Funding new traders Search for a better business model

[bone]

Equity prop firms are substantially different than futures prop firms.

I currently have client referral relationships with a few very prominent Chicago and NYC futures prop firms. One of those firms feeds certain traders to a prominent Tier 1 HF (several billion aum) to PM $100M.

These futures prop firms are well capitalized and feature expensive ECN architectures and IT support. If an employee trader is consistent they will lever the holy piss out of him or her. That’s how they make their money, and quite frankly that’s the only reason to be a prop trader. They turn traders over, and when they find that one special individual who’s demonstrated a consistent edge they want that trader to be the 800 pound gorilla in that market space.

The CME and other electronic regulated futures exchanges require prop firms to register with them. There are substantial capital requirements and the firm is NOT allowed to risk the employee’s capital - only firm capital is at risk.

I know that years ago there were equity prop firms with training programs that found themselves in regulatory trouble for skimming off what was supposed to be client trading capital away in the name of educational training and desk fees, etc...

I don’t think the OP’s business model is viable for either the trader or the firm principals.

 

[bepitt]

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

we are trying to create a club www.options-usa.com Any comments appreciated thx

 

[Proptrader23]

we are trying to create a club www.options-usa.com Any comments appreciated thx

Prop firms and retail brokers, like Lightspeed, will offer lower rates for trading groups based on total monthly volume.

 

[Robert Morse]

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

Yes and no. Yes, you can create a legal entity to share the cost of non-display market data fees from the use of hosted solutions and API. NO, you can't keep your funds separate. The account must be owned by the entity. No you can't share the cost of display fees with different users that do not come under the non-display category. There is a usage fee per terminal.

 

[qlai]

Yes, you can create a legal entity to share the cost of non-display market data fees from the use of hosted solutions and API

Thanks, Robert. I was in discussion with someone about this kind of arrangement (trading their money only) and was told that I would need to be either licenced or have their licenced person run my black box. Neither option was suitable for me. Is that your understanding too or was it just specific to that particular entity?

 

[Robert Morse]

Thanks, Robert. I was in discussion with someone about this kind of arrangement (trading their money only) and was told that I would need to be either licenced or have their licenced person run my black box. Neither option was suitable for me. Is that your understanding too or was it just specific to that particular entity?

Not enough information here, Give me a call Monday or send me an email with more details.

In general, your investor can open an account and make you the authorized trader. With regard to if you need to be licenced as an RIA, that would vary based on the state you do business in. If the investor is a Broker Dealer, you might have to be registered with their BD to get paid and be licenced with FINRA. If this is a customer account, you do not have to be licenced if you create a partnership where you are a managing partner vs getting paid as a third party.

If you are only talking about non-display fees, and they already pay them, they only pay once.

To hard to give a good answer to your question in this setting.

Bob

 

[traderjo]

[QUOTE="
I know that years ago there were equity prop firms with training programs that found themselves in regulatory trouble for skimming off what was supposed to be client trading capital away in the name of educational training and desk fees, etc...
[/QUOTE]
Hi Bone,
So if that was the case why are the new "futures" based firms or Education sellers + "Firms" allowed to operate on the same model without any scrutiny!

 

[bone]

[QUOTE="
I know that years ago there were equity prop firms with training programs that found themselves in regulatory trouble for skimming off what was supposed to be client trading capital away in the name of educational training and desk fees, etc...

Who are those firms you speak of? I’m not one of them...

 

[Maverick74]

There is a very different regulatory structure for the futures world vs the securities world. The securities regulators are really focused on protecting mom and pop types. The futures world pushes back hard on regulations and points out that there are few mom and pop types trading futures.

That aside, the firms traderjo is speaking of are NOT doing that. They are separate legal entities. The old equity firms that sold 5k in education as a funding mechanism for prop capital did that out of the same corp shell. That was stopped.

 

[traderjo]

Who are those firms you speak of? I’m not one of them...

Bone, I was not referring to your Education training business, I was referring to so called Prop who has a model where people pay for a test and hope to get funded.
They all operate in the Futures domain some of them have Education selling as part of it other;s only have paid test . ( as compared to the true props who hunt talent at their own cost Dont charge people for any test )
So my question was if equity props firms are regulated like hell to protect mum and dad investors (Maverick's point) from scrupulous operators , then why not Futures props?
Does it matter if it is equity or futures or option?, it is still risking money ! from the point of view of consumer protection) and Futures trading is becoming mainstream !
Simply put with automation testing for talent should not be expensive now a days and that way it can take away this stigma of hamster wheel. and trading can still be bought to masses and those who have talent get funded!