Prop. Firm - Where does the capital come from?

[shortie]

Quote from opt789:

Shortie,
Every firm is different and even within one firm certain traders can be treated very differently than others. Whether a firm will count your open orders against your buying power just depends on the trader and the firm. It is like asking who has the lowest rates or highest leverage. It is all negotiable between the individual trader and the firm.

Ktrader123,
Prop firms do not have a lot of traders, and of those there are only a few who are really at risk of going debit at any given time, so the risk manager just keeps an eye on them. In the normal course of business every prop firms has traders go debit sometimes but it is rare and the debits are not that big. Whether or not the trader has to repay the debit is a legal question related to the specific firm’s contract.

opt,
could you give some examples about what sort of ratios traders get for pending orders (e.g. 1:10 for newbies, 1:100 for veterans, 1:1000 for the top dog)?

i understand that it is trader and firm specific. i am trying to get a general idea on what is common and what is the upper limit.

 

[opt789]

Quote from shortie:

opt,
could you give some examples about what sort of ratios traders get for pending orders (e.g. 1:10 for newbies, 1:100 for veterans, 1:1000 for the top dog)?

i understand that it is trader and firm specific. i am trying to get a general idea on what is common and what is the upper limit.

I can’t give you any specifics, but it has mostly to do with what type of orders you are talking about – all in one security, many really small non correlated orders, close the market or far away, etc. Black box guys putting out tons of small orders across the spectrum with very tight automatic risk controls are going to be able to have a lot of open orders. Why would any regular trader want 1000 to 1 leverage with open orders? Every trading system goes down sometimes, and the exchange itself can have problems. I have seen many times where you get shut down for a little bit and you have no idea of the status of your orders. It is obvious to the prop firm after a short time which traders know what they are doing and control their own risk and which traders don’t, which will directly affect what they allow you to do. The simple answer is you would have to call them and tell them specifically what you would be doing, and see what they say.

 

[propseeker]

a lot of people on this thread are making the assumption that if a prop firm exceeds their bp, then the shit hits the fan, the game is over for them, and it's a shaky firm. not so. they just get a margin call. most small firms have relationships with a lender where they can get short term loans to meet the call (can even be their PB, IB, or JBO). they pay some interest on the loan, and it's business as usal. for smaller firms this is par for the course.

 

[marksmitherme]

Great question! I've been going to a few prop firms in NYC and live in California. Wanted to make sure that I can check out offices and head traders instead of just blindly giving my security deposit.

I was always curious how leverage at prop firms works. Merci!