how would a non-profit prop firm llc structure work, could it work?

C

chewbacca

since there are so many sleazy prop firms out there........i was wondering if a non-profit structure setup would work...........a firm set up by traders (who make money from their own trading rather than commissions) for traders (all profits go back into the business: additional buying power, health insurance availability, better office/equipment, lower rates, etc.).......this way there really is no conflict of interest......if I had a million dollars I would definately set this up........because no one should trade at home........that's just really boring and pathetic.......trading from a professional environment where you have guys working together is the best and healthiest way to trade.......the thing is there are no professional environments out there.......talk to any firm and all you'll hear is a sales pitch......they just want your commissions business and they want you to trade as much as possible.......and if it means blowing out or never moving beyond trading for pennies and developing the worst habits in speculation, then so be it.


okay so here's what i'm thinking:

once the llc is set up - i guess the initial funding would be a tax write off.

platforms used would have to be anvil or lightspeed.

no deposits required - this would require little bit higher commissions.

100% payouts.

buying power gets allocated based on consistency. greater consistency gets you greater buying power.

overnights okay, haircut charged. doing something stupid like putting all BP into a stock before earnings gets you kicked out of the firm. again you have to earn your BP and and hold onto your allocation by practicing solid risk management.

training consists of risk management, discipline, and how to deal with stress - just simple stuff. you have to develop your own strategy. traders are encouraged to help new guys for at least a couple of days.

offer options/futures through other brokers so that traders can hedge their overnight positions - and move beyond equities.
 
how do you obtain non-profit status for a broker (prop firm)? What benevolent purpose does it serve and what will happen with all those commission profits building up? non-profit? I doubt it.
 
Quote from optioncoach:

how do you obtain non-profit status for a broker (prop firm)? What benevolent purpose does it serve and what will happen with all those commission profits building up? non-profit? I doubt it.
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I don't think he means a non-profit in the traditional sense. What he proposes would more closely resemble a co-op I think.
 
the firm won't be a broker........more like an private investment firm.......all commissions go back into the business to provide more buying power, better equipment, lower rates, healthcare, salaries for admin staff, etc........there are a lot of non-profit businesses out there.......don't know what all the rules are but i'm not too hung up on the non-profit structure if i can't pass regulatory requirements........but the more important thing is that all profits get reinvested back into the firm so that its really there to serve the traders and there is no conflict of interests.
 
Quote from chewbacca:

the firm won't be a broker........more like an private investment firm.......all commissions go back into the business to provide more buying power, better equipment, lower rates, healthcare, salaries for admin staff, etc........there are a lot of non-profit businesses out there.......don't know what all the rules are but i'm not too hung up on the non-profit structure if i can't pass regulatory requirements........but the more important thing is that all profits get reinvested back into the firm so that its really there to serve the traders and there is no conflict of interests.
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This idea has been brought up a few times in the past, but if you really think it through...well, let's do that.

Not a B/D? Then you all have accounts at IB (for example). Where does your "co-op" make profits? Are you going to charge yourself additional commissions? That makes no sense. You can certainly "co-op" an office (as our affiliates do), which is simply dividing up rent.

Additional buying power? Who's going to give money to the guy sitting next to you (espcially for free).?

If you want to "back" traders, there are many options in that regard, but you're basically just adding costs to each trader to "put back into the business".....

There are more reasons, but this should help you see why the "co-op" idea has never come to fruition.

However, "share the rent, cross guarantee each other's accounts, learn together, work together" - that's how we started (to get economies of scale for my brother and his original partner, and slowly more floor traders came on board. No conflict, full disclosure.

Back in the day, and currently with the MIT team, we had blackjack groups. Worked together, shared in profits, etc. My brother lasted 2 weeks and came to realization that he was making all the money, and he was then basically giving the others free money (overhead, I guess)...so he went on his own, and the rest is, as they say, history.

Just commenting, not critcizing or anything.

Heck, I wish we still had "co-op" markets like I enjoyed in NoCal. The food actually cost more (do to No 'economies of scale"), but he food was fresher.

All the best,

Don
 
lol........don.......you're a great sales man....you really are.......and i spoke to you over the phone a few years back and you made great sales pitch i don't regret rejecting..........okay so if you're a trader here are you're options:

trade from home in your underwear.........and live a very lonely and boring existance with little social contact.......hence you never help anyone out and you never learn from other traders......

or join a prop firm to trade from an office.........and if you walk into anyone of these offices you'd feel like running the hell out of there.......either the office looks like a poorly lit basement........and they'll charge you an arm and a leg for trading there unless you do over a million shares a month and the only way to do that is to scalp for pennies with 1000+ share lots..........you'll never grow as a trader if you trade like that........and you'll never outgrow your poor habits if you continue to trade like that.......and its not like there're not making money either they probably make at least 1k net profit per trader per month.


of course.... ....you can always trade from home in your underwear.........oh back to square one........you see a new model is needed...
 
Just find a good prop shop to join. If the ones you see suck then find a good one. Kind of like saying the grocery in my area has bad selection so we need something other than groceries for food shopping. :D

Office space costs money. cannot see anyone doing anything without a profit (calling the withdrawal a salary does not it ;) ).

Just grab some trading friends and rent some office space to trade togther.
 
I think it's a compelling idea, but why couldn't it just be a simple partnership? Basically, you're just sharing fixed overhead at cost and getting economies of scale for expenses.

I would definitely be interested if someone had a coherent plan for putting one together here in the Philadelphia area.
 
both prop firm models are fundamentally flawed........under the commission based model, the firm encourages churning - which is the recipe for disaster in the long run........the trader never takes it to the next level if he is scalping for pennies everyday............and even if the firm backs the trader and pays a profit split......then once the trader learns how to trade, he'll probably leave........after all why give up 50% of your hard earned profits if you can just go to the commission model and keep 100%.......but even there you get short changed if you lock yourself into equities with no overnights, then you're missing a whole world of opportunity.
 
Chewy, thanks for the kind words, but I simply speak from my experience, and try to share. I've been involved in several business ventures over the decades, and I have helped quite a few people with their business ventures as well.

FWIW, we have very few "penny scalpers" - our traders tend to do the openings, multiple pairs and mergers, and run automed programs these days.

As far as offices go, etc. In the 1990's we had around 45 offices, primarily because it was so expensive to have T-1 lines to the trading floors, etc. As the technology advanced, and the leases came due, we asked the traders if they wanted to keep the office or trade from home, most chose to trade from home. The $200 access fee is fully rebated if only 200K shares are traded monthly, so this was cost effective for the traders.

But, I do agree with you that some people simply do better in an office environment...and now I see a growth in our affiliated offices, to fill this need. To help with this, we started "BTM" (Bright Trading Mentoring" which caters to around 100 of our remote traders via online mentors, in small groups of 6 or so, and this helps "simulate" an office enviornment in cyber space.

Anyway, just my 2 cents.

Don
 
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