Prop trading looks great, then why most retail traders don't simply join in?

[moo]

Quote from cashonly:

Generally, if you take a decent home study course and work at it for an hour or two a day for a month, reading the material, taking the quizzes, practice chapter tests, and practice exams, most people are able to pass it.

Sounds simple enough. Are there any old exams / quizzes / other practice available on the internet?

Leverage varies with your style and how much you have hedged (long stock vs. short stock), but starting at 5:1 and up (many use 30:1) is typical.

Not hedged, but even 5:1 is usually enough.

Do prop firms usually offer trading also in futures, forex etc?
And why don't retail firms offer this prop option for those who pass the Series 7? Some regulatory reasons?

 

[5Pillars]

Quote from OddTrader:

Would it be possible that some traders planning to set up hedge funds may want to keep their trades in secret? Perhaps too much exposure of their trades around prop trading rooms would generate conflicts.

Yes.....this is one major reason imo for someone that already has profitable systems to not go prop (the risk of system details exposure). This trader should also not need to go the prop route as his system already has the ability to generate good returns.

I myself have considered taking some of my futures systems and testing the method with stocks....if they backtested well I would give the prop route a try for the equities side. I would be able to trade a new pot of money that is not mine (OPM) and keep 100% of the profits (while continuing to trade the futures trades with my $$$). The only dilemma is what exposure would my systems details have....who knows, maybe not much exposure???

 

[nir]

to all the guys afraid of their trading "secrets" "system" exposed, why do you think trading retail would be any safer. if you're paranoid about someone finding out about your system ,a retail broker could reverse engineer it,a prop firm could ,heck even a clearing firm could if you don't trade through any of the above.
system development software a-la tradestation require you to do EVERYTHING online(can't they look at it?? etc...etc...etc...
going prop you don't have to disclose what your system is before you can trade it with them(at least not the ones who let you keep 100% of your profit)

disadvantages for going prop :
if you have A LOT of money to trade you don't need to.
being licensed means higher fees(data,sec,annual registration etc...)
added desk fees-software fees(monthly)
you're a partner in the company so you are liable for a lot of stuff.
if they go belly up say goodbye to your money- not insured.

advantages for going prop :
most of them have great platforms and are truly direct access unlike some who claim to be(for instance if you click buy in your retail trading account and you don't have enough funds you'll get a deny, meaning it doesn't go directly to the floor it first goes to check if you have enough money,think about it,makes sense)

you get to use capital: a lot of people fail to understand how this works.(example- let's say you devised a strategy that puts in a lot of orders away from the market on 100 different stocks but your execution rate every day is only on 2 stocks,but on these 2 you have a great edge. even though lets say your position is about $10k in each stock you still HAVE to have $1M in capital to put in the orders to begin with.) this is just one example of many.

some offer internship programs

some offer no or little money contribution(this of course comes with profit sharing and more restrictions)

some offer education and continuing education.

being around or with access to established profitable traders.



some props are great some are horrible, same with retails. don't think props are charitable organizations,they're in it for profit just like the rest of us.

hope this helps someone.

 

[kiwi_trader]

Quote from nir:

advantages for going prop :
most of them have great platforms and are truly direct access unlike some who claim to be(for instance if you click buy in your retail trading account and you don't have enough funds you'll get a deny, meaning it doesn't go directly to the floor it first goes to check if you have enough money,think about it,makes sense)

This isn't entirely true.

With IB the first time you issue a buy of a certain size it checks to make sure that you're ok. This does take a "significant" time. After that, if you stay within some (I admit I'm not sure what they are) parameters there is no new check. My guess is that the software on your desktop maintains this approval as part of its account tracking.

 

[Shazbatz30]

Quote from Maverick74:

Lots of firms allow overnights. In fact, some firms frown about daytrading and focus only on longer term trading.

Can you recommend a few reputable firms that allow good overnight leverage?

 

[trader56]

Im new to prop, so can't add much to the pros/cons discussion.

However, this comment I can say something about:

"...would require giving up a day job where as someone can gain much more experience and market knowledge working for a brokerage house...this could be done while trading on the side. much lower risk solution."

IF you're referring to a job as a Registered Rep (i.e. stockbroker), you will gain virtually NO market experience. If you work in the firm's trading department, maybe, but only if you're assisting the firm's traders with executing orders, and even then you're executing mostly market and limit orders, NOT trying to trade for profit.

As a Registered Rep, your job will be to hammer the phone all day and SELL. They catch you spending lots of time watching the screen and trying to trade or even papertrade, and your sales manager is going to be all over you because you aren't selling. When I was a broker, we were supposed to try for a minimum of 150 phone calls a day. They kept track of people's call logs, and were on you if it dropped by much.

Finally, when you sell, it'll be the stock's "story," (which you get at numerous dog-and-pony-show breakfast meetings put on by various companies that brokers are required to attend) meaning the fundamentals (they've got this great new widget, they're projected to grow X% in the next year, our research dept. has put out a stong buy recommendation, etc, etc) NOT because of market action, TA, or some fancy trading strategy.

 

[cashonly]

Quote from moo:

Sounds simple enough. Are there any old exams / quizzes / other practice available on the internet?



Not hedged, but even 5:1 is usually enough.

Do prop firms usually offer trading also in futures, forex etc?
And why don't retail firms offer this prop option for those who pass the Series 7? Some regulatory reasons?

I don't know of old quizzes, but there are a number of $99 courses on the internet.

I would guess retail brokers don't do prop because of the risk involved to them.

 

[Don Bright]

Quote from Cache Landing:

And you make your money via...... commissions?

On average, hedge funds pay 5 times the commissions that our traders pay, just FYI.

S7 is not big deal. 1. 5 day "cram course". 2. 4 week online course (2 nights per week I think). 3. Buy books and CD ROM, study a couple of weeks on your own.

(Take it early, take it often, LOL"

Don

 

[OddTrader]

Quote from 5Pillars:

Yes.....this is one major reason imo for someone that already has profitable systems to not go prop (the risk of system details exposure). This trader should also not need to go the prop route as his system already has the ability to generate good returns.

Perhaps some kind of diversification.

Quote from 5Pillars:

I myself have considered taking some of my futures systems and testing the method with stocks....if they backtested well I would give the prop route a try for the equities side. I would be able to trade a new pot of money that is not mine (OPM) and keep 100% of the profits (while continuing to trade the futures trades with my $$$). The only dilemma is what exposure would my systems details have....who knows, maybe not much exposure???

Seems a very sensible and logical decision, imo.

 

[5Pillars]

Yes.....I may just do this in September or October. I have way too much on my plate right now, but everything should be set for me to spend the time with the equities side of trading as we get into the fall.


btw, I had visited the Bright Trading Vegas offices several weeks ago and I loved the TILT.com poker table there. LOL! Don tried to put me in a headlock and convince me that no one can make money trading futures --- JK Don!