How difficult is it to start a prop firm?

[angerbridge]

Quote from the gardner:

the only way to run your own firm is to do ...actually do all the things don said ...

and then grow the firm to a huge size so you can benefit from its scale

just remember it can take 5 or 10 years to build a firm and only 15 minutes to destroy one..

The idea I was thinking about was if a smaller group of already successful traders could form a prop, since each guy would be producing what a modestly successful branch of a prop would make. Obviously it would cost too much to do this when the end result would just be reduced fees.


As far as actually making a prop firm and training newbies, I almost become suicidal even thinking about training newbies.

 

[the gardner]

the prop shops were for the late 90es and early 2000es...there done now,running a prop shop is basically a small time bis ...rates too low ...margins too low...legal bills too high etcetcetc

bieng a branch of a prop shop is the way to go...just compare them well against eachother ....test them

better still is starting a real hedge fund....one account traded by ..say 10 traders...for real ....no sub accts....

starting a hedge fund is the only next level to aspire to...but its not for the faint of heart...or for silly little traders who cant get along with eachother...

in a hedge fund when the guy next to you loses ...say 100,000
you loose money too and a lot of it.....

prop shops are for the lone wolfs these days...the solo sailors
the antisocials....the guys who dont need anyone...any help

but for those who can work and play well with others lies the true reward .....tens of millions of dollars in annual compensation

good luck

 

[executioner]

i think what he is asking is how he can start a group not a firm. for example,say he trades for Genesis or Assent,he may want to get about 10 guys together and obtian very good rates. then i would imagine he starts a sub account LLC and brings in a bunch of other traders who pay doubele what he is paying.i am guessing this is what he means. i doubt he actually wants to start his own prop firm.

 

[Chi-trade]

Quote from angerbridge:

Thanks for the reply Don. Obviously starting a prop from scratch is very capital intensive. All the little new props must just be offshoots of other companies like you and Maverick were talking about. Not a bad idea allowing traders to create different arms of the company while keeping the Bright Bros on top. Many prop firms just groom (or in most cases the trader figures it out on their own) traders and then the trader leaves for someone else once he has become successful. But you seem to have a great idea to keep the good ones in the company by helping them start "their own" company, impressive.

This is all required to become a broker dealer, not necessarily a prop firm. There is very little reason to go through all this to become a prop trading BD if all you're looking to do is trade as a group and get better rates. Starting a BD (from scratch) is a big pain in the ass and you have to know what you're doing to run one, however, it's quite easy to set up an LLC for a group of traders and get a deal with a BD, and let them worry about the compliance and regulatory issues.

 

[Chi-trade]

Quote from Don Bright:

(Smiling at some of the replies, LOL).

OK, I have gone through this a few times on the board, but here is the basic route to starting a Firm.

1. Buy a seat on an exchange, or, if nothing else, join the NASD as a broker dealer.

2. Find a good clearing firm to clear your trades. Capital contribution varies from firm to firm, I think Goldman has a minimum of $10mil or so (others are probably a lot lower).

3. Find a really (really) good Compliance Officer to help you through the regulatory hurdles.

4. Come up with a good method of risk control to protect your money, and to protect the traders from themselves.

5. Find a group that makes good money, and hopefully they will provide "value added" to attract new traders and traders from other firms. Notice I said "attract" not "recruit" - not a good idea.

A little history....after a couple of our mangagers started Van Buren Securties a few years back, followed by my trader(s) starting Echo trade (which merged with Van Buren, and then became part of Pax Clearing, and ultimately Merrill Lynch), my brother and I decided that it was not a good idea to "create competition" from within. (Nothing wrong with competition, however).....Better to "reward initiative" by setting up ways for highly energized traders to "run a company within our company" - with incentives for doing so. This has worked quite well for us and the traders (PairCo, affiliates, BTM and DFG groups, S &S Trading, etc.). We look forward to assisting others in this arena.

All the best,

Don

This is all required to become a broker dealer, not necessarily a prop firm. There is very little reason to go through all this to become a prop trading BD if all you're looking to do is trade as a group and get better rates. Starting a BD (from scratch) is a big pain in the ass and you have to know what you're doing to run one, however, it's quite easy to set up an LLC for a group of traders and get a deal with a BD, and let them worry about the compliance and regulatory issues.

 

[Don Bright]

Quote from Chi-trade:

This is all required to become a broker dealer, not necessarily a prop firm. There is very little reason to go through all this to become a prop trading BD if all you're looking to do is trade as a group and get better rates. Starting a BD (from scratch) is a big pain in the ass and you have to know what you're doing to run one, however, it's quite easy to set up an LLC for a group of traders and get a deal with a BD, and let them worry about the compliance and regulatory issues.

Yep, exactly why we have affiliates.

Don

 

[Paulds11]

angerbridge

I admire your resolve and calm under pressure from some of these dudes who initialy did a good job choppin you up... Man! "chewed".... yep you come across a touch naive.. but your tenacity to seek a general picture and come back again and again with arguments and politeness was excellent...

With the right knowledge you can do anything.. but if your actualy earning the money through trading consistently, youll find these options will open up to you as your knowledge grows and your account balance grows... start there first

but there absolutely no harm in asking for a basic introduction..

Dont let anyone tell you what u can or cannot do and have that affect your inner goals... its just a question of knowledge and money and finaly the art in your execution...

Paul

 

[joepepper2001]

Quote from Chi-trade:

This is all required to become a broker dealer, not necessarily a prop firm. There is very little reason to go through all this to become a prop trading BD if all you're looking to do is trade as a group and get better rates. Starting a BD (from scratch) is a big pain in the ass and you have to know what you're doing to run one, however, it's quite easy to set up an LLC for a group of traders and get a deal with a BD, and let them worry about the compliance and regulatory issues.

I see alot of llc's using the laser platform,is this what your talking about, setting up an llc thru genesis or somebody else like don or one off the other guys

what kind of costs are involved and who keeps track of all the trades and profit and if somebody is about to blow up, is this done thru the main people or do you have to have people working for you to keep guys in compliance, how much capital is needed to start a llc and how many folks do you need to make it work

 

[Lights]

There are more financing options to structure oneself as a prop, or "prop-like" entity/group than traders may realize.. the tradtional series 7 JBO b/d structure is not the be all, end all.

Quote from Maverick74:

Who is going to put up the 1.5 million for the net broker requirement? Who is going to pay the average 250k a year in expenses to maintain your BD and comply with all the regulations?

Who is going to put up the additional capital over the 1.5 million to protect traders funds from others who go debit? Who is going to manage all the risk on the accounts? You guys have obviously not thought this through. LOL.

 

[Maverick74]

Quote from Lights:

There are more financing options to structure oneself as a prop, or "prop-like" entity/group than traders may realize.. the tradtional series 7 JBO b/d structure is not the be all, end all.

This is true, but it's the safest. Just take a look around you on the prop threads and you will see countless posts of people who have been robbed of their capital, charged outlandish rates, had to endure crappy software and service, withdrawals that were paid late or not at all. Being that this industry is full of scum, I think it's best to stay regulated and keep everything as structured as possible. Even that sometimes can't protect you.