How do prop trading firms make moneY?

RichSohn · Jun 15, 2003

seems like you went to the prop firm from hell.

most true prop firms don't charge desk fees (did you trade at Bright Trading????). a lot of prop firms will adjust your commission rate based on your experience and volume size (obviously, lower volume means higher commission rates). however most will cut you if you can't pick things up after a good 6 months (you simply don't have what it takes). i have never heard of a prop firm FORCING newbies to trade high volume. that would be simply idiotic for a firm to place added risk of firm capital on newbies.

as opposed to retail trading where you trade your own money, prop firms take on the RISK of your trades. do you think all those guys with 5+million buying power have even an eigth of that amount in their accounts? NO!

Quote from yars:

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 · Jun 15, 2003

Quote from RichSohn:

seems like you went to the prop firm from hell.

jackpot there... they did force us to do volume. every 2 weeks they reviewed volume statistics and took those who were low to a conversation. and said to us that it doesn't pay off to keep us there if we don't increase volume. they said it outright.

speedy... there were no profitable traders in the room i was in. not even one. if there were any, it may have been very educational to watch them, as you said. however all i saw was sheep cursing the specialist for their losses.

i guess, judging by your replies, that it wasn't the typical prop room. i am glad to hear that most prop rooms are probably more sensible. however, i personally lost my faith in them.

RichSohn · Jun 15, 2003

which firm was this?

bright? ab watley?

Quote from yars:

jackpot there... they did force us to do volume. every 2 weeks they reviewed volume statistics and took those who were low to a conversation. and said to us that it doesn't pay off to keep us there if we don't increase volume. they said it outright.

speedy... there were no profitable traders in the room i was in. not even one. if there were any, it may have been very educational to watch them, as you said. however all i saw was sheep cursing the specialist for their losses.

i guess, judging by your replies, that it wasn't the typical prop room. i am glad to hear that most prop rooms are probably more sensible. however, i personally lost my faith in them.

50 cent · Jun 15, 2003

doesn't matter. like JWKirkland wrote, there are a lot of apples and oranges out there, just be damn sure you do a very good job picking a good office from a good firm.

i guess you did better than me on that one, since you seem quite pleased with your firm.. well at least one of us took a good pick!

cheers
yars

RichSohn · Jun 15, 2003

no please, tell us the name of the firm so that we can pass the message along to others.

your experiences seem to be very extreme.

Quote from yars:

doesn't matter. like JWKirkland wrote, there are a lot of apples and oranges out there, just be damn sure you do a very good job picking a good office from a good firm.

i guess you did better than me on that one, since you seem quite pleased with your firm.. well at least one of us took a good pick!

cheers
yars

Scec · Jun 16, 2003

Quote from speedy:

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.

I have never run across a prop shop for futures. Where are a few ?

chiguy · Jun 16, 2003

this community does not seem to know the difference between prop & pro. a prop shop puts up the money takes the risk of your trades and you get something for nothing less 50%.

a pro shop pays out all funds 100% while offering professional leverage and commission costs and a trading platform.

if you know how to trade then go to a pro shop. if you want to learn and don't want to risk your own cash then go prop shop (chop shop).

i am sure everyone would like to offer these services for free. but remember, what you get, is exactly worth what you pay for it.

JWKirkland · Jun 16, 2003

Quote from chiguy:

this community does not seem to know the difference between prop & pro. a prop shop puts up the money takes the risk of your trades and you get something for nothing less 50%.

a pro shop pays out all funds 100% while offering professional leverage and commission costs and a trading platform.

if you know how to trade then go to a pro shop. if you want to learn and don't want to risk your own cash then go prop shop (chop shop).

i am sure everyone would like to offer these services for free. but remember, what you get, is exactly worth what you pay for it.

Nice clarification, it is too bad that more do not make this distinction.

There is also the blend of pro/prop...LOL

Some pro shops will help a trader with little or no money if they believe in the ability of the trader. We have had experience where we personally backed a few guys till they made enough to fund their own accounts. We took a portion of profits till he hit that number and then set him free...it was good return for us and no downside for the trader.

Although our business model is not set up for taking on a bunch of losing traders, we have had some really good traders emerge that would not be trading if not given a leg up.

RichSohn · Jun 16, 2003

well, i think the reason is because there aren't any "pure" pro and prop shops. most places are hybrids, offering both type of deals.

however, most of the bigger "prop" shops i've seen "pays out all funds 100% while offering professional leverage and commission costs and a trading platform."...your definition of a "pro" shop. most high volume traders at prop shops get 100% of whatever they earn...this is pretty much common within the industry. i know guys at assent, worldco, hold brothers who have this deal.

i don't know of any prop shop that doesn't offer professional leverage and low commission costs and a trading platform.

perhaps you might want to redefine the two terms.

are you equating "pro" to retail? like bright trading?

Quote from chiguy:

this community does not seem to know the difference between prop & pro. a prop shop puts up the money takes the risk of your trades and you get something for nothing less 50%.

a pro shop pays out all funds 100% while offering professional leverage and commission costs and a trading platform.

if you know how to trade then go to a pro shop. if you want to learn and don't want to risk your own cash then go prop shop (chop shop).

i am sure everyone would like to offer these services for free. but remember, what you get, is exactly worth what you pay for it.

mujotrader · Jun 16, 2003

RichSohn wrote:

well, i think the reason is because there aren't any "pure" pro and prop shops. most places are hybrids, offering both type of deals.

however, most of the bigger "prop" shops i've seen "pays out all funds 100% while offering professional leverage and commission costs and a trading platform."...your definition of a "pro" shop. most high volume traders at prop shops get 100% of whatever they earn...this is pretty much common within the industry. i know guys at assent, worldco, hold brothers who have this deal.

i don't know of any prop shop that doesn't offer professional leverage and low commission costs and a trading platform.

perhaps you might want to redefine the two terms.

are you equating "pro" to retail? like bright trading?

I have a bad taste for the word "retail", I would
prefer "independent".

Trading offices can have a mix of traders: proprietary, and independent traders, trading their own
fund in effect (that is, their account).