How do prop trading firms make moneY?

[JWKirkland]

That is unfortunate, there are better places to trade. As a matter of fact, some offices have retail traders trading with prop traders.

I do not think it matters if you are retail or prop, what matters is if you are surrounded by traders, or blood sucking vampires.

 

[speedy]

Quote from JWKirkland:

Not all firms or prop shops or even firm branches are the same.

There are different kinds....

Well said. I don't belong to a prop group but some of my buddies do. They are there because they don't have any other way to stay in the business. Most, not all, use it as a stepping stone or a foot in the door. If all you had was 10k, you wouldn't be able to daytrade. If and when they become successful enough and build up enough capital, they leave. No one is chaining these guys there. If you don't like it or it doesn't suit you, leave.

 

[sambatrade]

Quote from JWKirkland:

That is unfortunate, there are better places to trade. As a matter of fact, some offices have retail traders trading with prop traders.

I do not think it matters if you are retail or prop, what matters is if you are surrounded by traders, or blood sucking vampires.

most secured prop are VAPMIRES, by definition because they dont take any of your downside, the the bulk of their income comes from your commissions. Then only good prop shops are those who have a vested interest in you doing well trading, ie: they make the bulk of their profits off your NET PROFITS. They participate in your downside, they train you for free because it's in their interests for you to become a good trader and they pay you a salary or draw while you're learning so that you can stay in the game!

 

[50 cent]

imho -

with $10k you get $50k buying power on ssf and $200k buying power on eminis. for a people who want a foot in the door, that is way more than enough.

the problem with prop is that their behemoth attitude towards trading in massive volume (for obvious reasons) simply poisons your mind. you acquire bad habits. especially if you are a newbie and you don't know better. that alone can burry you like quick sand.

one needs to *earn* his right to trade volume, and you earn this right by being consistently profitable. size will never compensate for lack of skill.

cheers
yars

 

[RichSohn]

exactly. looks like retail trading is more suitable for you so that you can pace yourself. until you learn how to trade, prop trading is probably too much for you to handle.

what were you expecting from this prop firm? to become a millionaire trading less than 20K shares a day?

Quote from yars:

imho -

with $10k you get $50k buying power on ssf and $200k buying power on eminis. for a people who want a foot in the door, that is way more than enough.

the problem with prop is that their behemoth attitude towards trading in massive volume (for obvious reasons) simply poisons your mind. you acquire bad habits. especially if you are a newbie and you don't know better. that alone can burry you like quick sand.

one needs to *earn* his right to trade volume, and you earn this right by being consistently profitable. size will never compensate for lack of skill.

cheers
yars

 

[RichSohn]

it does matter if you're retail or prop. if you join a prop firm and trade piece meal and don't even generate enough gross to cover the expenses of your desk (or even worse, down in your account AND the firm's capital), you're definitely gonna get axed. you're simply dead weight. if you haven't proved to show any improvement in your trading (ie...consistently down in your account after several months), then you have no reason to stay in a prop firm. on the retail side, you pay higher commissions and other fees, but in exchange can trade however light as you want.

JWKirkland can even vouch for this. There have been numerous andover traders who were let go for this very reason (not necessarily from his branch).

if you can't figure out an edge in the markets on your own and are seriously relying on other traders to do it for you, then you gotta really think if this is the right profession for you.

Quote from JWKirkland:

That is unfortunate, there are better places to trade. As a matter of fact, some offices have retail traders trading with prop traders.

I do not think it matters if you are retail or prop, what matters is if you are surrounded by traders, or blood sucking vampires.

 

[speedy]

Quote from yars:

imho -

with $10k you get $50k buying power on ssf and $200k buying power on eminis. for a people who want a foot in the door, that is way more than enough.

the problem with prop is that their behemoth attitude towards trading in massive volume (for obvious reasons) simply poisons your mind. you acquire bad habits. especially if you are a newbie and you don't know better. that alone can burry you like quick sand.

one needs to *earn* his right to trade volume, and you earn this right by being consistently profitable. size will never compensate for lack of skill.

cheers
yars

I was referring to stock trading. Most prop deals are for stock traders although I am aware of some for futures. In stocks, you need more than 10k to daytrade. IMO, you should have more than your last 10k to trade or you will have a less chance to make it. You have to have staying power. And, I don't mean trading 100 shrs at a time. You will not make a living trading piker shares. Its only for learning.

 

[50 cent]

think of the broker business model for a minute:

retail broker gets revenue from commissions.

prop get revenue from:

1. commissions
2. desk fees
3. % profits

furthermore, they get it all much quicker. they literally force you to trade high volume, whether you are profitable or not. if you don't meet volume requirements they kick you out. this is a very efficient money machine! much more than a retail business!
and to keep this business plan working, they sell you the dream of "size will compensate for lack of skill". it all makes a lot of sense.

bottom line the one and only reason for a trader to go prop, is if you are already an excellent trader and what is hindering your p&l is lack of leverage. if you went prop for any other reason - you're probably sheep....

 

[50 cent]

Quote from speedy:




I was referring to stock trading.

speedy, agree with you there, stock trading per se with $10k is impossible. also pdt rule, uptick rule. that is true. that is actually the main reason i was happy to go prop. however to me personally, the downside outweighted the upside of the deal.

today with ib and futures i feel much more comfortable and am faring better. but this is also a matter of individual experience.

 

[speedy]

you say that its only good for the experienced? what about the newbie that needs leverage and a starting environment? i still think that if you're new, its still better to be in an environment around traders than trading from home by yourself. even if all the traders around you are asses, if they're making money, by observing - there's usually a way to pick up something.

i disagree that its only for the experienced.

that said, once you have enough capital, get out! you can use them for your own purposes as they used you for their's.