Funding new traders Search for a better business model

T

traderjo

Hello
I admit I have criticized the business practices of some of the "Prop firms" recently bit more aggressively.
But honestly my aim was and is still to find a better solution for both sides

One which achieves ( repeat form other post)
1) The "Prop Firm" is protected from unnecessary volume to test newcomers ( with advances in Automation Machine Learning / Artificial Inelegance now a days it should not be that difficult to automate the process of accessing the sim accounts!
2) The newcomers are protected from being on the hamster wheel of "Test fees"

SO with that aim in mind I would like to network with people who are on the same page and have
1) Some knowledge of the industry ( specially Futures) on trading side
2) Some knowledge of risk management
3) Some knowledge of regulatory
4) Assessment of trading data

I start the ball rolling
2 Business models ( No or free test and no
A) Global stop loss"
- Trader skin in the game = $1000 Funder a/c 10K Global stop loss at Net liquidity at $9100 , Trader keeps majority of profits because he / she is taking market risk Funder is only Funding
B) - Trader hedges the trade with the skin in the game money using Option and funder funds margin money again Trader keeps majority of profits because he / she is taking market risk Funder is only Funding
Each has flaws
A) Global stop loss is not guaranteed by any borker
B) Cost of hedge!

Please PM
 
And where would profits for this new prop firm be generated from?
What would you expect the prop firm would require in capital?
What asset classes would it cover?
Would the prop firm be registered with the SEC or be a CPO?

I don't really need to know the answers, as I expect this business model would not generate enough interested to investors to explore it. Investors want scale and $1000 from each member is way too low. But, these are question you should consider.
A better model would be one where the investors/prop firm funds all traders with no deposit. Each trader is either 1099 or W2 or K1. They need a process in place to choose traders and their strategies. Test them, then start the allocation process. It would be best to stick with one asset class to start-either equities/options or futures/options.

Bob
 
Robert Morse said:
And where would profits for this new prop firm be generated from?
What would you expect the prop firm would require in capital?
What asset classes would it cover?
Would the prop firm be registered with the SEC or be a CPO?

I don't really need to know the answers, as I expect this business model would not generate enough interested to investors to explore it. Investors want scale and $1000 from each member is way too low. But, these are question you should consider.
A better model would be one where the investors/prop firm funds all traders with no deposit. Each trader is either 1099 or W2 or K1. They need a process in place to choose traders and their strategies. Test them, then start the allocation process. It would be best to stick with one asset class to start-either equities/options or futures/options.

Bob
More...
Hi Robert
May be I should clarify bit better what I am proposing is more of a "funding firm" model based on "First loss principal" aimed at retail level ,rather than a very pure prop where the firm takes all the risk.
BUT IN THIS MODEL THE FIRM WILL NOT CHARGE ANY TEST FEES OR SELL EDUCATION
So something in between TST/One Up Earn2 Trade and top tier props
So I am not claiming this to be in same league as citadel or anything like that
-$1000/$9000 was just an example
-Profits will be reverse of std 20/80 model meaning since trader is going to put skin in the game and the Firm is only funding / giving access to capital the trader should keep 60+ % not the firm

The firm profits comes from 2 things a interest charged on the funding amount + % of profits or a combination
Of course the set up and marketing cost will be the break even point and firm may not get enough traders who want to take part in "First loss" type of funding
- Jurisdiction: US would be perhaps difficult to achieve dont know what would be involved perhaps ANZ! easy route would be some tiny island but then people wont take this seriously
- Capital required for firm:
If day trading only then using leverage of Futures and day trading low margin it is easy to fund somebody for notional value
- Target market: Those who think they can trade and are happy to have some skin in game
Thousand flock to education sellers and spend hundreds to learn trading, next step for them is to actually trade and that is where such firm can facilitate access to capital
- Screening: If the firm is not taking any capital risk then not much scrutiny is required

Dozu, could you please elaborate I am sure there are holes in this pitch but I am sure it is not completely dead either!
 
traderjo said:
Hello
I admit I have criticized the business practices of some of the "Prop firms" recently bit more aggressively.
But honestly my aim was and is still to find a better solution for both sides

One which achieves ( repeat form other post)
1) The "Prop Firm" is protected from unnecessary volume to test newcomers ( with advances in Automation Machine Learning / Artificial Inelegance now a days it should not be that difficult to automate the process of accessing the sim accounts!
2) The newcomers are protected from being on the hamster wheel of "Test fees"

SO with that aim in mind I would like to network with people who are on the same page and have
1) Some knowledge of the industry ( specially Futures) on trading side
2) Some knowledge of risk management
3) Some knowledge of regulatory
4) Assessment of trading data

I start the ball rolling
2 Business models ( No or free test and no
A) Global stop loss"
- Trader skin in the game = $1000 Funder a/c 10K Global stop loss at Net liquidity at $9100 , Trader keeps majority of profits because he / she is taking market risk Funder is only Funding
B) - Trader hedges the trade with the skin in the game money using Option and funder funds margin money again Trader keeps majority of profits because he / she is taking market risk Funder is only Funding
Each has flaws
A) Global stop loss is not guaranteed by any borker
B) Cost of hedge!

Please PM
More...

There is no business model here. Even if the trader paid me fees I wouldn't back these guys. This business really comes down to having an edge. All the sims in the world are not going to create that edge. My best advice here for most guys if they are young is go to school, get the best degree they can. Not because it will help them in their trading, because it will help them when they fail and 99% of them will. Then take that degree and get the best job you can and make as much as you can and then save as much as you can. When you have enough real money start with "active" investing. See if you have the psychological makeup to watch your net worth fluctuate on a daily basis. Spoiler alert: most people can't.

This idea that some guy or gal with $300 and then decides to trade for a living is a fantasy. Pure and simple. If you are young, for God's sake, go to school, just do it. If you are in your 30's or 40's, go back to school. If you are in your 50's or 60's and you have some savings, just buy some real estate and rent it out. Everyone wants to get rich quick and with no real effort. That just isn't going to work.
 
no one would need psychologist, prop rooms, better business model if they just made money trading. it's like the exchanges pushing newbs to buy options so that the account will last longer before the client blows out. prop rooms are just a way to pay for expenses so the office can survive till the next round of clients come in to replace the blown out accounts.
 
I wander why there are not any trading co-ops where traders can share costs. Can a legal entity be set up to share market data costs for example, yet keep the funds separated? Other services can be added as needed.
Somehow I have a feeling this would eventually end up as your basic prop firm :)
 
qlai said:
I wander why there are not any trading co-ops where traders can share costs. Can a legal entity be set up to share market data costs for example, yet keep the funds separated? Other services can be added as needed.
Somehow I have a feeling this would eventually end up as your basic prop firm :)
More...

i worked in a trading office that shared everything but on paper for auditing purposes they had to settle up at least on paper who paid what and to whom etc. they range of companies was pretty mind boggling to say the least. the were hedge funds, commodity funds, golfing buddy's funds, other firms we traded for, several principles and each principle had his crew of brokers, auditors, researchers, private placement you name it we had it. most the data feeds were in one computer room and from there it would split out everywhere and some offices had to be isolated from one another we had market making operations had to be separated from the fund operation. yet we were served 3 meals a day catered and some groups had first in line before others, politics out the ass. everyone had their own in house attorneys, fitness trainers, it was a mad house i loved it. there was soft money you could spend "magic cards" and all sorts of perks again it was a mind boggling operation originally headed up by a guy named howard rachofsky. definitely book worthy material.
 
The problem is no serious trader IMHO would want to risk his business to save a few dollars in a shady set up. I think LLC could be set up. I think there is lots of potential. I would not code for someone else, but I would be willing to code for co-op where I would be a user as well and maybe get my share of fees reduced. Many could contribute this way and everyone could benefit. Probably will turn into a zoo as Mark described above. If anyone aware of something existing (and not shady), do share.
 
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