Meeting with local prop firm. Good questions to ask?

[dealmaker]

In reality they are fairly indifferent to your success

I disagree there is a symbiotic relationship between trader and prop. A successful trader will not only do more volume but will also be around eg. I traded capital contribution model prop for 7 years at 2 different firms we not only got 100% pay out but also got the rebates and software/ desk fees were waived after a realistic volume threshold.
It is my belief that if one asks the 7 questions I have outlined earlier and lands with a reputable prop they'll be fine.

 

[itradeRisk]

If they are a registered broker dealer in the US, and they use your capital toward their trading capital, your capital contribution will be held for at 1 year. You will be a registered person and subject to their rules and procedures including getting permission for outside activities like your current job.

As an alternative, if you choose a customer account, you will get less leverage but won't have to take the series 57, won't be a registered person, won't have your capital held for 1 year and won't need permission to go back to you job.

If you trade equities in a reg-t account, you will need to keep your account over $25K to day-trade.

Bob

You said two things that are interesting...
The first is: I'll be subject to their rules including getting permission for outside activities such as my current job. Personally, I don't plan on returning to my place of current employment AFTER I receive my 4 months leave. However, if I were to secure any type of part time employment I'd have to get permission?

The second thing is: If I open a customer account I wouldn't have to get licensed, won't have capital held for 1 year, etc. I've never heard of something like this. I'm not sure if this is something they would offer so I suppose I'll ask. Thanks.

 

[itradeRisk]

1) who is the clearing firm

2) is the LLC & its owners members of any exchange

3) where is the capital contribution held

4) which class member will I be B or C

5) I'd like to see the prop firm capitalization form X-17A-5

6) are you a broker/ dealer

7) in the event of a dispute where is the arbitration location, I have seen some firms list Panama as arbitration location.

but as Garachen noted you need to clarify what you mean by prop firm...

I dive deeper into the questions you suggested I ask...
This firm is a pretty well known prop firm here in the US. They are licensed broker-dealer and a member of one of the larger exchanges here in the US. So the capital contribution is tied up for 1 year and held in the states under regulation. (If I'm missing anything lemme know)

Question - What does it matter what class member I would be? B or C?

2nd Question - What does X-17A-5 form show? Income/Expenses of firm?

Thanks for your insight!

 

[rmorse]

The second thing is: If I open a customer account I wouldn't have to get licensed, won't have capital held for 1 year, etc. I've never heard of something like this. I'm not sure if this is something they would offer so I suppose I'll ask. Thanks.

NOT a customer account with a prop firm, just a customer account on your own WITHOUT them. Prop firm don't offer customer accounts directly.

 

[rmorse]

X-17A-5

This is their focus report. It shows their capital and sometimes their income statement. They are very hard to find online, often very old and to get an up to date one, you'd have to ask them. Here is an example from 2012 for JPM. https://www.sec.gov/Archives/edgar/vprr/1303/13030777.pdf

A prop firm will never offer this much detail.

 

[dealmaker]

I dive deeper into the questions you suggested I ask...
This firm is a pretty well known prop firm here in the US. They are licensed broker-dealer and a member of one of the larger exchanges here in the US. So the capital contribution is tied up for 1 year and held in the states under regulation. (If I'm missing anything lemme know)

Question - What does it matter what class member I would be? B or C?

2nd Question - What does X-17A-5 form show? Income/Expenses of firm?

Thanks for your insight!

Yes, your capital contribution will be locked for a year but you want the firm to be financially healthy and your capital contribution to be there unless you lose it trading. Where your capital contribution is held tells you how much protection you have from sticky fingers. Clearing firms enforcing settlements, accounting rules etc., keeps the firm and your money safe. Anyone other than class A members will not be protected by SIPC thus class B or C determines where you are in line as a creditor should the firm go belly up. At a prop firm you are not only exposed to the market but also other trader risk.
Most likely unless you are contributing a ton of cash the firm will not let you see the form X-17A-5.

BREAKING DOWN 'SEC Form X-17A-5'
This report is used to determine the dealer-broker's financial condition. Section 17 of the Securities Exchange Act of 1934 Rule 17a-10(a)(1) requires all broker-dealers to file Form X-17A-5.

eg Clearing firm Penson seems to have difficulty supervising their charges..

1) https://www.elitetrader.com/et/threads/sure-trader-has-been-a-fbi-sec-honeypot.301433/#post-4308679

2)https://www.elitetrader.com/et/thre...-and-disclosure-failures.294386/#post-4179471

 

[elliots11]

If they are a registered broker dealer in the US, and they use your capital toward their trading capital, your capital contribution will be held for at 1 year. You will be a registered person and subject to their rules and procedures including getting permission for outside activities like your current job.

As an alternative, if you choose a customer account, you will get less leverage but won't have to take the series 57, won't be a registered person, won't have your capital held for 1 year and won't need permission to go back to you job.

If you trade equities in a reg-t account, you will need to keep your account over $25K to day-trade.

Bob

Can you please explain about permission to go back to your job?

 

[rmorse]

Can you please explain about permission to go back to your job?

I sent you a PM.

 

[Andrea Wylan]

Since this is my first post... Let me first introduce myself.

I work full time in a job that I don't have much passion for. Looking to transition into a trading career while I have 4 months paid leave from my current job. So, I'll have a paycheck while trading, bingo. I currently can't paper trade like I want to due to my job. I've been studying on my own by paper trading for about 1 year (slightly profitable), reading, and learning as much as I can. And I'll be honest... I realize I don't know jack compared to what I should know. But what I do know is this: this is risky career move and some of my friends call me stupid. But I'm willing to take the risk. This is my dream.

During and after college I played poker for a living. I understand the basic fundamentals of bankroll management, risk management, odds, gut feelings, reads, and the psychology of losing big and the effects of winning big. That's not all. I ran my own business during and after college. I was successful, never largely profitable but it paid the bills plus some.

Okay, so I've been researching prop firms in my local area. And will be going into the office to chat with the manager to find out more. What would be some realistic and informative questions I should be asking? I've already been speaking with a handful of other prop firms to get the basic numbers and get a feel. But this one is at the top of my list due to their location and opportunity to learn and possibly have a mentor.

Any insight would be great.
Thanks, looking forward to the creative replies since there seems to be a lot of 'creativity' here lol

Cheers

Hi ItradeRisk,
I thought I would share my thoughts on the trading part of your venture, rather than the prop firm part:
1. It is great you are even asking these questions. You seem open and like you want to do it right.
2. Also excellent that you were successful at poker. I think the two can be well related.
3. You seem to have a good sense of the risk which is a good place to start from and really key.
4. You have already decided to take the risk and know this is your dream. So many people don't even know what their dreams are or are too scared to follow them. (If you don't try, you will never know!) Your friends maybe worried for you, and also not understand from your perspective.
5. Running a successful business probably won't translate over to trading.
6. Suggestions: have a plan B. Give this venture a certain amount of time and money and expect it to succeed, but have a plan if it doesn't.
7. Create a complete trading plan (vision, goal, strategy, risk, max losses, etc.) like a business plan and follow it to the T. Make sure that your strategy and risk management together will earn you a living if followed.
8. Notice anywhere you don't follow your plan. This is where the mindset comes in. I believe it is by far the hardest and most important part of your trading. If you don't follow your rules, find a way to solve this.
9. Track your trades in a journal.
10. Track yourself in a journal! Feelings, thoughts, body sensations.
11. Use yoga, meditation, and other processes to calm the mind so you can follow your plan, if that is an issue.

Good luck! I hope it works out for you.

 

[profitlocker]

10. Track yourself in a journal! Feelings, thoughts, body sensations.
11. Use yoga, meditation, and other processes to calm the mind so you can follow your plan, if that is an issue

These two are pure nonsense. Not trying to bump heads with you again Andrea, but I would advise developing traders to avoid misinformation like this.

No offense, but if you want to help them start by showing them how to quantify their methods which should help them think in probabilities.

For quantitative reasons, tracking your trades in a journal or spreadsheet is definitely a must. Your body sensation/ feelings and trade plan following will encounter zero issues with a proven/large sample real-time traded method that produces 3-5% a month.

What kind of idiot disconnects the power to a money printer?