OK, let's try this again. Say I want to go into the business of setting up a prop firm. Who better to get some background on the ins and outs then to talk to none other then the famous Don Bright. So Don, tell me, what are the current state of affairs of owning a prop firm? What kind of start up capital am I looking at? What kind of return on my money could I expect in a good trading environment? What about a bad trading environment? How easy is it to get a loan to start this kind of business? Where do you see this business model in say 3 years? Five years? If you had to do it all over again, what would you do differently?
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Business models of prop-shops?
- Thread starter mizhael
- Start date
OK, let's try this again. Say I want to go into the business of setting up a prop firm. Who better to get some background on the ins and outs then to talk to none other then the famous Don Bright. So Don, tell me, what are the current state of affairs of owning a prop firm? What kind of start up capital am I looking at? What kind of return on my money could I expect in a good trading environment? What about a bad trading environment? How easy is it to get a loan to start this kind of business? Where do you see this business model in say 3 years? Five years? If you had to do it all over again, what would you do differently?
This has been a good thread.
As far as overnight positions go, I recently turned down Avatar Securities offer as they don't allow any overnights.
From what I understand, they are one of "the better" NY prop firms as well... Can't imagine what is at the bottom of the barrel in NY these days. Scary!
As far as overnight positions go, I recently turned down Avatar Securities offer as they don't allow any overnights.
From what I understand, they are one of "the better" NY prop firms as well... Can't imagine what is at the bottom of the barrel in NY these days. Scary!
Quote from Maverick74:
OK, let's try this again. Say I want to go into the business of setting up a prop firm. Who better to get some background on the ins and outs then to talk to none other then the famous Don Bright. So Don, tell me, what are the current state of affairs of owning a prop firm? What kind of start up capital am I looking at? What kind of return on my money could I expect in a good trading environment? What about a bad trading environment? How easy is it to get a loan to start this kind of business? Where do you see this business model in say 3 years? Five years? If you had to do it all over again, what would you do differently?
I'm sure you know most of these basic answers. I'll give you my take on some of it.
No one will loan you money to start this business, and if you have to borrow money to get a stake to then go borrow more money from a clearing firm, well you might want to rethink that. If you plan using traders money, well check this and other boards about what the regulators think about that.
I see 2011 much better than 2010, even our Jan numbers look better for the traders. A lot is due to order routing of course.
As far as 3-5 years, I don't see too much change - with the caveat being regulations of unknown nature or something. "Some" reg's may help our niche, many may not. We'll have to wait and see, and adapt.
Don
Quote from Don Bright:
I'm sure you know most of these basic answers. I'll give you my take on some of it.
No one will loan you money to start this business, and if you have to borrow money to get a stake to then go borrow more money from a clearing firm, well you might want to rethink that. If you plan using traders money, well check this and other boards about what the regulators think about that.
I see 2011 much better than 2010, even our Jan numbers look better for the traders. A lot is due to order routing of course.
As far as 3-5 years, I don't see too much change - with the caveat being regulations of unknown nature or something. "Some" reg's may help our niche, many may not. We'll have to wait and see, and adapt.
Don
Don you and I really are two different cats. Look, I know you are always "handcuffed" by the compliance people and what not, but I'm just trying to get you to answer some straightforward questions. Yes, I know the answers to a lot of them. I'm trying to help the OP of this thread. It's always so hard to get a straight answer from you.
My father use to tell me, "when you ask a man a question, you will get one of two responses. The truth or something else. Don't do business with something else."
I'm not trying to badger you or say you are not being forthright here, I just think this is an interesting conversation and one where all of ET could stand to benefit from understanding how prop firms make money. It will allow guys here to better ascertain where they think it's best to deposit their hard earned funds to trade.
Now Don, I would love to spit out these numbers and take one for the team. But the truth is I don't own a prop firm and I'm not privy to any numbers. I just gave you the truth, not something else. If you don't want to share that, fair enough.
Quote from LEAPup:
This has been a good thread.
As far as overnight positions go, I recently turned down Avatar Securities offer as they don't allow any overnights.
From what I understand, they are one of "the better" NY prop firms as well... Can't imagine what is at the bottom of the barrel in NY these days. Scary!
I think SMB allows overnights now. They mentioned in their blog they are promoting more swing trading now. Just a heads up for you.
Quote from Maverick74:
I think SMB allows overnights now. They mentioned in their blog they are promoting more swing trading now. Just a heads up for you.
Thanks Mav! I swing trade PA patterns. Intraday doesn't fit my personality. If I were to try and "make it fit," that would be a recipe for loss imo.
Don, the conference call where you went over routing via superdot and ecn's as well as getting paid to provide liquidity AND "get paid" to take liquidity resonates well.
Maverick74,
Most who view these boards will get a general idea of where the firm's money is made: mark-ups on commission, profit-splits, interest/haircuts charged for overnights (for the few props that allow it), and fees charged for education.
From the trader's perspective, it boils down to the commission rate/profit splits, speed/execution of platform, ability to use firm capital, history/financial track record of the firm, and the level of training/support.
Perhaps another way to view the model objectively is to look over a registered firm's SEC focus report. This was quite an eye-opener for me, and I'm sure it will enable others to make informed decisions about which firm to join (or if the op really even wants to bother starting one).
Most who view these boards will get a general idea of where the firm's money is made: mark-ups on commission, profit-splits, interest/haircuts charged for overnights (for the few props that allow it), and fees charged for education.
From the trader's perspective, it boils down to the commission rate/profit splits, speed/execution of platform, ability to use firm capital, history/financial track record of the firm, and the level of training/support.
Perhaps another way to view the model objectively is to look over a registered firm's SEC focus report. This was quite an eye-opener for me, and I'm sure it will enable others to make informed decisions about which firm to join (or if the op really even wants to bother starting one).
Quote from ScalperJoe:
Maverick74,
Most who view these boards will get a general idea of where the firm's money is made: mark-ups on commission, profit-splits, interest/haircuts charged for overnights (for the few props that allow it), and fees charged for education.
From the trader's perspective, it boils down to the commission rate/profit splits, speed/execution of platform, ability to use firm capital, history/financial track record of the firm, and the level of training/support.
Perhaps another way to view the model objectively is to look over a registered firm's SEC focus report. This was quite an eye-opener for me, and I'm sure it will enable others to make informed decisions about which firm to join (or if the op really even wants to bother starting one).
Yes but I actually really wanted to know about the margins. And the thread was started by someone actually wanted to go into the business of opening one. There are 10k threads on here about who has the best rates and who allows overnights and so on. But this is the first thread that actually discussed the margins of the prop firms. This thread is not about which is the best prop firm to join. We have 100 of those already.
Quote from Maverick74:
Yes but I actually really wanted to know about the margins. And the thread was started by someone actually wanted to go into the business of opening one.
Beyond what is available in a SEC public document and posts made on the net, it's doubtful if any owner of a prop firm is just going to hand over their margins in an Excel spreadsheet to someone who poses the question on a thread.
Quote from ScalperJoe:
Beyond what is available in a SEC public document and posts made on the net, it's doubtful if any owner of a prop firm is just going to hand over their margins in an Excel spreadsheet to someone who poses the question on a thread.
Of course not, but I would be curious to here about how one evaluates it the prop business as an investment. Look, I have a general idea what our numbers are. But just from the standpoint of other alternatives. For example, I have often asked Don both on ET and in person, why not start Bright Capital? Your own hedge fund. If what they are doing has some edge, and I know they have enough capital to put to work, why wouldn't that be a better business model. Don must think that the process of running a commission based firm is a better choice. But why? I actually don't have an answer to that. I don't want or need specifics. Just curious what the pros and cons of one or the other are.