Prop Firm Advantages/Disadvantages

J

jmjatlanta

I have been trading retail for a number of years. I seem to be doing well with tape reading and scalping. Commissions are low (0.005/share). I don't mind the slow learning curve so far, but would like to speed the process if possible.

I am considering going prop, but have yet to start poking around.

The big value I see is working with others. The less important features to me are leverage, and perhaps lower commissions.

The disadvantages are profit splits and platform/desk fees. Acquiring the licenses aren't a big issue to me.

I will probably spend several months to a year with very low share sizes ( < 30k/mo), so getting desk fees waived probably won't be an option at first. And while honing my skills, I won't be using much of the leverage offered.

So my questions - In your opinion:

Is the lower commissions and bouncing ideas off other (hopefully more mature) traders worth the disadvantages?

Also, if I were to ask to start on a part-time basis (i.e. a couple of hours each morning), would I be laughed off the floor?
 
Remember that at many prop firms you can trade remotely or in an office and sometimes do both. Most of them that require you to put up a deposit will probably work with you on the hours that you can trade, due to the fact that you are mostly a customer. What would they have to lose?

One of the big advantages of a prop firm with 100% payout is the leverage. I had 65 to 1 thru Assent, trading remotely from home. Having leverage available does not mean that you have to use it. I think that most prop traders quickly learn to use small amounts of leverage until some very good opportunity comes along that justifies them putting it to work. Also using leverage if you are already up $10k net on the month and a very very good opportunity presents itself, is different from using your max leverage on every trade you attempt, especially when you are losing money that month.
 
(Obviously I'm bias, but I have been on both sides of the business model that we engage in...).

Use of capital is something that can be misunderstood. By allowing traders to "use" not "abuse" a $million or more for good working strategies (openings, mergers, pairs, automation of much of these plus), our people can engage in things that the normal retail guy can't. Even if you have a $million or more, you might want to determine what is best for you? Put up a small portion to trade with while using our money (and keeping the balance "safe")...or using it all your self in a retail account.

I agree with the OP about the interaction that can be found. We pride ourselves on having our traders online every second of the trading day with a manager/mentor/team leader etc. I have nearly 400 on my Yahoo messenger. We all get togethre each morning before the open. We have weekly meetings online. And, we have several online groups that really help one-another.

Taxes, wash sales rules, routing etc. can be an edge too, depending on where you trade now, and in what capacity.

All the best,

Don
 
Quote from jmjatlanta:


Also, if I were to ask to start on a part-time basis (i.e. a couple of hours each morning), would I be laughed off the floor?
More...

Don nails all points down well :)

alot of action and trading strategies occur in the first part of the day. Advantage of being on the west coast the market open at 6:30am so one can have a 9-5 while they learn to trade the morning.

Several prop traders start part time, just make sure the fixed costs are low or that will be a huge barrier. such as a desk fee, software fee, data fees, or other miscellaneous costs and also check to see if there is a shares per month minimum too.

just call and ask around.
 
Quote from jmjatlanta:



Also, if I were to ask to start on a part-time basis (i.e. a couple of hours each morning), would I be laughed off the floor?
More...

You might find this helpful:
http://www.stocktrading.com/Transition2008.htm


Transition from your 9 to 5 to Trading for a Living

Part time? Full Time? How about One Step at a Time?
by Don Bright

I interview dozens of potential new traders every month, and the question of Transitioning from the safety of a paycheck or business venture to successful trading comes up often. No need to leave job security behind, in my opinion. Let’s discuss a few scenarios.

One of the first things to take into consideration is to realize that trading is, indeed, a business, and must be treated as such. (See “The Business of Trading” TASC, August 2008). So, with this in mind, let’s cover some business basics. One of the primary reasons for lack of success in any business is lack of capital. I’m speaking of capital to properly run the business at this point, not “living expenses” which we’ll get to a bit later. There are many books and seminars and TV ads that attempt to convince the public that money can be made with their products with only a $25,000 retail brokerage account, this is extremely difficult in my opinion. ...........full article above.


We have a great number of traders who continue to work while developing their trading skills, especially in the "correct" time zones like Vegas, LOL.

Don
 
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