Quote from HFOA:
I was curious what the difference between a prop shop and obtaining a job at say GS trading desk. I read about people wanting these cushy wallstreet trader jobs all the time but was wondering how that job would be different then putting up your own money at a prop shop and trading there. The way I see it, if you can make significant money in the market why work for anyone but yourself. What am I missing?? Thanks
Interesting thread, there are a few more differences, I think.
One, institutional prop desks have virtually no commissions (or transactional cost) to speak of, since all the trades are processed internally, usually the head of trading (in general) just get hit with a small internal transfer charge at the end of the year. By not having to factor in cost of trading, but instead only have to pay some government regulatory fees (which are miniscule to begin with), this enables prop desks to get into very thin profit margin trades ("sucking pennies").
Two, some institutional prop desks have virtually no equity size limit to speak of, instead only their VaR numbers are monitored by enterprise risk managers. So in a sense, lets the prop desks to take on some gigantic positions (as long as they are hedged). It is not uncommmon for prop traders to talk in terms of "how much million" they have made for the bank, rather than returned "xx%", since xx% is almost meaningless as it is unclear what is size of the equity base used.
Three, information flow, I can't speak enough about the informations flow that happens on the trading floor of an ibank, or how much I miss it. It is not just who is doing what, it is all the little rumors, it is in the middle of a lot of fairly smart people, each with their own different backgrounds, and if a person is observant enough, one can gleam a lot of information by what is said by the head of certain desk, etc. And in general it is a very good collegial environment, you can call up the head of say govvie repo desk and get a quick read on the repo flow (who is quietly offering a lot of 20 year, etc). And inversely, somebody will call you up and get a read based on your area of speciality.
