Ideal Prop Firm

A

aysizetrader

After reading ALL of the "it's a scam posts", I was wondering...

If you had the ability to start your own prop firm, using the firm's capital only, taking no risk deposits, training fees or whatever you would disguise it as, how would you do it? Could you do it any make money? Is this a case of it is just easier to criticize and knock down other peoples attempts rather than build your own?

If someone went to you tomorrow and said “Here is 2 million dollars, I want to get into the prop business, hedge fund model – less regulatory headaches. What can you do for me?” How would you go about it?

Salary or percentage only?

Who to hire?

Where to clear?

What are the 5 most important things trader want, and can we make money providing it to them?

Do any of the loudest critics have a plan, or do they just like to bitch?
 
My advise would be with to avoid the Broker Dealer model and try to raise $5MM. The time, cost and regulation involved with a broker dealer is more difficult than most understand. And, the game changes all the time. In two weeks you can set up an LLC, open a Customer Portfolio Margin (CPM) account for your trading firm. Hire who ever you want and offer what ever payout or salary you believe is fair.

The advantage of the $5MM is leverage. In a CPM with over $5MM, your Introducing Broker and Prime Broker don't have to monitor your haircut during trading hours, just at end of day. This does not mean you'll be allowed unlimited risk, but gives you more room on the 6.6 -16 X leverage than CPM allows for equity trading. You can play this game with under $5mm, but your goal should be over $5mm to do it right. If you want to, you could start with MUCH less.

Then go out and hire a good risk manger, talk to a good Introducing Broker to help manage your business, and hire the best and brightest young traders you can find with a solid track record.

Bob
-----------------------------------
Robert L. Morse
Business Development
VICTOR SECURITIES
285 Grand Avenue,Englewood, NJ 07631
rmorse@victorsecurities.com
office: 646-545-3860
http://www.linkedin.com/pub/robert-morse/6/8a7/617
http://www.victorsecurities.com/
-----------------------------------
 
Robert, it was nice chatting you a while back.....

Are you saying only 5$million? Where are you going to find a clearing firm with such a small amount? And, you could only have like 3-5 traders?

Maybe you mean 5$billion... and, sure, why not....

Simple answer, just go see First New York Securities, great model, small but profitable. When the owner's son did his internship with Brigth, we shared some of the basics, and I sincerely think it's a good model.. not the "floor trading model" we grew up with and emulated, but excellent for the "employee type" model.

Don
 
Quote from rmorse:

My advise would be with to avoid the Broker Dealer model and try to raise $5MM. The time, cost and regulation involved with a broker dealer is more difficult than most understand. And, the game changes all the time. In two weeks you can set up an LLC, open a Customer Portfolio Margin (CPM) account for your trading firm. Hire who ever you want and offer what ever payout or salary you believe is fair.

The advantage of the $5MM is leverage. In a CPM with over $5MM, your Introducing Broker and Prime Broker don't have to monitor your haircut during trading hours, just at end of day. This does not mean you'll be allowed unlimited risk, but gives you more room on the 6.6 -16 X leverage than CPM allows for equity trading. You can play this game with under $5mm, but your goal should be over $5mm to do it right. If you want to, you could start with MUCH less.

Then go out and hire a good risk manger, talk to a good Introducing Broker to help manage your business, and hire the best and brightest young traders you can find with a solid track record.

Bob
-----------------------------------
Robert L. Morse
Business Development
VICTOR SECURITIES
285 Grand Avenue,Englewood, NJ 07631
rmorse@victorsecurities.com
office: 646-545-3860
http://www.linkedin.com/pub/robert-morse/6/8a7/617
http://www.victorsecurities.com/
-----------------------------------
More...

I would tend to agree with this. The broker dealer model is not worth the headaches. The sad truth is, most traders don't make money. The only real margin in this game from the prop firm's perspective is selling education or marking up rates on small traders. Going after the little guy with a dream. I still think it's a terrible business model. I would advise against anyone starting a prop firm. That ship has long since sailed.
 
Quote from Don Bright:

Robert, it was nice chatting you a while back.....

Are you saying only 5$million? Where are you going to find a clearing firm with such a small amount? And, you could only have like 3-5 traders?

Maybe you mean 5$billion... and, sure, why not....

Simple answer, just go see First New York Securities, great model, small but profitable. When the owner's son did his internship with Brigth, we shared some of the basics, and I sincerely think it's a good model.. not the "floor trading model" we grew up with and emulated, but excellent for the "employee type" model.

Don
More...

I think a minimum of $5MM provides enough equity for at least 10 option traders or 20 or more equity day traders to trade with CPM. Many can trade with a lot less.

Bob
PS I enjoyed talking with you also.
-----------------------------------
Robert L. Morse
Business Development
VICTOR SECURITIES
285 Grand Avenue,Englewood, NJ 07631
rmorse@victorsecurities.com
office: 646-545-3860
http://www.linkedin.com/pub/robert-morse/6/8a7/617
http://www.victorsecurities.com/
-----------------------------------
 
Rmorse

How common is your cpm 5 million model these days?

You would think someone with 5 mil in capital would trade themselves

Why bother with all the hadaches in managing other traders

running a prop business is more risk then reward these days with the lack of talent & commission structure these days

What kind of interest do you get in the cpm model from individuals that have the capital?

thanks
 
Quote from hitnrun:

Rmorse

How common is your cpm 5 million model these days?

You would think someone with 5 mil in capital would trade themselves

Why bother with all the hadaches in managing other traders

running a prop business is more risk then reward these days with the lack of talent & commission structure these days

What kind of interest do you get in the cpm model from individuals that have the capital?

thanks
More...

The question was how do I set up the ideal prop firm, not if it was advisable. One reason is simple. I'm a very experienced 51 year old trader that has been trading equities and options since I'm 20 years old. I've become risk adverse and set in my ways. I'd rather hire 10, 25 year traders running different strategies that are young and "hungry" and allocate $500K to each one, than me trade $5MM. With me running the business and managing their risk, I believe the net profits to me will be higher.

That's the theory...Young traders in general make more money than older traders. But, you still need the older traders for guidance and loss prevention.

To your other question, this set up is NOT as common as the prop set up. I believe it will be more popular moving forward.

Bob

-----------------------------------
Robert L. Morse
Business Development
VICTOR SECURITIES
rmorse@victorsecurities.com
office: 646-545-3860
-----------------------------------
 
Quote from rmorse:

The question was how do I set up the ideal prop firm, not if it was advisable. One reason is simple. I'm a very experienced 51 year old trader that has been trading equities and options since I'm 20 years old. I've become risk adverse and set in my ways. I'd rather hire 10, 25 year traders running different strategies that are young and "hungry" and allocate $500K to each one, than me trade $5MM. With me running the business and managing their risk, I believe the net profits to me will be higher.

That's the theory...Young traders in general make more money than older traders. But, you still need the older traders for guidance and loss prevention.

To your other question, this set up is NOT as common as the prop set up. I believe it will be more popular moving forward.

Bob

-----------------------------------
Robert L. Morse
Business Development
VICTOR SECURITIES
rmorse@victorsecurities.com
office: 646-545-3860
-----------------------------------
More...


Sounds like innovation.
 
Very interesting replies, thank you. I was expecting that all of the angry traders would come back with fees at cost, 100% payouts, etc.

I do have a couple of comments about the responses …

Couldn’t you set up your own clearing business with a 5MM deposit? If you were going to start a firm with that much cash I would think it advisable to go that route.

As to the old and young traders making more money – if anything I would say that inexperienced traders have more wild swings and their returns have more volatility, whereas more experienced traders have been there before and instead shoot more a more steady growing return.

I also agree with allocating the money to different traders rather than all the eggs in one basket. Diversification is one of the first things you learn when trading.

Lastly, if there isn’t any money left to made in legitimate prop (not charging training fees and bleeding the new traders dry), then why are there still numerous choices out there. I believe that there is money to be by real traders, not scalpers and flippers. A trader can always trade, and commissions as low as they are can only be helpful.
 
rmorse.

Your gameplan makes sense. Is it worth the risk ?

It's difficult for many traders to allocate 150k to open a pm account .

the cpm model is solid if one has the capital to support that endeavor.

Not sure there are many traders that have 5 million in equity

that is a challenge . lack of money .

that is why many traders go the traditional route to get leverage on smaller accounts usually under 50 k with prop firms
 
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