as interest in the current low-rates environment. However, I understand during better days prop shops were looking at more like high double-digit per cent return on shareholder's capital. Where did that come from?
Nobody lends money for free. Any prop firm that allows you to hold capital overnight is going to charge you for that. There is risk in doing that. Where the money is made though is in the cross lending and the leveraging of the haircut charges. I used the Fed as an example because in a way, the debt, or borrowed money, is being monetized.