Prop Shops

Retail traders have to trade their own money, whether they want to or not. At a prop, you can _choose_to_ trade with your own money or not - the more you put up, the more you get to adjust your deal. It is more than just about the capital. For example, at a prop firm that I know, this guy does not pay any bullet costs or commissions. Show me ONE retail firm that has that deal?

It is a checks and balances between whether you go prop, prof., or retail. One is a good fit for some, another is a good fit for another. There is no one size fits all. Any good business man knows this, and these places all realize this and fill their own niche in order to entice a trader to cross over to their side. The ones that do it well survive. The ones that don't...

nitro
Quote from speedy:




...I agreed with P2 in regards to the fact that its about the capital...
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Quote from spyglass:

Here is my experience and thoughts on trading retail vs prop. I have never understood the problem of giving prop a percentage of profit or loss.

If you have 50K at retail and you leverage it you have 200K buying power. You make your trades throughout the day using that buying power, gains and losses.

If you are trading prop and you give 20% back to the firm instead of trading with 200K buying power use 240K.

My solution is to just increase your size by 20% and you will net out the same. If you trade in 1000 share lots just up it by the percentage you give back to your prop firm. Trade 1200 share lots.

Obviously there is some psychological implications but if you want to be successful in trading you need to learn to trade with bigger size.
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But doesn't increasing the size increase the risk also at the same time?
 
One advantage of prop trading that I never see mentioned, is not having to account for each individual trade at tax time. Any highly active retail trader that hasn't found this to be a nightmare must have one hell of an accountant. Even with good software like Tradelog, it is next to impossible to make the numbers agree with the statement that is provided to the IRS. Nitro, you sound like a very active retail trader, how do you deal with this?!!


tdoc
 
I forgot we get a K-1 verses I don't know what retail traders get. Ordinary income, profits and losses, offset by your deductions, which are vast.

However, one thing I did mention that say you are a Series 7 registered trader, or with a 55 too. If you do retail, remote wouldn't they make you pay the professional exchange fees. I know that this number is fixed and maybe small, but the difference in prices is like 5 or 6 or even 10fold compared to the non-pro. I know plenty of people go around these fees. Its cool when a firm absorbs this. If I traded on my own and retail remote, I would be paying a lot in overhead just for exchange fees.

I have licenses so I doubt I would ever be able to pay non-professional fees. If I was on my own, and not getting leverage, I would be very pissed to pay those higher exchange fees. My firm pays for this stuff so I hadn't thought about the fees until today. But if you are retail don't you have to pay for data fees, exchange fees, and all of that stuff too. Wouldn't that factor in to your bottom line? I think yes.
 
Quote from tdoc:

One advantage of prop trading that I never see mentioned, is not having to account for each individual trade at tax time.

tdoc
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Yes, but a individual trader can easily do the same by declaring himself a professional trader, plus us Futures traders don't have this headache of accounting every trade.

I think a prop firm is the worst way for a new trader to start, the pressure to trade and generate commissions is in direct conflict with learning good trading principles, in picking your points to trade.
 
Quote from chessman:



Yes, but a individual trader can easily do the same by declaring himself a professional trader, plus us Futures traders don't have this headache of accounting every trade.

I think a prop firm is the worst way for a new trader to start, the pressure to trade and generate commissions is in direct conflict with learning good trading principles, in picking your points to trade.
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You're right about futures, for some reason, they are viewed differently by the IRS, but I don't think declaring professional status gets you off the hook for stocks. Perhaps Mr. Green or one of the tax guys would like to reply?
 
I 100% agree with Nitro's first post.

I always get a laugh at people who insist one has to trade their own money and can't stomach splitting their profits with a firm. I don't care how much money you have, if you're trading retail you are still paying too much in commission and other fees. And if you use the 4:1 retail leverage afforded to you, you will be paying interest charges on overnights. Some prop/professional firms do not charge you interest.

In the past, the biggest reason to go prop was the access to bullets and conversions. They don't seem to be as important in the current market and I think some retail firms are able to offer them to their customers (I think??? Not sure.)

If you can't figure out the reasons to go prop, then you'll be a "customer" for life.
 
Quote from chessman:


I think a prop firm is the worst way for a new trader to start, the pressure to trade and generate commissions is in direct conflict with learning good trading principles, in picking your points to trade. [/B]
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I do not agree in most cases. But.....Lets say this is true, that there is pressure to trade and generate commms. When the firm is giving you all the money to trade, then as long as you break even, you are still doing great as a new trader (since most new traders lose money). This is the second to worst case scenario and in trader development progession its still good.
As long as you hang out long enough breaking even, you will evntually make money, in my opinion.

Let me also mention that the firm is generally paying for your data feed, and other fees. So if you start with your own money (retail or semi-prop) then you have to pay for this stuff every month, when you will be likely losing money or breaking even at best. And that is in my opinion the worst way to start, or one of them.

Firms that give you money will want you to generate comm revenue, but they don't want you to develop "poor trading principles" because they don't want you losing their money either, or have you fail because its not in their interest. We need to be critical and skeptical but not scared when evaluating business models.

I am not talking about the semi-prop firms that make you put down a deposit (like 5k or 10K) in order to trade. By my definitions this IS NOT true proprietary trading. As an experienced trader, this setup makes business sense if its structured sensibly (Bright, etc). But the same firm that makes sense in this way for a exp trader would not make sense for a beg trader. Those firms know the beginner will likely lose his first stake, and therefore wanna rip him/her in fees and comms before that stake is toast. I agree with you in that sense, that a semi-prop setup is not good for beginners. But full prop is an ideal setup for an intelligent beginner with less than 50K to start up. There is no risk to you but the time risk or opportunity cost of doing something else, and I don't agree they teach you to trade poorly.
 
Quote from GetWhatUDeserve:




Let me also mention that the firm is generally paying for your data feed, and other fees. So if you start with your own money (retail or semi-prop) then you have to pay for this stuff every month, when you will be likely losing money or breaking even at best. And that is in my opinion the worst way to start, or one of them.
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So true. Try subscribing to eSignal or RealTick with the bare necessities for trading, (Level II, exchange fees, S&P futures) and you'll be getting up to $250-$300 per month right off the bat. Mix in some fancy filtering software and 1 cent per share commssions and you already have a heavy financial burden each month that you're going to be losing money.
 
without getting to complicated...

if I was working as a prop, but remote...would 10k / month & 0.01
/ shr commissions be too high or is that the average?

could someone tell me what a good monthly deal would be vs a bad deal
made with a prop firm.

thx,
 
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