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

Quote from cashonly:

I would think there are two primary reasons why people don't trade prop:

1. Series 7 license

2. SIPC protection.

I'd be interested in other reasons people don't go prop if they're doing well retail and want to step it up to increase the bottom line.

Cash
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I actually think it is mainly two different reasons.

1. Lack of familiarity. I don't think that this is the biggest reason, but probs pretty high up the chain. A lot of traders are untrusting of prop shops because they many times don't get straight answers.

2. Day job. Most traders that I know have other steady income. I personally don't pay bills with any of my trading gains. It's the, "don't eat your children" mentality. Thus, I have a "real" job and trade. If I went prop I would have to quit my other job. No safety net.

Cache
 
The question should be, if you're a profitable trader, why go thru any prop firm? I'd suggest that the vast majority of the true long term profitable traders don't use 30-1 margin. ...and if they do, they're walking a tightrope everyday. One never know when a 9/11 incident or other unknown events will happen. Exposing one's self to massive leverage seems like a great way to have a very short trading career.

Trade on your own & control your own destiny. Your financial risk isn't tied to little Leroy down the hall who went full margin on a stock that just got halted & will open 99% down after the halt. All the talk of "it never happened before in my firm" will change to "it was a risk you knew was involved" when the firm gets in trouble & your money has disappeared.


just my thoughts.
 
Quote from Cache Landing:

Cache say, I've already proven Confucius incorrect then.:D
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Good....Confucius also say, only cache from Confucius sayings is reserved for Cache! :D
 
Quote from 5Pillars:

Confucius say.....He with safe job has not chance of parabolic trading outcome. :p :D
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Read market wizards. Virtually all of them had/have day jobs, normally in the markets in an institution.

these days, i think you can do just fine trading while you keep a full time job. you can programs all your entries, exits, stops etc.
 
Quote from Cache Landing:

I agree, series 7 and 65 are a cake walk.

Mr. Bright,

My question was related to how prop firms make money. Every time I've asked, someone skirts around the issue by talking about how much the firm pays in fees and such. The firm is there to make money. If you claim that the traders keep 100% of their profits, the money has to come from commissions, correct?

Maybe Maverick can help me out on this one?
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We pay Goldman Sachs commissions and other fees of course. We mark that up a bit, that's pretty much it. We charge haircut fees to select traders based on a sliding scale. Pretty basic "Exchange Floor Trading" business model

Pretty much "economies of scale" based on volume.

We put up the Exchange membership, of course.

Anyone can buy a seat, and put up a few $million, and clear directly with Goldman Sachs, but rarely will they even get the rates we charge our traders (several have tried, but since GS only has to monitor one big account, BT, and not a whole group of people because their firm may not be well capitalized, we are able to negotiate pricing each year). We have been with SLK/GS since 1978, and they are very comfortable with us, risk wise. They eliminated quite a number of "prop" firms when the two firms merged a couple of years back.

Don
 
Quote from Bullet:

OK, lets go this route.....A dozen retail firms will offer commission in .02 to .035 range (some may even be lower depending on volume) on stable platforms with good tech and brokerage support.

That being said...lets have folks on the prop side offer commission ranges for traders doing from 100K shares a day to 1 million plus shares. And I KNOW other things matter...like leverage...however, if a scalper is trading 500K+ shares a day...a penny here and their is a ton of money.

I only interested in an expanded conversation, I am retail and do not need any leverage (thus I am not interested in going Prop).....I am only interested in furthering the discussion for folks interested in Prop.

Good Trading to all sides!!
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Retail firms could let you trade for free...they keep all the short stock interest, and have wide spreads on cash balances, loan out your stock without paying you for it, act like banks, paying you xx%, charging you xxxxx%, etc. etc. etc.

We pay you interest on short stock, very small differential between long and short interest, and we pay Goldman by the share.

Retail makes "money on your money/stocks" - we simply have economies of scale and try to make a profit (as above).

(I encourage discussions, always have, and would be glad to take part in a live Forum again, either alone or with anyone else in the industry...talk to Baron).

Don
 
Quote from jackpearson:

The question should be, if you're a profitable trader, why go thru any prop firm? I'd suggest that the vast majority of the true long term profitable traders don't use 30-1 margin. ...and if they do, they're walking a tightrope everyday. One never know when a 9/11 incident or other unknown events will happen. Exposing one's self to massive leverage seems like a great way to have a very short trading career.

Trade on your own & control your own destiny. Your financial risk isn't tied to little Leroy down the hall who went full margin on a stock that just got halted & will open 99% down after the halt. All the talk of "it never happened before in my firm" will change to "it was a risk you knew was involved" when the firm gets in trouble & your money has disappeared.


just my thoughts.
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Check above about joining an exchange and going directly to a Clearing Firm like GS.

The reason we went to the exchange ourselves back in the day was we thought it was pretty cool that with $25K-$50K or so we could "use" a few million of SLK/GS money to trade with.

Current successful strategies (as used by Lehman, GS, major hedge funds, etc.) are often "lower risk, higher reword" but "capital intensive" - thus our traders can trade like a hedge fund or a brokerage, without paying out 80% of their profits, or having a "job".

I do agree, however, that being independent is critical, and if you have a few $million to take part in these strategies, then I think you should absolutely do so.

(I realize that some on here still simply "daytrade" and can get by with 4 x $25,000 for this...but that is still quite a limitation).

Offered only as a discussion point...this thread has done a remarkable job of staying on topic with flaming, let's keep it up.

Don:cool:
 
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