Is this a fair deal?

[Dogballoon]

Let's say the firm teaches him how to tape read, i.e.: buy when size steps up, sell when size steps down. Pretty much the standard 2001-2002 technique that all these chop shops use to generate commissions, that they can teach in a week, and you can find in a few threads on ET. Either that or liquidity trading, which should be dead by now. That wouldn't stand up as a proprietary system in court. But it doesn't stop the firm from using the courts, or the threat of action, to muscle him into staying at unreasonable rates once he figures out what's going on.

Any prop firm that makes a big chunk of its business from regularly churning out and trapping new traders just uses the "training" spin as a form of advertising. Big diff between these firms and those that really train, or that just provide software and leverage.

Quote from JA_LDP:

It depends. The typical contract law says that for it to uphold in court, the contract must be reasonable. Typically, 2 years is not reasonable but lets say you were trading a system that the firm taught you and you left to trade that same system at another firm for a better deal. That would be a breach of contract because you are using what another firm taught you. If you went in, traded your own money, your own system and left for a better deal, that would not be a breach of contract.

Location also has to be reasonable. If the contract is 2 years, non-compete in New York City, that would more likely be upheld in court than non-compete in, say, the entire New England area.

His series 7/55 are irrelevant because those are standard, general exams required for every professional trader in which any firm could sponsor him for. He didn't gain any edge from one firm sponsoring him over another. Hopefully that makes sense.

 

[JA_LDP]

Quote from Dogballoon:

Let's say the firm teaches him how to tape read, i.e.: buy when size steps up, sell when size steps down. Pretty much the standard 2001-2002 technique that all these chop shops use to generate commissions, that they can teach in a week, and you can find in a few threads on ET. Either that or liquidity trading, which should be dead by now. That wouldn't stand up as a proprietary system in court.

What if that firm copyrighted those systems? Would they then stand up? Or would a system be impossible to copyright or patent?

 

[MadBulgarian]

Quote from Dogballoon:

Let's say the firm teaches him how to tape read, i.e.: buy when size steps up, sell when size steps down. Pretty much the standard 2001-2002 technique that all these chop shops use to generate commissions, that they can teach in a week, and you can find in a few threads on ET. Either that or liquidity trading, which should be dead by now. That wouldn't stand up as a proprietary system in court. But it doesn't stop the firm from using the courts, or the threat of action, to muscle him into staying at unreasonable rates once he figures out what's going on.

Any prop firm that makes a big chunk of its business from regularly churning out and trapping new traders just uses the "training" spin as a form of advertising. Big diff between these firms and those that really train, or that just provide software and leverage.

Dogballon,

So lets say a prop firm takes a new trader on with no cap and lets him sit with a mentor for a month that "teaches" him to tape read listed stocks. The prop firm gives the trader a one sided deal charging 10/1000, $250 software and data feeds/ and pay for his own health insurance and after these fees are deducted he gets 45 percent of net.

Now lets say after a year the trader makes the firm 20k gross but after the fees he is net down 3k and never received a dime from the firm and now the trader wants to go somewhere else and put up cap and get a better deal.

What should the trader do just start looking for a new place to trade and not worry about the non-compete?

 

[Dogballoon]

Quote from JA_LDP:

What if that firm copyrighted those systems? Would they then stand up?

Have you seriously heard of any firm trading the markets patenting anything? Imagine the legal consequences of that. Best you can do is patent code or software.

These non-competes have nothing to do with that. The standard prop firms like Assent, Generic, Genesis offer the same things: market access with fast software and leverage. Not much more you can do with that, so you either have to take market share by being more competitive (offer better software/analytics and manage leverage and risk better), or be more shady to push your profit margins. A shady firm sees a market in trapping naive traders or slipping in hidden charges or commission hikes.

 

[Dogballoon]

1. 20k gross after a year is incredibly slim, so I wouldn't think the firm would be too concerned about losing that trader.
2. That trader will probably never make a dime on those rates and payout (with fees!). It's really just a matter of how long it takes for him or her to get sick of it.

I mentioned somewhere previously that I was in a similar situation at a different firm than the original poster. I started calling every prop firm to find out what rates they'd give me on my 1 mil/month volume (including the firm I'm at now), and tested their software. Then I simply got up and left. The old firm threatened to sue me but after a month they just gave up. The problem is they will know where you are once they process your U5 (unless they set you up with a non-licensed leveraged account, which is a real option, but possibly legally suspect). Either that, or tell the firm that you're not going to trade another share until they give you a competitive deal.

I wouldn't <i>suggest</i> anyone break a contract, because I'm not a lawyer and if they signed some hare-brained contract they theoretically could get sued. More knowledgeable people on this subject might be better to ask. But I'm just saying I and other people did it.

It's better to just get the cash up yourself, don't work as an "employee" at these sleazy outfits, learn about which firms won't force you to sign your left nut over to them and will just give you solid software and leverage, and slowly teach yourself to trade. In the end, it's really you who teaches yourself. All the info is out there.

Quote from MadBulgarian:

Dogballon,

So lets say a prop firm takes a new trader on with no cap and lets him sit with a mentor for a month that "teaches" him to tape read listed stocks. The prop firm gives the trader a one sided deal charging 10/1000, $250 software and data feeds/ and pay for his own health insurance and after these fees are deducted he gets 45 percent of net.

Now lets say after a year the trader makes the firm 20k gross but after the fees he is net down 3k and never received a dime from the firm and now the trader wants to go somewhere else and put up cap and get a better deal.

What should the trader do just start looking for a new place to trade and not worry about the non-compete?

 

[nitro]

Quote from Dogballoon:

...Their costs are around .0015 per share...

They are way less than that.

nitro

 

[BRUT49]

Today the non-compete clause has basically gone out the window. So many firms have their good programs on a firewalled system that is hard to hack...especially with the general knowledge of most prop traders. The non-compete with the general trading firms is to influence you to fulfill your contract... because you think there is no other way... and they continue to make the comissions.
The non compete did work with an individual I know working here at the CBOE... he left for New York after a group offered him a headtrader position. After some lawyers threatened him...he was allowed to go. Some firms will go as far as having their friend call and say they are inquiring about the new position in violation. Unless they file though and you have been producing millions in commissions for the firm... they usually won't bother.

 

[Dogballoon]

Quote from nitro:

They are way less than that.

nitro

Yeah, I kinda assumed that but never get good confirmed info. I've seen .001 for SDOT charged to management sub-LLCs at a firm that wasn't self-clearing. Rates varying from 0 to .003 for ECNs. I just assumed .0015 covered average costs and profits to the larger prop firm.

 

[MadBulgarian]

So if your doing like 10k shares and making 300 dollars gross a day and you want to leave they would let you leave to trade elsewhere without any problems?

 

[Dogballoon]

Quote from MadBulgarian:

So if your doing like 10k shares and making 300 dollars gross a day and you want to leave they would let you leave to trade elsewhere without any problems?

A regular 3:1 ratio is very encouraging, especially if you're trading liquid issues (so it's scalable). Keeping a consistent $15/1000 or $20/1000 ratio is all you need to be nicely profitable.

10k shares a day isn't a huge killing for a prop firm, but if they get a sense that it's a start, and that you have the potential to <b>regularly</b> make 700 on 40k or 1500 on 100k or whatever, they might want to hold you down.

They will want you to size up quickly, especially on ridiculous rates, so they can maximize the potential gain on a burnout candidate. It's a marathon though, not a race, so you shouldn't size up until you understand the risk and expectency of your own trading thoroughly and are ready.