confused about prop trading

M

millydog

I would greatly apreciate if some of the prop traders out their could answer some questions for me and help in a liitle carreer guidance. I have been reading through most of the threads and their seems to be a lot of chatter about corupt firms and what not.
Right now I am trading e-minis from home in a 20K account. I have been able to make a little bit of money each week but not enough to live on . I still have to bartend part time in NJ to pay the bills. My main questions are:
1) how are you paid is it only in the form of % profits generated, I see some firms paying to add liquidity???
2) How much money can one make prop trading?
3) Can you guys recomend some reputable firms, it seems from the talk in here they are all crooks who are going to take my money.
4) If all someone needs is leverage isn't it just better to stick with futures and trade your own money or is their other reasons for going prop.
5)How much money can I expect to have to fork over.
Thanks to anyone who can help with these questions, I am just a liitle confused about how prop trading works. It would be great if anyone has the time to PM and we can talk in more depth thanks
Mike.
 
The bottom line is that most of them do not make any money at all from the profits of their traders. On the average day about half of the traders will be winners and about half losers, so on the average the trading profit and loss is a wash. They make their money from the churn, not the net gain.

Also, many firms will retain much of your profits as insurance against losses in the future and if you leave the firm before a specified date you will never see that money, so essentially you worked for free. Even profitable traders are not guaranteed of ever receiving a paycheck.
 
I went to a prop. firm right after the college. I had my college loans, max'd out credit cards, no cash.

I never put any money with the firm. Made 250k net. my first year and over 500k net. my second year. The firm took 35-25% of that money, but still, try making that much on your own with 25k of your own money. And yes, I always got my checks on time.

You just have to do you research with finding the right firm to work for. And doing the research doesn't mean only reading the posts on this website. Go to the offices of the firms you're interested, talk to the traders, check out the equipment and the platforms they are using, etc.

I still believe that for the novice trader the best way is to start with a prop. firm.
 
And to answer your questions:

1. You are paid in the % terms of the profits generated, some firms pay % of gross profits. I personally wouldn't recommend working for a firm that pays to add liquidity.

2. You can make as much money as your trading style allows. If you are consistently profitable the firm will not limit the size you trade.

3. .

4. .

5. There are still firms out there hiring that don't require you to put up any money.
 
Quote from millydog:

4) If all someone needs is leverage isn't it just better to stick with futures and trade your own money or is their other reasons for going prop.
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Pretty much yep and nope.

If you're truly profitable in a small futures account on a regular basis (meaning you have a defined edge that you can apply day in, day out, as opposed to "boy, I've sure gotten lucky in guessing the last three monthly unemployment figures"), then just keep doing what you are doing and concentrate on increasing your account size and trading positions proportionately. Separate out your living expenses, perhaps live off a credit card or 2 instead of withdrawing from your trading account. You want your profitability to begin compounding as soon as possible.

A profitable trader only goes to a prop firm for capital/increased leverage, and prop firms are otherwise only looking for traders who can churn out volume while staying slightly in the black. In your case, with 20k for eminies, it doesn't sound like you have any need to go prop. That's plenty enough to make a living (assuming you're not renting a tribeca penthouse :)) -- you just need to start thinking about gains in terms of percentages and points per contract, not absolute numbers. The emini market won't know the difference whether you trade 1 contract or 50, so neither should you.

If you know how to profit from eminis, you're already light years ahead of those trading on an "income" basis from rebate volume trading or penny scalping, a prop firm would be a step backwards for you in most cases.
 
Would add that one big advantage in a prop firm is forced money management, and for a developing trader that is a big help. An individual trading his own emini account has the liberty to blow out his account in a few trades if he so desires.
 
Quote from MondoTrader:

Also, many firms will retain much of your profits as insurance against losses in the future and if you leave the firm before a specified date you will never see that money, so essentially you worked for free. Even profitable traders are not guaranteed of ever receiving a paycheck.
More...

What?? I worked at a prop firm--Bright Trading, a great firm (not perfect but then who is?). Never any holdbacks, etc.

Be careful with generalizations and unqualified statements.
 
Quote from millydog:

I would greatly appreciate if some of the prop traders out their could answer some questions for me and help in a little career guidance. I have been reading through most of the threads and their seems to be a lot of chatter about corupt firms and what not.
Right now I am trading e-minis from home in a 20K account. I have been able to make a little bit of money each week but not enough to live on . I still have to bartend part time in NJ to pay the bills. My main questions are:
1) how are you paid is it only in the form of % profits generated, I see some firms paying to add liquidity???
2) How much money can one make prop trading?
3) Can you guys recomend some reputable firms, it seems from the talk in here they are all crooks who are going to take my money.
4) If all someone needs is leverage isn't it just better to stick with futures and trade your own money or is their other reasons for going prop.
5)How much money can I expect to have to fork over.
Thanks to anyone who can help with these questions, I am just a liitle confused about how prop trading works. It would be great if anyone has the time to PM and we can talk in more depth thanks
Mike.
More...
==============================================Millidog,

I know their are firms that are looking for traders just like you, (i.e. already pulling profits regularly out of the e-mini or other instruments) In New York and Chicago and newer firms in the west are setting up prop futures firms that would pay you a salary, set you up with firm/private capital to trade and even some have totally mechanical systems that you trade with the firm capital.

As far as income I personally met at a local Tradestation Users group a young guy trading private capital and only using the E-minis & NQ's and he is being paid about $40K salary (N. Cali base salary) and he shares in the quarterly profits and trade a 95% mechanical system that has a small window of discretionary analysis needed...now he is not with a firm and trade for a private individual, but their are local firms who would model that. He told me he expects to make about $85,000.00 this year and break six figures next year. Now to be honest he is a unusually bright young man and has one of the best mechanical systems I have ever heard of. He is currently not associated with any firm or prop futures situation.

Quest #4,5 - Well as far as #4 goes, if you go to the "right" firm you can expect to receive good mentoring, methodology review and risk management training/help. Also some firms also offer you the ability to trade their own mechanical systems, (this is what I do), and it limits the "discretionary problems" I've (and others) have encountered, also you can trade firm capital or private capital from the company for a small stipend/salary and share of the quarterly/yearly profits and <still> you can trade your own capital as well.

#5) most firms would like you to put up something for a show of "good faith" especially so that you are a partner is the "risk" element for trading their capital, I (for instance) put up $5K but other require even less than that.
 
I said "many firms", I didn't say Bright Trading so don't be defensive. Oh, and thanks for supplying the industry term for what I described...."holdbacks". Obviously it happens or there wouldn't be a term for it, thanks for providing that info.
 
Quote from MondoTrader:

I said "many firms", I didn't say Bright Trading so don't be defensive. Oh, and thanks for supplying the industry term for what I described...."holdbacks". Obviously it happens or there wouldn't be a term for it, thanks for providing that info.
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LOL!
 
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