how does prop trading compensation work?

dogballon i diasgree many offices clear everything above .002. many offices themselves are around .002 base then add at least .001 to .0015 per share based on 10 million shares a month for cost. it many big cities the rent to hold 10 traders is at least 4-7k a month then you must add in pt to pt t-1 or t-3's which is another 1-2 k plus all the computers and maintaining them. plust your forgetting 80% will wash out fast so you spend all yoru time training. a new guy coming in should get .005 and 80-90% of his profit and after a year .005 and 100%
 
Quote from JMowery1987:

I believe he was referring to where you have your own account. I think the firm will limit your losses since your putting up no capital at all, you actually are trading that firms capital.

They hire inexperienced traders to churn and burn. They may lose 50 - 100 dollars a day, but traders may generate much more in commissions. If you are a good trader, you are making money, and they are still making commissions. No matter what happens to you, they make money, it's a brilliant idea for them. It's a successful business model for the brokers, prop firms.... etc....
More...


so you said that no matter what happens the firm makes money because the trader is generating commissions, but.....


1.) What about the situation where there are no investors and you're trading with the FIRM's capital? If the firm gives a trader 100k, and the trader loses 5k in a day, and generates another 6k in commissions, he still has only 95k in his portfolio and therefore the firm has lost money.


2.) Why would investors want to invest in a business model as you stated above? The firm is hiring inexperienced traders to trade their money, the firm doesn' t care if the tradres lose, and they're charging exhorbitant commissions, management fees and percent of profits?
 
ok...i'm a little confused by this as well...

So the trader loses the firm's money, he pays commissions, puts no money out of his pocket, and the firm has MADE money???? where did this money come from??? The trader didn't make any money in the markets, he didn't pay any money out of his pocket, yet the firm is up? I don't get it, who paid the money if the trader didn't pay it out of his pocket and didn't pay it out of profits that he made?
 
Quote from Dogballoon:

Actually I should clarify. Luckily you don't have to go into your own pocket to pay them once you start losing money. But they take commission no matter what. Most inevitably end up in the red for a long time, possibly several thousand dollars, when in reality that debt doesn't exist and they are making hundreds a day off of you. Most young guys I've seen experience a lot of pain from this, thinking that they're losing the firm money and creating a hole from which they can never climb out of, and that further influences their trading.

It's successful because one or two guys figure trading out well enough after a few years and stay with the firm, when they drop their rates to .003 or .004. The rest provide regular income for the firm and then leave after several months to a few years, once their non-compete is up and are allowed to shop around and get fair, competitive rates from other firms. Or they just get fed up.

If you are offered a .0075 rate, and ESPECIALLY if you have to sign a non-compete, just know that this is what they want from you, and they will keep you at that rate for a long time to earn them a ton of money off of your free labor.
More...

wait so you're saying that the debt doesn't exist? Do you mean that the investors are losing out and not the firm? I guess i'm just a little confused as to the structure of the prop firm
 
For example, the trader can lose $200 in a day before commissions. But lets say his commissions for that day are an additional $400. That means that day the traders loss will be $600. His account will show -$600. But only $200 came out of the firms capital. The other $400 (in commission) went back into the firms pocket or will have to at some point before the trader can get positive in his account.
 
in that scenario you can say that..but the firm is looking to train guys enough to be positive before commission. For example lets say the trader makes $200 in a day before commissions. But the trader has traded enough volume that day to where his commissions were $600. Then then the firm still made $200.. But the trader is taking a loss of $400 for the day.. And that $400 will have to be made back before that trader will be owed anything from the firm..
 
but these guys are talking about it doesn't matter how the trader does he's still making commissions for the firm...but as you can see here, it does matter. If the trader is down the firm is down, if the trader is up the firm is up, regardless.
 
In this case, the you never grow poor taking profits is wrong since in reality our trader never make any money. The trader needs to make a killing in order to bring home some money. :D

Quote from B1010:

in that scenario you can say that..but the firm is looking to train guys enough to be positive before commission. For example lets say the trader makes $200 in a day before commissions. But the trader has traded enough volume that day to where his commissions were $600. Then then the firm still made $200.. But the trader is taking a loss of $400 for the day.. And that $400 will have to be made back before that trader will be owed anything from the firm..
More...
 
A trader can be down $3000 in his account for a month. But the firm can be up on him $3000. If the trader took $3000 out of the market that month but his commissions are $6000. The trader will have to take another $3000 out of the market plus more commissions before he will be cut a check by the firm.

If traders up money in his account, the firms always up money. But trader can be down money in his account and firm still be up money.
 
You must log in or register to reply here.
Back
Top