Quote from joeyata1:
lol this thread is a hoot. i've been full time trading 17 years and toyed with the idea many times of opening an office. over the past 2 years i've financed a few remote guys and nobody made it past a few months. i know several people who run big prop houses for major day trading firms and let me just say it's a tough gig. believe me i've been threw the math a ton of times. ok lets say i can scalp .004 per share overide and my group does 20 million shares a month vol thats 80k a month in overides minus maybe 15-20k amonth of expenses max. sounds good on paper but thats not how it works. first of all newbies were you can scalp .004 overide aren't going to trade much there first few months so you'll make little. second out of 10 guys you train maybe 1 or 2 at most will make it over a long period of time and provide nice vol. but once they get successful they'll beat you to death on rates till they're down to .003 or less if they're high vol. then you got the huge risk factor. you'll have to finance all the traders under an llc with most only having 5k to put down. so you'll need at least 500k -1 mil in an llc to get 2-4 mil intrady buying power. and the dreaded part comes if a 9-11 happens intraday and many traders are elveraged out at 30 or 50-1 and can't exit there positions as they markets locked. also to conistently get a shop to do 20 mil a month is very tough as the one must avg out the very slow summer months were many traders are gone alot and a slow trading dec. plus of that 20 mil vol at least 75% will come for a few high vol guys who'll want .003 at the most per share so your overides on the majority of the vol is low. don't get me wrong if you get a huge shop that does big vol and the guys are profitable you can make big money but it's very tough and takes years to grow to that.. i know a guy who had a big shop with etrade pro and one day they said they're exiting the business and closing all the offices and bamm he lsot 2/3's his traders in weeks. so what took years to build was killed in weeks
Here is the thing though, if your intention is to open a prop shop, and you have to choose between having your traders trading remote or in an office, which method is more secure for you and your firm? The branch location right. Because you can walk around and monitor things, discuss ideas and news and even ideas. If you can remember, when 9/11 happened the markets did not close instantaneously. It took a little while for it to set in. Just like with any crashing stock. When is a crashing stock halted? Towards the top? No, after it's crashed some.
I would assume you'd encourage protective stops and a group of traders in a room collectively would grasp the information quicker than if all the traders are separated. Worst case scenario is you have a remote trader who's stepped away from the PC temporarily to go to the restroom, and you can't get a hold of them on the phone. And do you even think to call everyone? It would take forever. In an office it's fairly simple. Everyone is there and everyone is updated, that is for certain.
So the idea that you are seriously deciding on doing a prop, it could be argued, a branch is the best way to go if your main concern is managing risk (traders).
Regarding profits, a number of prop shops have traders give up a percentage of their profits and charge fees in exchange for access to larger pools of capital. There are a ton of traders out there that would be more than willing to give up a percentage of their profits in addition to paying commissions. It's done at many firms. So why couldn't you do it?
You have 17 years experience, you would be an asset to work with. I personally would jump at an opportunity to work with someone as experienced as you. To get access to better equipment, better trading software, and larger pools of capital in exchange for paying commissions and giving up a percentage of the profits is worth it for me.
If you ask anyone at Swift or Schony why they do it, they will say the same thing, 20% of $100k is better than 100% of $10k. And that's at 20%. You don't have to go that low to compete against them. You could come in at 50% or 70% or 80% or whatever is mutually agreed upon in your market. How does that benefit them?
Well you then have a vested interest in making sure they are successful and they realize that. And they are confident you will stick around and not get too bogged down with your own trading. You will actually take a little time out and pay attention to what's going on. Maybe have meetings at the end of the trading session for open discussions. In the end, everyone is building up the assets of the firm that they can borrow against.
I don't see why that would be an issue. Assuming you could find some traders that are willing to pay commissions and give you a portion of the profits, would you do it?
Just look at Swift Trade and how popular they are. The biggest problem sited about them is their offices aren't that great. What if your office is better? Another issue about them is they aren't in the U.S. What if you are in the U.S.?
They have a pretty successful business model as you can see from their growth. They do however front their traders capital or back them outright without a $5k deposit. But in the end they get a higher percentage of profits. I think if you gave your traders both options depending on their track record or background, you'd be surprised to see how much interest you would get.
I think in the end, as long as they are making money, they won't care how much the commission is. I know that sounds crazy. But if you have 17 years of experience, you are bringing a lot to the table. You are someone they want to be with and can learn from and that is worth the few extra fractions of a cent in my opinion. They could go somewhere else and pay less in commissions and lose money with poor management, poor software, poor systems, etc. Obviously if you are trading for 17 years now, you know a thing or two about all of the above.
Anyways, that's my rant.
