Do's and Don'ts of trading at a prop firm

[esc_trader]

DO read your contract, make sure they aren't holding your money for a period of time - if you are ok with that, know how long that period is.

Sweep your profits often, keep only as much on deposit with them as they require and will give you enough leverage that you need.

Take advantage of any training or learning opportunities they have. May not be the "grail" but one good idea is worth alot over the long term if you integrate it into your style of trading.

DON'T be afraid to ask for lower rates if you are increasing your volume over time, and don't let them tell you what to trade or how often, that should be completely up to you.

 

[Bluedog]

This may sound like a naive question but the following is one thing I am still trying to figure out and would appreciate anyone's input.

What is the main objective of a prop firm for hiring prop traders?

Which would make the firm happier? A trader who can simply make money regardless of the number of trades he/she does or a trader who can make money and generate commissions both?

I understand for a business relationship to sustain it is important that both parties benefit and be happy. I guess the main reason for my question is the fact that I am trying to figure out what sort of strategy I should be working on when prop trading ( for example high volume scalping vs intraday swing trading using fewer trades)? Which one would help me get the best commission rates/payout (assuming the profitable case!)?

Looking forward to your comments. Thanks.

Bluedog

 

[WDGann]

For me one word:

"Listen"

==

Listen to the market.

Listen to your own self.

Listen to other traders trading.

You can't talk and listen at the same time. Don't be shouting and screaming trying to pump your mojo like that...

Silence is Golden.

 

[cashonly]

In working with hundreds of prop traders, probably the biggest difference I've noticed between retail and prop trading styles is the use of capital.

Many times retail traders will have a losing position on a $50 stock with a value of say $40K while having $20K in their account. And maybe it's down 2 bucks (4%), so they figure they'll just hold it because it will come back (and that's the way it USED to work, remember?)

Then they go prop and now have been using a lot of capital all day and they find themselves with a $400K position while having $20K in their sub account. This is a totally different story. They can't hold that kind of position because even a 20 cents move would be devastating and with a $50 stock, that's just noise on the open.

Capital is there to be used judiciously. Keep that in mind and you'll be much better off.

Cash

 

[axehawk]

Quote from Bluedog:


What is the main objective of a prop firm for hiring prop traders?

Which would make the firm happier? A trader who can simply make money regardless of the number of trades he/she does or a trader who can make money and generate commissions both?

To generate commissions.

They can make more in one month off of your high volume commissions than they could taking a percentage of your profits.

 

[Bluedog]

I was just reading indahook's thread about compliance. Do any of those compliance rules apply to pro traders?

 

[alfonso]

Quote from cashonly:

In working with hundreds of prop traders, probably the biggest difference I've noticed between retail and prop trading styles is the use of capital.

Many times retail traders will have a losing position on a $50 stock with a value of say $40K while having $20K in their account. And maybe it's down 2 bucks (4%), so they figure they'll just hold it because it will come back (and that's the way it USED to work, remember?)

Then they go prop and now have been using a lot of capital all day and they find themselves with a $400K position while having $20K in their sub account. This is a totally different story. They can't hold that kind of position because even a 20 cents move would be devastating and with a $50 stock, that's just noise on the open.

Capital is there to be used judiciously. Keep that in mind and you'll be much better off.

Cash

Are you serious Cash? (Is that seriously your name?)

How the hell can you guys have failed to cover such an ESSENTIAL point? Just what goes on at the training you hold then, if your traders are still making such totally fundamental errors?

That's pretty alarming.

 

[cashonly]

Quote from alfonso:

Are you serious Cash? (Is that seriously your name?)

Yes, seriously. If you think that's bad, look at my last name in my signature... hell, you'll probably fall out of your chair when you see that!!!

How the hell can you guys have failed to cover such an ESSENTIAL point? Just what goes on at the training you hold then, if your traders are still making such totally fundamental errors?

Don't know why you think we don't cover that point cause I do. To be honest with you Alfonso, I personally have NEVER known a trader without ears. However, I have known a boatload who don't listen.

That's pretty alarming.

I agree and if you can come up with a way for people to follow what they are taught, please tell me... because I'm all ears to hear that.

Cash

 

[spyderman]

You have to wonder how much of the market bubble was caused by the uneducated and missuse of exempt credit (10 to 1 margin) offered to amateurs at some of these prop firms. People bitch and moan about the specialists and market makers but at least those participants are arguably serving a purpose. Some pipsqueek with 20k in his account controlling 200-400 k worth of stock certainly isn't!

 

[theShadow]

because behind all the "front" they are looking to train you into becoming a break-even commission machine.

prop firms LOVE to exclaim about their "super" traders that make money from trading volume. however, you will rarely hear about the traders who do low-volume, high-profit styles of trading.