Prop Firm Dislike/Hate
- Thread starter JSHTrader
- Start date
This is a good article I found about prop vs retail. it's the best i've seen on the topic yet:
Proprietary Trading and Retail Brokers, What Every Trader Should Know
By: Adam Watson, V.P. Business Development, Capital Traders Group
Many newcomers to stock trading cannot tell the difference between a proprietary trading firm and an online (retail) broker. When deciding to open an account, traders make their comparison of brokers based on the relative cost and the products offered, but more often than not they fail to realize that the products are not exactly the same. This article seeks to shed light on the mechanics of a prop trading account and educate traders about the differences between the two options so that one can compare them more effectively.
The analysis has been provided in six key areas: software, rebates, fees, buying power, education and short locates (availability of hard to borrow securities). These are the areas in which the two are most distinctively different and are rightfully the most common factors considered in this decision. You as a trader will place a different emphasis on particular categories as you consider whether retail or prop is best for you.
Software
Retail â Retail brokers typically offer the ability to execute trades on their website. Most also offer their own trading platform at a monthly cost to the trader. This fee may be waived if you meet their minimum requirements for account assets.
Prop â A good prop firm will offer traders a choice between a few different direct access routing programs. A traderâs platform provides the ability to execute and monitor transactions quickly and effectively. A proprietary platform will have direct connectivity to the exchange matching engine. Hot keys are also a must have for intraday traders and are a feature offered in proprietary software, but not often that of retail firms. Most proprietary trading platforms provide access to more in depth real-time market data such as NASDAQâs Totalview, ARCA Book, NYSE OpenBook, BATS and Direct Edge Books, although some of this data may come at an additional cost. Greater market depth and breadth can assist the trader in making better trading decisions on very active and heavily traded securities in real-time.
Rebates
Rebates refer to the compensation that ECNs provide to traders who add liquidity to the market. Most ECNs give rebates to traders who add liquidity and charge a slightly higher fee to traders who remove liquidity from their market center. This is a basic ECN business model, although there are a few ECNs that are structured differently.
Retail â In the vast majority of cases, retail firms do not pass on rebates to their traders. The online broker will most often route the flow to a low cost exclusive destination which does not cost extra and is not often directly to an exchange. If a retail trader chooses to route to a particular ECN, the additional fee on top of their flat commission rate may be passed through to the trader.
Prop â Traders who trade at a proprietary trading firm get the advantage of benefiting from the widely adopted âtaker-makerâ model that most exchanges offer. Traders who add liquidity will receive rebates for doing so in accordance with that exchangeâs rates (which can be as high as $3/1000 shares). This can be a substantial source of revenue for the prop trader and will also influence his/her decision of which route to use.
Fees
Retail â The fee structure for retail firms will vary from shop to shop and the industry is highly competitive. One firm may offer no account transfer fees while another may advertise no inactivity fees. Still another may not charge for wires, but they may make this up in their commission structure. In general, retail firms have a flat, per trade commission rate that is charged. There is also usually a software fee for the platform unless you meet certain minimum asset requirements or if you are a very active trader. Some other incidental fees that you may incur are those that have been mentioned above.
Prop â Proprietary trading firms are able to offer more competitive commission and transaction fees than the online broker. Proprietary firms typically use a per share structure with breakpoints for decreasing your commission as your volume increases. This is often a direct benefit to intraday traders who have a high number of trades per day.
All prop firms charge a software or desk fee which goes to pay for the data and order entry software that the firm uses. Some offer this software âat costâ to their traders and some charge a premium on top of their cost. The variety of routes offered directly affects the desk fee as well, so ask your prospective shop about the routes available when talking about desk fees. For some traders, more routes is more value added.
Day Trading Buying Power
Retail â In retail accounts, your buying power is THE LESSER OF the equity in your account divided by .30 (the 30% minimum global margin requirement for equities) OR your SMA multiplied by 2 (which satisfies the Regulation T requirements for equity purchases). For day traders, you must have at least $25,000 in equity in order to do more than three round trips (day trades) in a rolling five business day period (FINRA Rule 2520). Outside of this model, certain accounts may be eligible for portfolio margin.
Prop â With a prop firm, your buying power is determined by the firm youâre with and the risk capital deposited. Some traders may be fully backed by a firm (true prop) in which case they can expect the firm to take a portion of profits to compensate for the risk taken. Many traders find trading prop more advantageous as they can trade a lot more capital that they would have access to in a retail account.
Day traders with less than $25,000 are prime clients of prop firms as they are able to trade freely without worrying about the minimum equity requirements enforced by FINRA Rule 2520. This is because most prop firms are set up so that traders trade sub accounts of the firm, but the firm âhits the streetâ as one large account.
Education
Retail â Many retail firms have educational information on their website. The breadth, depth and level of educational materials vary from firm to firm. The material is usually in the form of suggested reading, archived lessons and, occasionally, trading seminars.
Prop â Offerings for training in the prop field are highly sought after. Many traders who are beginning their trading careers look to prop firms with advertised training programs. Be cautious of firms that charge for educational classes and then provide firm capital for you to trade. Some of these firms are modeled to generate revenue from training which can cause a conflict of interest as their incentive to see traders last in the long run is greatly reduced. When a trader joins a prop firm and deposits risk capital, all compliant firms are required to hold your deposit for 12 months. Afterwards, the trader may receive his/her deposit back. In short, be aware that if a firm charges for training they may be trying to avoid the lock up period so they can treat it as revenue immediately.
Shorting/Locates
All traders, prop and retail, are subject to Regulation SHO which governs short selling in US markets. Traders must have located shares that they wish to borrow before selling short. Some stocks may be on the threshold list or âhard to borrowâ list and may not be available. This list is updated every 24 hours.
Retail â If a retail trader would like to short a stock on the threshold list, there may be little that can be done to locate additional stock intraday and an opportunity may be missed.
Prop -Traders with a prop firm may submit locate requests before and during market hours in order to locate additional shares of stock on the threshold list.
As it happens, most traders begin trading in retail accounts due to their accessibility and pervasiveness in the investing community. Too many traders are unaware of the options available to them when it comes to cost structure, service and performance. It is my hope that this article will dispel some of the mystery and stigma from prop. Looking at these six areas, you can better determine if your style of trading is more suited for a prop account, or if you would be better off opening an account with a retail broker.
When choosing a firm in either category, research is paramount. Make sure your broker or trading desk has a sound reputation and make sure to ask the right questions. Talk to traders or read reviews on forums and trading websites. The better informed you are from the onset, the better your experience will be and the more comfortable you will be doing business with them.
Happy trading.
Proprietary Trading and Retail Brokers, What Every Trader Should Know
By: Adam Watson, V.P. Business Development, Capital Traders Group
Many newcomers to stock trading cannot tell the difference between a proprietary trading firm and an online (retail) broker. When deciding to open an account, traders make their comparison of brokers based on the relative cost and the products offered, but more often than not they fail to realize that the products are not exactly the same. This article seeks to shed light on the mechanics of a prop trading account and educate traders about the differences between the two options so that one can compare them more effectively.
The analysis has been provided in six key areas: software, rebates, fees, buying power, education and short locates (availability of hard to borrow securities). These are the areas in which the two are most distinctively different and are rightfully the most common factors considered in this decision. You as a trader will place a different emphasis on particular categories as you consider whether retail or prop is best for you.
Software
Retail â Retail brokers typically offer the ability to execute trades on their website. Most also offer their own trading platform at a monthly cost to the trader. This fee may be waived if you meet their minimum requirements for account assets.
Prop â A good prop firm will offer traders a choice between a few different direct access routing programs. A traderâs platform provides the ability to execute and monitor transactions quickly and effectively. A proprietary platform will have direct connectivity to the exchange matching engine. Hot keys are also a must have for intraday traders and are a feature offered in proprietary software, but not often that of retail firms. Most proprietary trading platforms provide access to more in depth real-time market data such as NASDAQâs Totalview, ARCA Book, NYSE OpenBook, BATS and Direct Edge Books, although some of this data may come at an additional cost. Greater market depth and breadth can assist the trader in making better trading decisions on very active and heavily traded securities in real-time.
Rebates
Rebates refer to the compensation that ECNs provide to traders who add liquidity to the market. Most ECNs give rebates to traders who add liquidity and charge a slightly higher fee to traders who remove liquidity from their market center. This is a basic ECN business model, although there are a few ECNs that are structured differently.
Retail â In the vast majority of cases, retail firms do not pass on rebates to their traders. The online broker will most often route the flow to a low cost exclusive destination which does not cost extra and is not often directly to an exchange. If a retail trader chooses to route to a particular ECN, the additional fee on top of their flat commission rate may be passed through to the trader.
Prop â Traders who trade at a proprietary trading firm get the advantage of benefiting from the widely adopted âtaker-makerâ model that most exchanges offer. Traders who add liquidity will receive rebates for doing so in accordance with that exchangeâs rates (which can be as high as $3/1000 shares). This can be a substantial source of revenue for the prop trader and will also influence his/her decision of which route to use.
Fees
Retail â The fee structure for retail firms will vary from shop to shop and the industry is highly competitive. One firm may offer no account transfer fees while another may advertise no inactivity fees. Still another may not charge for wires, but they may make this up in their commission structure. In general, retail firms have a flat, per trade commission rate that is charged. There is also usually a software fee for the platform unless you meet certain minimum asset requirements or if you are a very active trader. Some other incidental fees that you may incur are those that have been mentioned above.
Prop â Proprietary trading firms are able to offer more competitive commission and transaction fees than the online broker. Proprietary firms typically use a per share structure with breakpoints for decreasing your commission as your volume increases. This is often a direct benefit to intraday traders who have a high number of trades per day.
All prop firms charge a software or desk fee which goes to pay for the data and order entry software that the firm uses. Some offer this software âat costâ to their traders and some charge a premium on top of their cost. The variety of routes offered directly affects the desk fee as well, so ask your prospective shop about the routes available when talking about desk fees. For some traders, more routes is more value added.
Day Trading Buying Power
Retail â In retail accounts, your buying power is THE LESSER OF the equity in your account divided by .30 (the 30% minimum global margin requirement for equities) OR your SMA multiplied by 2 (which satisfies the Regulation T requirements for equity purchases). For day traders, you must have at least $25,000 in equity in order to do more than three round trips (day trades) in a rolling five business day period (FINRA Rule 2520). Outside of this model, certain accounts may be eligible for portfolio margin.
Prop â With a prop firm, your buying power is determined by the firm youâre with and the risk capital deposited. Some traders may be fully backed by a firm (true prop) in which case they can expect the firm to take a portion of profits to compensate for the risk taken. Many traders find trading prop more advantageous as they can trade a lot more capital that they would have access to in a retail account.
Day traders with less than $25,000 are prime clients of prop firms as they are able to trade freely without worrying about the minimum equity requirements enforced by FINRA Rule 2520. This is because most prop firms are set up so that traders trade sub accounts of the firm, but the firm âhits the streetâ as one large account.
Education
Retail â Many retail firms have educational information on their website. The breadth, depth and level of educational materials vary from firm to firm. The material is usually in the form of suggested reading, archived lessons and, occasionally, trading seminars.
Prop â Offerings for training in the prop field are highly sought after. Many traders who are beginning their trading careers look to prop firms with advertised training programs. Be cautious of firms that charge for educational classes and then provide firm capital for you to trade. Some of these firms are modeled to generate revenue from training which can cause a conflict of interest as their incentive to see traders last in the long run is greatly reduced. When a trader joins a prop firm and deposits risk capital, all compliant firms are required to hold your deposit for 12 months. Afterwards, the trader may receive his/her deposit back. In short, be aware that if a firm charges for training they may be trying to avoid the lock up period so they can treat it as revenue immediately.
Shorting/Locates
All traders, prop and retail, are subject to Regulation SHO which governs short selling in US markets. Traders must have located shares that they wish to borrow before selling short. Some stocks may be on the threshold list or âhard to borrowâ list and may not be available. This list is updated every 24 hours.
Retail â If a retail trader would like to short a stock on the threshold list, there may be little that can be done to locate additional stock intraday and an opportunity may be missed.
Prop -Traders with a prop firm may submit locate requests before and during market hours in order to locate additional shares of stock on the threshold list.
As it happens, most traders begin trading in retail accounts due to their accessibility and pervasiveness in the investing community. Too many traders are unaware of the options available to them when it comes to cost structure, service and performance. It is my hope that this article will dispel some of the mystery and stigma from prop. Looking at these six areas, you can better determine if your style of trading is more suited for a prop account, or if you would be better off opening an account with a retail broker.
When choosing a firm in either category, research is paramount. Make sure your broker or trading desk has a sound reputation and make sure to ask the right questions. Talk to traders or read reviews on forums and trading websites. The better informed you are from the onset, the better your experience will be and the more comfortable you will be doing business with them.
Happy trading.
the problem n00bs make is they think a prop firm is a job. they need to understand proprietary trading services are professional execution services.
You don't start out on a 21-speed mountain bike do you? you start with training wheels.
Stick to retail first. if you can't be profitable off 3 trades a day (PDT in retail account), you have a lot more work to do before you should join a prop.
You don't start out on a 21-speed mountain bike do you? you start with training wheels.
Stick to retail first. if you can't be profitable off 3 trades a day (PDT in retail account), you have a lot more work to do before you should join a prop.
Here's the deal. A true Prop firm will not require any money from you. The problem is that unless you have an MBA from an Ivy League school you aren't going to get those jobs. Go ahead and try...the only thing you have to waste is your time.
Now when you are done wasting your time you will realize that you can trade CBSX/PSE/CSX Prop just by passing the Series 56 or 7. This means you put up some money and take an exam and you will get the ability to trade for a living with less cash out of your pocket than if you had a retail account. But leverage is a double edged sword and most traders abuse it and go broke.
It is not really a "job"....but it is a career if done correctly. I know many guys that only have $10,000 up and make a decent living trading. I also know plenty of guys that have blown through lots of cash trying.
Now when you are done wasting your time you will realize that you can trade CBSX/PSE/CSX Prop just by passing the Series 56 or 7. This means you put up some money and take an exam and you will get the ability to trade for a living with less cash out of your pocket than if you had a retail account. But leverage is a double edged sword and most traders abuse it and go broke.
It is not really a "job"....but it is a career if done correctly. I know many guys that only have $10,000 up and make a decent living trading. I also know plenty of guys that have blown through lots of cash trying.
One of the best threads I've seen on Prop firms...
Regarding the dislike/hate we see in a lot of ppl on this and other forums. I don't think that it has to do with the deposit, as it is true even for prop firms that don't charge anything to traders...
I think it has to do with the prop business model... the experience of learning to trade can be very frustrating, especially if you're being pushed towards scalping, rebates, or other very-short term strategies.
Many of the people who are angry at prop firms claim that they didn't get any training... or feel like they deserved to get a salary for their hard work... but they quiet often tend to forget about the market losses they left at the prop firm in the process...
at the end of the day, no prop firm is going to teach you how to trade... they're not psychologists, coaches or teachers... their job is to find out who has what it takes to make money in the market... and for that there's no substitute for a lot of screen time.
Regarding the dislike/hate we see in a lot of ppl on this and other forums. I don't think that it has to do with the deposit, as it is true even for prop firms that don't charge anything to traders...
I think it has to do with the prop business model... the experience of learning to trade can be very frustrating, especially if you're being pushed towards scalping, rebates, or other very-short term strategies.
Many of the people who are angry at prop firms claim that they didn't get any training... or feel like they deserved to get a salary for their hard work... but they quiet often tend to forget about the market losses they left at the prop firm in the process...
at the end of the day, no prop firm is going to teach you how to trade... they're not psychologists, coaches or teachers... their job is to find out who has what it takes to make money in the market... and for that there's no substitute for a lot of screen time.
rmorse has a service to sell, so his defintion fits his goals. Ask your BFF Don for denifition I am sure he has one too.
You found this 'article' on the author's company's website (google any of the text and it brings you there). Hmmmm.
I would hesitate to define anything as an article unless it is published somewhere else. When you post it on your own website, it is called marketing or an advertisement, not an article.
Worse is that this is probably the dumbest article on prop trading versus retail I have ever seen.
Besides the part about buying power, which is accurate, the rest of this is hogwash. Each and everyone one of these other points are totally false. Check out the platforms they offer by clicking around their website. These platforms are all available to retail and prop traders. The routes and direct market access - same - avail to both. Rebates - avail to both. Fees - negotiable for prop and retail, dependent on volume etc. Education - come on - at a money down prop firm where they sucker newbies into putting down money (or dumber newbies to pay for 'education') you aren't going to get anything worth anything, or the firm wouldn't be selling it, they'd be actually backing guys.
The reason people hate prop firms is because of misleading 'articles' from a not so bright or accurate 'business development' guys like this encouraging people to lock up money and then doing nothing for these people once they're in the door but let them bleed. Pushing false hopes in a bad job market creates a lot of bad vibes over time. Thus the general skepticism and 'dislikes/hates' the OP asked about.
Here's another example. You've been saying on other posts that Cap Traders Group is part of WTS, which is supposedly part of WTS, a broker dealer. The bottom of their website says they are part of a broker dealer (strangely not identifying which one). But look at question # 6 in the FAQ.
"6. Is Capital Traders Group a Brokerage firm?
No. Capital Traders Group LLC is a private corporation offering professional trading tools & services through the broker-dealer of your choice."
Well, is it a broker dealer or an unregistered entity? Blatant inconsistency, looks very strange not in a good way to me.
Back to the OP - and the issue at hand. If everyone understood what they were in for, there would be less hating of Prop.
Simply, true 'prop' = no money down. This can be considered an actual job.
Use of the word 'prop' has been expanded, especially on this website and from self serving companies to include professional (doesn't mean they're good) traders who have first loss deals. These are not jobs. This is essentially a brokerage account with additional buying power leverage.
What is really bad is the unregistered stuff. For example, professional trading aka 'prop' at Bright Trading is through a registered broker dealer, but not sure now about this Cap Traders Group, according to # 6 in their FAQ, or another one is Cy Group that doesn't seem to be registered. This means no oversight, no one checking to make sure they aren't operating the company on the checks you write in as your deposit etc.
All registered 'Prop' should be good. Notice 'should'. (Unregistered is always bad IMO, as you are pooling your money and lose control of it, so don't go there.) Whether traditional no money down prop or first loss prop, the key reason to join a firm is if they add value to your trading. BP is one reason, them backing you could be another.
So to get people to stop hating all 'prop', instead of posting this garbage, if group owners would provide actual information (when you call or meet with them - no one should have to post anything, but should be accountable if they do), then the industry would be better off. But junk like this helps no one like 'Prop' better.
I would hesitate to define anything as an article unless it is published somewhere else. When you post it on your own website, it is called marketing or an advertisement, not an article.
Worse is that this is probably the dumbest article on prop trading versus retail I have ever seen.
Besides the part about buying power, which is accurate, the rest of this is hogwash. Each and everyone one of these other points are totally false. Check out the platforms they offer by clicking around their website. These platforms are all available to retail and prop traders. The routes and direct market access - same - avail to both. Rebates - avail to both. Fees - negotiable for prop and retail, dependent on volume etc. Education - come on - at a money down prop firm where they sucker newbies into putting down money (or dumber newbies to pay for 'education') you aren't going to get anything worth anything, or the firm wouldn't be selling it, they'd be actually backing guys.
The reason people hate prop firms is because of misleading 'articles' from a not so bright or accurate 'business development' guys like this encouraging people to lock up money and then doing nothing for these people once they're in the door but let them bleed. Pushing false hopes in a bad job market creates a lot of bad vibes over time. Thus the general skepticism and 'dislikes/hates' the OP asked about.
Here's another example. You've been saying on other posts that Cap Traders Group is part of WTS, which is supposedly part of WTS, a broker dealer. The bottom of their website says they are part of a broker dealer (strangely not identifying which one). But look at question # 6 in the FAQ.
"6. Is Capital Traders Group a Brokerage firm?
No. Capital Traders Group LLC is a private corporation offering professional trading tools & services through the broker-dealer of your choice."
Well, is it a broker dealer or an unregistered entity? Blatant inconsistency, looks very strange not in a good way to me.
Back to the OP - and the issue at hand. If everyone understood what they were in for, there would be less hating of Prop.
Simply, true 'prop' = no money down. This can be considered an actual job.
Use of the word 'prop' has been expanded, especially on this website and from self serving companies to include professional (doesn't mean they're good) traders who have first loss deals. These are not jobs. This is essentially a brokerage account with additional buying power leverage.
What is really bad is the unregistered stuff. For example, professional trading aka 'prop' at Bright Trading is through a registered broker dealer, but not sure now about this Cap Traders Group, according to # 6 in their FAQ, or another one is Cy Group that doesn't seem to be registered. This means no oversight, no one checking to make sure they aren't operating the company on the checks you write in as your deposit etc.
All registered 'Prop' should be good. Notice 'should'. (Unregistered is always bad IMO, as you are pooling your money and lose control of it, so don't go there.) Whether traditional no money down prop or first loss prop, the key reason to join a firm is if they add value to your trading. BP is one reason, them backing you could be another.
So to get people to stop hating all 'prop', instead of posting this garbage, if group owners would provide actual information (when you call or meet with them - no one should have to post anything, but should be accountable if they do), then the industry would be better off. But junk like this helps no one like 'Prop' better.