Do Prop Traders Have An Edge Over Retail Traders

Fundlord

Fundlord

I know places like Goldman Sachs, Morgan Stanley have an edge as they have access to lots of information, and order flow.

But what about prop traders ?

Not the ones at banks, the ones at prop firms trading the firms capital.

Im doing pretty well as an individual trader and have considered applying solely to have access to a larger amount of capital.

Do they have cheaper fees ?, better execution ?, better trading platforms ?, slick Bloomberg terminals :P ?

Is there any good reason to trade for a prop firm vs yourself, besides more capital and maybe a salary.
 
They have capital and they can sustain a salary making 10% a year. Retail tries to make 2000% a year yet the the profit is not enough to pay a salary, and more often than not they lose 4000%. Prop trading is earlier. It's easier still for hedge fund traders. They get a huge take home pay while making 2% a year. Even easier for investment bank traders, they just take the other side of retail and the free money wouldn't stop flowing in.
 
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They get a huge take home pay while making 2% a year.
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A hedge fund wouldn't last long making 2% per year, who would pay "2 20" for 2% return per year
 
They get better commissions that's for sure. So obviously that's an edge. There's also the advantage of pooling in money and splitting the cost of an expensive subscriptions which can help your edge, ie bloomberg, tick data, news services, etc. Also you would have access to larger amounts of capital, you can scale up a lot quicker than using your own funds as well. Another advantage is talking to other traders and see what they're doing that's working and so you can share trade ideas and methodologies.
 
Depending on the quality of the prop firm traders can have access to dirt cheap commissions, free or subsidized co location, in house quants and programmers etc.
 
Fundlord said:
But what about prop traders ?

Not the ones at banks, the ones at prop firms trading the firms capital.

Im doing pretty well as an individual trader and have considered applying solely to have access to a larger amount of capital.
More...

If you're looking into the prop firms that require a capital contribution to trade firm capital, then yes, you'll get up to 20x your capital, cheaper commissions than retail, and a robust platform. However keep in mind that you'll require a Series 56 license (sponsorship is by the firm), and your capital is "locked up" for a period of 1 year as per SEC net capital rules for prop firms. And most registered props do not allow for overnights, but some do.

Retail traders do not have to pay "professional" data fees, take exams, or have their capital locked up with their broker, and can daytrade and/or hold overnights Of course, the max buying power is 4 times your capital as per pattern day trader rules (unless you have 100k minimum for portfolio margin, in which case you can get 6 to 1).
 
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