Where is the SEC news link talking about the prop firms? Or is this just speculation?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
My take on the prop firm legislation
- Thread starter demoship
- Start date
I agree that use of the word "proprietary" is completely bogus.
Either you're trading the proprietor's capital and the proprietor suffers any net losses, or you're not. If your capital is at risk it ain't "proprietary" trading, period. However, perhaps the regulators will finally get around to the discussion which actually matters and would obviate a lot of this sort of thing.
The real issue is leverage. Restricting leverage to 2:1 overnight or 4:1 day-trade is silly. For over 2 decades, 20:1 leverage has been routinely available through index futures (not to mention the more recently available 5:1 overnight via single stock futures on about 500 actively traded issues which represent a huge portion of total market cap.)
The public hasn't gone mad and leveraged themselves into oblivion, and they've had 20+ years to do it if they were going to, and those years included the most recent bubble, which won't be the last one. However, I think we can safely conclude that if they didn't do it between '95 and '00, they never will.
The real nanny-state issue here is that the regulators think that they have to protect the public from itself by severely restricting leverage, even while leaving plenty of it available to anyone bright (no pun intended) enough to figure out that it's available.
Get rid of at least the day-trading leverage restriction and all of the "proprietary" commission mills and other scammers vanish overnight. Firms like Bright who have something to offer in terms of methods of actually trading profitably, as opposed to just generating commissions from the current crop of marks will survive, the rest of the business will go to firms like IB which have the capability to monitor activity and can blow overleveraged losers out in a nanosecond.
Either you're trading the proprietor's capital and the proprietor suffers any net losses, or you're not. If your capital is at risk it ain't "proprietary" trading, period. However, perhaps the regulators will finally get around to the discussion which actually matters and would obviate a lot of this sort of thing.
The real issue is leverage. Restricting leverage to 2:1 overnight or 4:1 day-trade is silly. For over 2 decades, 20:1 leverage has been routinely available through index futures (not to mention the more recently available 5:1 overnight via single stock futures on about 500 actively traded issues which represent a huge portion of total market cap.)
The public hasn't gone mad and leveraged themselves into oblivion, and they've had 20+ years to do it if they were going to, and those years included the most recent bubble, which won't be the last one. However, I think we can safely conclude that if they didn't do it between '95 and '00, they never will.
The real nanny-state issue here is that the regulators think that they have to protect the public from itself by severely restricting leverage, even while leaving plenty of it available to anyone bright (no pun intended) enough to figure out that it's available.
Get rid of at least the day-trading leverage restriction and all of the "proprietary" commission mills and other scammers vanish overnight. Firms like Bright who have something to offer in terms of methods of actually trading profitably, as opposed to just generating commissions from the current crop of marks will survive, the rest of the business will go to firms like IB which have the capability to monitor activity and can blow overleveraged losers out in a nanosecond.
this whole idea about prop trading firms becoming obsolete is utter nonsense. as long as there are good traders,there will be prop firms..why? most offer better rates and much more leverage which a trader needs;not this 4-1 nonsense Schwab or E-Trade offer. any trdaer,experienced or inexperienced should always do his own DD before signing any contract with a prop trading fir. there are many good LLC's out there and doing away with them would be pure showboating on behalf of the sec. we need less government and more personal responsibility. i signed a contract stating what my comissions,fee's,and payout is as well as some other stipulations WAS ABLE TO ADD TO PROTECT ME. LLC's are a great avenue for traders.
Quote from Mom0/pH0x:
i disagree, i hardly equate proper disclosure with a ''nanny state'', and furthermore, whether or not the trader has ''the stuff'', dosen't give firms the right to rip him off... so what if he's destined for failure... it's his money and he has purchased the opportunity. that is to say, if someone is uninformed as to ''prop'' firms and legislation somehow deserves to be ripped off or at least don't deserve their right to not be ripped off? i think not.
''come on man'' you obviously have alterior motives because only an ethically bankrupt person(no way! pseudo prop firm owner morally bankrupt?) would harbor such views
you also clearly don't like the fact that if you put ANY MONEY down AT ALL, that it is NOT A PROP FIRM, it is a LEVERAGE provider and broker...
your logic is fucked, if someone isnt very familiar with firms and legislaltion,( almost any beggining trader) then it wont matter if they are ripped off because they would have lost the money anyways, so it might as well go to the unscrupulous firm?
your post is a testament to the fact that we need some regulatory changes, and you are a charicture of what people are afraid of with regard to leverage providing brokers
This debate on prop firms is endless. I agree whole heartedly with Mav. Every industry needs to have rules and regulations of some degree. Trouble is, gov. bodies like the SEC do virtually nothing to protect the public and are just a bunch of non-elected bureaucrats who continually come up with asinine regulations that make it tougher for the good majority of so called 'traders' on this board to even exist. Unless you are hoping for the day when 'white shoe firms' and the titans of wall street are the only players allowed in the game, and small investors are relegated simply to making 'deposits' to their retirement accounts so that it call be allocated after discussion with some putz 'investment advisor' at your broker, then most of what the SEC does should make the little guy cringe.
As far as people being 'ripped off' by bogus prop firms goes well......... no question there are operators out there who are less than ethical and/or professional. I honestly believe that the majority of the people who get caught up in this trap are like people who buy bad used cars. They are always looking for the 'deal that is too good to be true' , and they ignore facts that should steer them away from the deals that end up biting them in the ass. Prop firms are a valuable part of the trading food chain. It remains up for debate which structure is better, traders capital contributions or not (personally I believe in NO CAPITAL CONTRIBUTION), either way however I think prop firms and the value proposition they represent is important. It is one of the few opportunities left in our supposed capitalist economy where someone can start small and actually have a chance to compete on the same field with the 'big boys' and achieve success.
Good firms provide a lot more to their traders than cheap commissions and an opportunity to blow up! They provide training, support, technology, capital, good commison structures, and most importantly GOOD RISK CONTROL.
The problem I see at the heart of all this is lack of professionalism, on both sides, trader and firm. There are plenty of sharks out there looking to take advantage of under capitalized, under educated, noob, traders. Trouble is , there are plenty of noob (and surprisingly experienced) traders out there who end up being victims because they want an easy path to 'get rich quick' . You know what I mean, they made a few good trades in a retail account, now they find some shylock offering great leverage, cheap commissions, and 'high payouts' and they think 'wow, thats it, my opportunity to get rich trading for a living, thats all I need' . We all know the rest of the story.
So my point is this;
the public doesn't need protection through regulation, they need to arm themselves through education. We don't need the SEC or any other gov't body keeping unsuspecting traders from being ripped off, we need people who are serious enough about making trading a career that they do their own due diligence and use their God given common sense, to find the right place to start or continue their trading career. Thing is, most people want something for nothing and the people who get duped always cry foul because they want to blame it on someone else. Usually because they thought they were too smart for it to happen to them.
My advice to those considering prop. , understand it is a business, an industry. Companies and the people who manage them don't work for free. Good companies also take their reputation seriously and conduct themselves in a professional manner. The prop industry is not a mystery, it is like most other industries out there, it is competitive and it operates on profit and loss. Prop firms need to make money to stay in business, and if it is not plausible at all to you how the firm you are considering could make money , or be sustainable then you better ask yourself whether or not it is the place to be.
Cheers,
Auto
You know, I hear Congress talking about "tempests in teapots" over several current issues, and I have to think that this discussion is certainly akin.
What is "true proprietary trading"? Would you want to invest in a Firm that pays people to risk your (shareholder) money for stocktrading? Would you invest in a firm that had a negative income expectation? (Based on all the naysayers estimates of success rates in trading in general).
My brother and I enjoyed success on the "other side of the equation" when (after having to buy exchange memberships), we could put up $25K or so, and then use our Clearing Firm's money to trade with (SLK - Goldman Sachs), and we did pretty well. We now offer our traders the same benefits, only without having to buy an exchange membership.
"True prop" trading gives people a "job" that will not last very long if they don't perform well, and has such impossible barriers to long term success (as most "jobs" do by definition), like splitting profits and higher fees, that it makes it unfair to the trader/employee in most cases that I've seen.
By allowing those who want to be successful entrepreneurs a chance to participate in our free market system, and by giving them the access to capital that is not available for any other business venture that I've ever seen (where else can you borrow a $million or more every day for free?) so that they can learn and participate in working trading strategies, and have an "unlimited upside" and a 'very limited downside" without having to buy a costly "franchise" or something, a mutually beneficial realtionship develops. Is it for everyone? Of course not, but yet I think a valuable service is being provided.
All I can speak for is Bright, and we have, and always will, adapt to whatever legislation that may come down the pike. We have, and always will ensure that our traders have full disclosure, and do our very best to make more and more families financially secure from their own trading business ventures.
And, FWIW, we already have relationships with IB (and others) and will be able to modify our own business plan if necessary.
I'm very sorry if a few of you may have had a bad experience with some firm or another, and you've all seen that I am quick to point out what I call the "Firms of Concern" - and I will do whatever I can to see that these firms will have a hard time competing with the honestly run and regulated firms like ours.
If you're going to trade anyway, you may as well give yourself the best possible chance for success.
All the best,
Don (Mav, didn't we beat all this to death a few months ago?) l
What is "true proprietary trading"? Would you want to invest in a Firm that pays people to risk your (shareholder) money for stocktrading? Would you invest in a firm that had a negative income expectation? (Based on all the naysayers estimates of success rates in trading in general).
My brother and I enjoyed success on the "other side of the equation" when (after having to buy exchange memberships), we could put up $25K or so, and then use our Clearing Firm's money to trade with (SLK - Goldman Sachs), and we did pretty well. We now offer our traders the same benefits, only without having to buy an exchange membership.
"True prop" trading gives people a "job" that will not last very long if they don't perform well, and has such impossible barriers to long term success (as most "jobs" do by definition), like splitting profits and higher fees, that it makes it unfair to the trader/employee in most cases that I've seen.
By allowing those who want to be successful entrepreneurs a chance to participate in our free market system, and by giving them the access to capital that is not available for any other business venture that I've ever seen (where else can you borrow a $million or more every day for free?) so that they can learn and participate in working trading strategies, and have an "unlimited upside" and a 'very limited downside" without having to buy a costly "franchise" or something, a mutually beneficial realtionship develops. Is it for everyone? Of course not, but yet I think a valuable service is being provided.
All I can speak for is Bright, and we have, and always will, adapt to whatever legislation that may come down the pike. We have, and always will ensure that our traders have full disclosure, and do our very best to make more and more families financially secure from their own trading business ventures.
And, FWIW, we already have relationships with IB (and others) and will be able to modify our own business plan if necessary.
I'm very sorry if a few of you may have had a bad experience with some firm or another, and you've all seen that I am quick to point out what I call the "Firms of Concern" - and I will do whatever I can to see that these firms will have a hard time competing with the honestly run and regulated firms like ours.
If you're going to trade anyway, you may as well give yourself the best possible chance for success.
All the best,
Don (Mav, didn't we beat all this to death a few months ago?) l
The "loophole" is futures and forex, for leverage, but not SIPC protection.Quote from Iowegian:
what is puzzling is how someone hasn't found a loophole in the "retail model" that would provide the leverage and SIPC and supplemental insurance. That would be a great marketing ploy if someone could figure a way to use insurance and the appearance of quasi- governmental oversight.
Maybe options, too?
As far as I see, all the good prop firms that provide leverage would have no problem w/ additional disclosure stating that trading is risky, and that this is not a typical job, since the people they are trying to get already understand this (And if I choose to go in this direction, I know what I'm going to be getting into).
The issue I see is a ton of firms are advertising it as an actual prop trading job, when it's not, which IMO is false advertising when they don't clearly state that a deposit is required and you're responsible for your own losses as well as profit in the job advertisement.
A lot of prop firms also hold you liable for losses of firm capital if you lose more then your deposit, although this isn't the case with all of them, if this IS the case then this also needs to be stated.
The legislation is supposed to protect people, not screw people over who already know what the deal is and understand and accept the risks with it. What the SEC did late last year/early this year was basically
a) force companies to form an LLC to continue their business (and the ones that were deceptive still are)
b) force them to change their business model
c) force them to shut down
So nothing's changed, and a lot of people were forced to rush to find a new place to trade.
The issue I see is a ton of firms are advertising it as an actual prop trading job, when it's not, which IMO is false advertising when they don't clearly state that a deposit is required and you're responsible for your own losses as well as profit in the job advertisement.
A lot of prop firms also hold you liable for losses of firm capital if you lose more then your deposit, although this isn't the case with all of them, if this IS the case then this also needs to be stated.
The legislation is supposed to protect people, not screw people over who already know what the deal is and understand and accept the risks with it. What the SEC did late last year/early this year was basically
a) force companies to form an LLC to continue their business (and the ones that were deceptive still are)
b) force them to change their business model
c) force them to shut down
So nothing's changed, and a lot of people were forced to rush to find a new place to trade.
From our webpage: www.stocktrading.com/risk.html
Bright Trading, LLC. Risk Disclosure for
Professional Securities Trading
Association with Bright Trading, LLC. is limited to Professional Traders.
The firm does not solicit nor accept retail orders from Retail Customers.
All Bright Traders must have successfully completed the Series 7 General Securities Representative qualification examination.
Trading can be extremely risky.
(and it goes on).
And, our traders losses are limited to the amount of capital they have in their sub-accounts, whether it's $15K or a $million. Thus the term "limited liability" of course. The only way they could be responsible for additional losses is if they violate rules or break some law.
The other issue is the "need" of some smaller firms to use their trader's money for capital requitements, which can certainly lead to undue risk by the trader, and thus, due diligenc and (sorry Mav, LOL) - looking at balance sheets of the Firm. You don't want your money in a bank set up in a trailer in a shopping center parking lot, LOL.
The groups and individual traders who have been coming over from other firm's, for the most part, have done so because the other firm's are not wanting to maintain proper compliance with certain regulatory issues, and have given their traders notice. Or, simply can not, or are not willing, to allow adequate capital usage for working strategies. We are doing our best to accomodate as many as we can.
Don
Bright Trading, LLC. Risk Disclosure for
Professional Securities Trading
Association with Bright Trading, LLC. is limited to Professional Traders.
The firm does not solicit nor accept retail orders from Retail Customers.
All Bright Traders must have successfully completed the Series 7 General Securities Representative qualification examination.
Trading can be extremely risky.
(and it goes on).
And, our traders losses are limited to the amount of capital they have in their sub-accounts, whether it's $15K or a $million. Thus the term "limited liability" of course. The only way they could be responsible for additional losses is if they violate rules or break some law.
The other issue is the "need" of some smaller firms to use their trader's money for capital requitements, which can certainly lead to undue risk by the trader, and thus, due diligenc and (sorry Mav, LOL) - looking at balance sheets of the Firm. You don't want your money in a bank set up in a trailer in a shopping center parking lot, LOL.
The groups and individual traders who have been coming over from other firm's, for the most part, have done so because the other firm's are not wanting to maintain proper compliance with certain regulatory issues, and have given their traders notice. Or, simply can not, or are not willing, to allow adequate capital usage for working strategies. We are doing our best to accomodate as many as we can.
Don
Quote from Mom0/pH0x:
i disagree, i hardly equate proper disclosure with a ''nanny state'', and furthermore, whether or not the trader has ''the stuff'', doesn't give firms the right to rip him off... so what if he's destined for failure... it's his money and he has purchased the opportunity. that is to say, if someone is uninformed as to ''prop'' firms and legislation somehow deserves to be ripped off or at least don't deserve their right to not be ripped off? i think not.
''come on man'' you obviously have alterior motives because only an ethically bankrupt person(no way! pseudo prop firm owner morally bankrupt?) would harbor such views
you also clearly don't like the fact that if you put ANY MONEY down AT ALL, that it is NOT A PROP FIRM, it is a LEVERAGE provider and broker...
your logic is fucked, if someone isn't very familiar with firms and legislaltion,( almost any beginnig trader) then it wont matter if they are ripped off because they would have lost the money anyways, so it might as well go to the unscrupulous firm?
your post is a testament to the fact that we need some regulatory changes, and you are a charicture of what people are afraid of with regard to leverage providing brokers
Wow, Dude, relax man. This visceral hate you have for Cog has now spilled over to this thread. Is it really necessary for you to fly off the handle like that? Scary, man, really scary.
Anyway, how on God's green earth could you make so many assumptions about me without even knowing who the f*uck I am. Truly amazing. Look, I have no issues with full disclosure. I freaking talk almost everyone I meet out of this business. I steer every young college graduate away from trading. I do everything in my power to look at someone's skill set and actually point them towards a better and more stable profession. If they have the determination to make it past all these warnings and roadblocks and still want to trade, then I know we have something here.
Look, you can warn people all you want, I do. You can give all the disclosures you want, I do. At the end of the day, I can't make anybody do anything. I have been an independent trader for 14 years. I could trade anywhere, for anybody, anytime. I have earned that right. There are a lot of other people out there like me that want to earn that right as well. They are never going to trade for Goldman, they will never trade for Susquehanna or SAC. In the world you want to create, the banishment of all leveraged prop firms, the little guy would end up going into selling real estate or becoming a teacher.
You need to understand, 99.8% of the people on this site would not even get a return phone call from any of the above firms I suggested. So like Don said, why not give them an opportunity. The cash they put up is a small obstacle to their success and they have complete control over their lives. I get tired of hearing how wonderful it would be to trade other people's money or trade on a salary. Do you guys have the f*cking faintest idea of how tough that is? The constant pressure everyday to perform? Some of you act like running a 100 million dollar fund would be fun. Fun? You think it's fun telling your investors you f*cked up and lost half their money. You think it's fun getting fired from your salaried job after 4 weeks because you were underperforming and after you already bought that condo and that new car and now you are out of a job? Come on man, come back to the real world. This is a tough business where most people will not make it.
The best you can hope for is to find an honest, reliable firm, that will surround you with good traders to learn from, good rates, and all the back office support to make sure your trading goes smoothly. Yes, it's a given that all fees and all risk should be disclosed up front. What else do you want? No, I don't want more regulation. I have not seen regulation do anything for common trader. All it will do is create even more obstacles for you to be successful.
And also, I have not seen a firm yet that does not give traders about 100 pages of paperwork to sign before they join a firm. Usually there are 100 over paid lawyers who have every disclaimer and every risk disclosure in those documents. If you don't read them, that is your own issue, not the firm's. Do you want the firm to sit down and read them to you page by page over milk and cookies?
Please take a xanex or something before you respond to my future posts. Your hostility is off the charts. We can have polite, civil discussions here, but if you want to turn this thread into chit chat, I will have no part of it.