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Prop. Firm - Where does the capital come from?
- Thread starter DayTrad3r
- Start date
Quote from psytrade:
some prop firms wont fill your order until they have a matching order to offset the trade....
This is complete nonsense.
A prop firms orders operate no differently than every other order routing system in the world. If you put out a limit order and no one is there already, it will sit on the book until someone matches it. If you put a market order you are filled instantly.
Quote from Clubber Lang:
This is complete nonsense.
A prop firms orders operate no differently than every other order routing system in the world. If you put out a limit order and no one is there already, it will sit on the book until someone matches it. If you put a market order you are filled instantly.
In years of trading Prop, I've never had any issues getting filled.
....Its a combination of all of the posts....
take HLV for instance ( please take them! LOL)
1)they put up 1 million
The firm grants them 4X1 ( 4 million)
All that means is that intraday they cannot have more then 4 million in TOTAL open positions...and if they do a call would be issued...
2) Now take the same scenario but assume the firm HLV is at a firm that has a JBO ( joint Back Office)
They can grant around 7 million in intraday BP for the same million
then there's Lehman Brothers....they just give 20 or 40 to 1 and see what happens!! LOL
btw under the 4 million scenario: remember this...1 trader could have 10k down but recv only 50k in bp while another trader can have 5 k down and get 50k...all the introducing frim knows is that 100k total is open....many great traders 'demand" millions in available BP but only use a small amount of it.
take HLV for instance ( please take them! LOL)
1)they put up 1 million
The firm grants them 4X1 ( 4 million)
All that means is that intraday they cannot have more then 4 million in TOTAL open positions...and if they do a call would be issued...
2) Now take the same scenario but assume the firm HLV is at a firm that has a JBO ( joint Back Office)
They can grant around 7 million in intraday BP for the same million
then there's Lehman Brothers....they just give 20 or 40 to 1 and see what happens!! LOL
btw under the 4 million scenario: remember this...1 trader could have 10k down but recv only 50k in bp while another trader can have 5 k down and get 50k...all the introducing frim knows is that 100k total is open....many great traders 'demand" millions in available BP but only use a small amount of it.
First of all, if you're considering a true legitimate prop firm and not some sub-llc, then most likely they're a registered broker-dealer and they're getting 6:1 leverage from their clearing firm not 4:1 like some normal retail account. Second of all, most prop firms exist because they have tons and tons of their own capital to begin with, and they're trying to find creative ways to get the highest low-risk return on their money that they can get.... hence they start a prop firm and charge slightly higher commissions in exchange for letting you use their capital to finance your trades.
Take bright trading for example, I think they have $10 million of their own money sitting over at Goldman Sachs in addition to all the money of all their trader's capital deposits. That's a minimum of $60 million of buying power... I doubt they're too concerned about running out of buying power.
Take ECHO for another example... unless something has changed recently, they're owned by Merrill Lynch and thus Bank of America. I doubt they're concerned about running out of capital or buying power either.
Now if you're at some small tiny prop firm, or a sub-llc of another prop firm, then yah, its possible to run out of buying power. But who in their right mind would trust them with their money (although I know lots do... I just don't understand it).
Take bright trading for example, I think they have $10 million of their own money sitting over at Goldman Sachs in addition to all the money of all their trader's capital deposits. That's a minimum of $60 million of buying power... I doubt they're too concerned about running out of buying power.
Take ECHO for another example... unless something has changed recently, they're owned by Merrill Lynch and thus Bank of America. I doubt they're concerned about running out of capital or buying power either.
Now if you're at some small tiny prop firm, or a sub-llc of another prop firm, then yah, its possible to run out of buying power. But who in their right mind would trust them with their money (although I know lots do... I just don't understand it).
A regular prop firm is a broker dealer and by SEC regulations must have enough capital to meet their haircut requirement. I wonât go into the haircut calculations, but the simplest one is that you must be able to handle a 15% move in a stock which is effectively 6.6666 to 1 leverage. I assume this where the incorrect but often quoted 6 to 1 comes from. There is much more complexity with undue concentration, options, futures, minimum capital, etc. but the specifics are not germane to this discussion.
Most prop traders are not using their max leverage, and rarely if ever are they all using it at the same time. Everyone in the firm is using everyone elseâs capital as well as the firmâs capital. Hopefully what I will now write will be ignored, but the truth is that some prop firms continue to exist simply because the regulatory agencies (filled with surprisingly incompetent people) do not check for second by second intraday haircut violations. They only look at overnight positions.
Most prop traders are not using their max leverage, and rarely if ever are they all using it at the same time. Everyone in the firm is using everyone elseâs capital as well as the firmâs capital. Hopefully what I will now write will be ignored, but the truth is that some prop firms continue to exist simply because the regulatory agencies (filled with surprisingly incompetent people) do not check for second by second intraday haircut violations. They only look at overnight positions.
Quote from shortie:
if one places many non-marketable orders (OCA limit orders) when out of 100s maybe 1-2 will get executed, how does the total $ amount of the pending 100s of orders relate to trader's BP?
how high can the ratio pending one-cancel-all (OCA) orders/BP get? which prop firms permit the highest ratio?
What happens if a trader at one of these prop firms who has 40 to 1 leverage gets smoked in a position and loses like 500k? Are they liable for their losses?
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 firmâs contract.
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 firmâs contract.