Newbie questions,

ramaTrade · Nov 13, 2009

1. what is a prop firm ? Any example ? Is IB a prop firm ?

2. What is the difference between a prop trader and an individual trader ?

3. If there are some differences, what are the benefits of bing a prop trader ?

rwk · Nov 13, 2009

Quote from ramaTrade:
1. what is a prop firm ? Any example ? Is IB a prop firm ?
2. What is the difference between a prop trader and an individual trader ?
3. If there are some differences, what are the benefits of bing a prop trader ?

"Prop" is proprietary trading, meaning the use of company (as distinguished from customer) capital. There are a few prop firms that supply all capital, but most require the trader to make a deposit that protects the firm from losses. That "guaranteed capital" is simply a form of hidden leverage and carries the same risks as more common forms.

The advantages of prop trading appear to be extra leverage and training. The disadvantages (in addition to excessive leverage and poor training) are that your money is not insured (SIPC or otherwise), and most arrangements require you to have a Series 7 license.

As an individual trader, the risks and rewards are yours alone. There used to be trading rooms (a.k.a arcades) that cater to individual traders, but they are becoming scarce. Not very many people make it either as prop or individual.

Interactive Brokers (IB) is not a prop firm. IB is not to be confused with an "introducing broker (IB)" in futures. IB is not an IB; rather they are an FCM.

ramaTrade · Nov 13, 2009

rwk, thanks a lot.

I guess a prop trader has to share his/her profit, not loss with the firm, correct ?

Are there any example of prop firms in US that you can give ?

rwk · Nov 13, 2009

Quote from ramaTrade:
I guess a prop trader has to share his/her profit, not loss with the firm, correct ?
Are there any example of prop firms in US that you can give ?

That's it ... you share the profits, and the losses are all yours.

If I were going to trade prop, I would probably check out Bright Trading in Las Vegas. They're not the cheapest, but size and integrity are important, and I haven't heard any really bad things about them.