No capital contribution

[pairsarbtooo]

Quote from Maverick74:

No, you can't teach trading. I've been doing this for a long time. I've been on the floor, prop, retail, etc. What you CAN teach is an edge. When I was on the floor my market making firm "taught" me the proper way to make a market. I learned synthetics, put to call parity, etc. When I was at Worldco, I was "taught" an edge. The guys who work at Chicago prop firms who trade interest rates are "taught" an edge. Guys who trade structured products at Goldman are "taught" an edge. Outside of that, you can teach someone good habits. At worldco I had one of the best mentors on the street. What I learned from him was his daily habits. I could have used that towards a lot of things, it wasn't trading, it was about work ethic.

But sitting a guy down and "teaching" how to trade? Come on dude. No. I can't teach you how to play in the NFL, you're probably not big enough, fast enough or athletic enough. I can teach you how to work out. I can show you how to block and tackle. But the NFL? No dude. LOL. Trading is not some job. You are talking about getting people to perform at a level where most professional athletes have to perform at. In fact, there are more people making a living today as a professional athlete then their are as prop traders. That should tell you something.

Again, if I have a specific edge, let's say how to arbitrage cash and futures in the rate complex then yes, I can show you how to do that. But that is something entirely different.

You are confusing teaching with DOING IT FOR THEM. Its as simple as that. I never said teaching was hand holding or the like.

You seem like an example of a guy who made it but fails to realize how much he was taught, thinking it was all you. Anyway I don't like to make those assumptions about you but your writing seems to beg for it.

Secondly, yes, I do agree that trading at the great level is like being an excellent athlete. I started my trading career at 28, why, because I was competing in tennis tournaments as a career. So I get the analogy, and you are very spot on there.

But, the point you miss is all of these traits can be developed. Trading doesn't take the size of an NFL lineman, its a thinking sport, concentration. These traits are simple to develop and they take time, but they are withing the realm of a lot of people to do. The key thing you cannot teach, and if this is what you are saying I agree with you, is the passion and desire to hang in and do it. Maybe this is what you are saying? I don't know, maybe you don't communicate it that specifically.

I don't want to keep going on, because what appears to me is that you have never developed the awareness on a higher level than your own trading. Sure, an individual will develop his or her own way to accomplish setting up a system, trade entry, trade exit, and managing the emotions and psychology that lead to good results. Granted. But to say those things cannot be taught and learned, well, I just feel sad for you. You miss out on so much other than your own performance...like the satisfaction in mentoring others, or even the realization that you can probably be highly skilled in many other endeavors besides trading and have a much fuller life.

Again, I hate to make those assumptions about you. But you just seem kinda stubborn for a successful trader. Generally, successful traders are adaptable and reflect in their thinking a very obvious flexibility regarding their own assumption and the world that affects their work. Quite frankly, I don't see that in your writing.

 

[pairsarbtooo]

hey mav i reread my post it was not very polite.

I know nothing about you and you have earned your opinion. I have just developed what i have in my life from learning, and having people who believed that many skills depend on that belief.

I really had no place making assumptions about the rest of your life, that was pretty lame on my part.

 

[Maverick74]

Quote from pairsarbtooo:

hey mav i reread my post it was not very polite.

I know nothing about you and you have earned your opinion. I have just developed what i have in my life from learning, and having people who believed that many skills depend on that belief.

I really had no place making assumptions about the rest of your life, that was pretty lame on my part.

Don't sweat it. I bring out the best in people sometimes. Just ask Don Bright.

 

[algorythm]

If you think about what you're giving to prop firms in terms of a capital contribution, it might be worthwhile to think about just starting your own investment firm and spending the money on yourself instead.

• If you are in the USA, registration as an investment adviser is ~$350 depending on the state.
• If you incorporate plan on $100-$500 depending on where you do so.
• Take the Series 65 for investment advisers. $155.
• Kaplan has a good self-study Series 65 course for $159. Tip: after you go through the manual, just take the Q-Bank questions over and over again until you more or less have them all memorized. Test is then relatively straightforward.
• Accounting will run you about $200/month for a limited client list.
• Document creation? Probably around $2k all in which includes filling out all of the annoying forms.
• Ongoing compliance? Another $200 month.
• E&O insurance? $1400/year.

If you include accounting and compliance in your costs, all you really have to do is trade, market yourself a bit, and keep up with paperwork.

So in sum your first year is $350 (annually) +$500 (annually) +$159 (one time) +$155 (one time) +$2,000 (one time) +$1,400 (annually) +$2,400 (annually) +$2,400 (annually) = ~$9364 the first year ~$6700/year thereafter.

That's a complete bootstrap budget running things out of your garage or spare bedroom but since the only track record anyone in the industry takes seriously is one created under a regulated environment with a duration of ~3-5 years, it makes sense to spend the money on yourself instead of some operation which really is only looking out for Number 1 (i.e. themselves).

If you charge 2% per annum as a management fee, you can handily cover your costs with $500k in AUM. Less if your clients are QEPs or have more than $1M in assets with you -- in which case you can charge them an incentive fee of ~20%.

In other words, if you charge incentive fees in addition to a management fee of 2% and you make 10% on the $500k, you end up with 10k in management fees (fixed) and 10k in incentive fees (variable). Incentive fees lower your break-even required AUM (provided you have ongoing positive results).

Even if all you have is yourself, a few bold and adventurous family members, and a QEP or two, it seems to me you have a better chance of making a nice future for yourself starting your own company than you will trading for (and locking up capital with) a prop firm.

I'm also guessing that making a nice future for yourself is why you wanted to work for a prop firm in the first place.

Go solo!

Possible Service Providers:
Your Friendly Local Secretary of State
Your Friendly Neighborhood FINRA (administers the exam)
Kaplan Financial Education (Series 65 Test Prep)
RIA Registrar (Initial Registration, Compliance, E&O)
Krisan's Back Office (Accounting)

Disclaimer: I don't work for any of these places and am not registered myself. This is just the result of research I did over the years when I was still young enough to contemplate starting my own firm. There are a lot of firms other than RIA Registrar and Krisan which basically do the same thing for about the same price. But if you're bootstrapping it, these seemed like good options. Cheers!