Generally speaking, and I hope this doesn't sound cynical, but if you are a new and unknown quantity to a prop firm and you decide to put up say $25-50K so as to get a bigger split of the profits (90-100%), wouldn't the firm likely cut you loose if you lost your stake, before the firm was in too much of a position of losing their own capital? So effectively, their "backing you" for leverage purposes only (and of course to make commissions)
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Capital contibutions prop firms
- Thread starter DLama
- Start date
Quote from DLama:
Generally speaking, and I hope this doesn't sound cynical, but if you are a new and unknown quantity to a prop firm and you decide to put up say $25-50K so as to get a bigger split of the profits (90-100%), wouldn't the firm likely cut you loose if you lost your stake, before the firm was in too much of a position of losing their own capital? So effectively, their "backing you" for leverage purposes only (and of course to make commissions)
Pretty much. It's about the risk. There are some variations, but for the most part, there are two business models. The firm backs the trader, taking on responsibility for the losses in exchange for a higher percentage of the profits, or the trader deposits money to cover the losses in exchange for a higher percentage of the profits. The firm will make commissions either way, sometimes it'll be less if you have more risk capital up.
Generally, the only way you can lose more money trading than the firm is making in commissions off of you is if you have enough capital to cover the losses.
Quote from DLama:
Generally speaking, and I hope this doesn't sound cynical, but if you are a new and unknown quantity to a prop firm and you decide to put up say $25-50K so as to get a bigger split of the profits (90-100%), wouldn't the firm likely cut you loose if you lost your stake, before the firm was in too much of a position of losing their own capital? So effectively, their "backing you" for leverage purposes only (and of course to make commissions)
It's a whole different mind set than the "no money up" type firms. Our traders are running their business within our framework, using our capital to trade with, and keeping 100% of their trading profits.
If you make money, why pay a firm $5,000 or more each month in lieu of putting up money?
The "no money up" guys that are left, cerainly won't let you stay more than a couple of months if you're not generating profits to them via your share of commissions or profits.
One is an "employee" type relationship. Ours (for example) is an independent trader relationship.
And, when you leave your money in the account, month after month, you are putting money up anyway, right?
FWIW,
Don