prop vs. retail brokers

[textrader4]

Regarding salaries: Do you have a profitable strategy? Are you a good trader?

If you answered "yes" then why do you need a salary?? Just trade! You can make more money trading if you have a profitable strategy than all those doctors and lawyers that went to school for years and have a sh!tload of student loans.

If you answered "no" then why do you think someone is going to pay you to try to become profitable or experiment on their dime?? Not going to happen. And the firms that claim to "teach" you usually require you to pay them or do some crazy demo trading first that you still pay for. Those are the true scam firms out there....anyone that says they will teach you to trade or give you a shot but first "write me a check please".

There are no "true" prop firms for 99.99% of us. The only ones are for the handful of Harvard MBA graduates that get the few jobs at Goldman Sachs. This topic has been beaten to death here on elitetrader.com.

Bottom line, if you think you have what it takes and want to give trading a shot call a prop trading firm and put $10k down and go for it!

 

[textrader4]

Quote from Maverick74:

For "most" people, not all, but most people, they can get what they want from IB. Yes, there are still some advantages to a prop firm for some people.

I agree that IB is a great choice for the swing trader or even the guy that does 1 to 2 trades per day. But for an active day trader that is trying to make a living trading I do not believe it is a good choice at all. But just my 2 cents!!

 

[Maverick74]

Quote from textrader4:

I agree that IB is a great choice for the swing trader or even the guy that does 1 to 2 trades per day. But for an active day trader that is trying to make a living trading I do not believe it is a good choice at all. But just my 2 cents!!

Well, let's be more specific. For an active trader who only trades equities, who is under capitalized and who does massive volume, then yes, for that guy it absolutely makes sense to go prop. Most the equities guys I know moved over to futures or options. Other equity guys I know have enough capital that they don't need to plop 25k down and get 50 to 1 leverage because they have 500k to 1 million dollar accounts. It all comes down to each individual's needs. Back in the day we had solid edges at prop firms that you couldn't get retail i.e. bullets. And yes, back in the day MOC's were great as well. Bullets are gone and MOC's are dead. But sure, if you want to leverage your money 50 to 1, then prop firms can provide that.

 

[Maverick74]

Quote from textrader4:

Regarding salaries: Do you have a profitable strategy? Are you a good trader?

If you answered "yes" then why do you need a salary?? Just trade! You can make more money trading if you have a profitable strategy than all those doctors and lawyers that went to school for years and have a sh!tload of student loans.

If you answered "no" then why do you think someone is going to pay you to try to become profitable or experiment on their dime?? Not going to happen. And the firms that claim to "teach" you usually require you to pay them or do some crazy demo trading first that you still pay for. Those are the true scam firms out there....anyone that says they will teach you to trade or give you a shot but first "write me a check please".

There are no "true" prop firms for 99.99% of us. The only ones are for the handful of Harvard MBA graduates that get the few jobs at Goldman Sachs. This topic has been beaten to death here on elitetrader.com.

Bottom line, if you think you have what it takes and want to give trading a shot call a prop trading firm and put $10k down and go for it!

Your view of trading is very myopic. Has it occurred to you that flipping shares of AAPL is not the only game in town? Ever trade carbon credits? Do you even know what they are? What about basis swaps in nat gas? Ever trade a physical market? Yes, I understand to most of the ET community trading centers around flipping stocks or fading the ES rally on the ES Journal thread. But there is a whole world out there of opportunity that has solid edges that is not available at Bright Trading or IB for that matter.

Yes, you are right, NO one is going to pay you a salary to fade the spoos or flips stocks in and out all day long. Guys get paid salaries to trade more complex markets, markets that have edges and markets that are multiples of scale larger. And why not trade these on your own? Because they require credit agreements that you are NOT going to get. I'm not trying to be a dick here. I use to think like you too, I was in that business for a LONG time. I'm just saying there is an entire world out there of opportunity. When you get a few spare minutes, check it out.

 

[EricP]

Quote from textrader4:

What everyone is saying about the access to leverage is 100% correct. You cannot daytrade successfully at a retail firm. They are made for investing and swing trading. If you want to be a successful day trader you MUST trade at a prop firm. Here is why:

Let's assume you have $100k to trade with. IB will give you either 4-1 or 6-1 intra day. While that might seem like a lot it really isn't for opening/closing strategies, pair trading, and times when the market is heating up and you need that extra BP. Try calling E-Trade or IB and asking them for more BP for the day!! They will laugh at you if they can even figure out what you are talking about. I just make a call and can get extra BP in 2 minutes.

Another factor: At E-Trade and such you are sending your orders to a market maker who trade against your order. There is a reason that market making firms PAY for your order flow. It is an asset. I send my orders directly to the market and have a choice of over 100 destinations, including the same dark pools that the institutions and hedge funds use.

Furthermore: Costs. I don't trade a lot of volume on a monthly basis but if I add liquidity I can get down to $.0015/share. That is $1.50/1000!! or 15 cents for 100 shares. I can easily scale in and out of positions and not be hit with a per trade fee each trade that can be as high as $15! If you trade more volume and add liquidity for trades you can easily trade free! Ask IB if they will let you trade for free!

You call these bucket shops but you have no idea what you are talking about. I trade with a SEC registered broker dealer and was required to pass the FINRA Series 56 Proprietary Trader Exam. People that call a firm like JC Trading Group (WTS) a bucket shop are clueless.

True, I can't trade 175 different markets and instruments, but I can trade any of the approximately 4,000 stocks listed on the US exchanges. I get access to all the leverage I need so I can trade strategies that I can't trade retail, and I get incredible pricing and fills that are measured in milliseconds.

Beat that!!

Regarding leverage => Yes, you are correct.

Regarding everything else, you are way out in left field. I have been daytrading a retail account for many years. It's probably safe to say that I trade more volume and have higher P&L's than a majority of 'prop traders' here on ET.

Don't confuse 'retail' with E*Trade or limit it to IB. For many traders, IB is an excellent option. However, for those trading higher volumes, IB is expensive. You can trade a retail account using Laser, or Sterling, or any other front end software that a prop firm might use and get the same (or often better) commission rates than if you're trading prop. Think about it. Your prop firm has to make a cut out of the commissions to enable them to profit from providing you the added leverage, right? If you are fine with 4:1 daytrading leverage, or 6:1 portfolio margin leverage, then you should be able to get cheaper rates (and better security of your account value) by trading a retail account. When I add liquidity, my trades can be done for free, or actually for a net credit 'cost'.

Quote from textrader4:
Beat that!!

=> Done, and with a retail account (and execution times measured in the same milliseconds, actually faster as I've got servers colocated near the exchange).

To summarize:

Prop enables better leverage, but at a cost of greater risk to your account security. If a fellow trader blows up his account, you can see your account get wiped out as a result. Commission rates are not materially different for a prop account versus a retail account with a daytrading firm (although a retail account should be cheaper, since there is no prop firm taking an added cut out of your commissions to cover their risk in providing you leverage).

If leverage is not a key issue, then a retail account with a daytrading firm is the better alternative for many/most professional traders.

 

[textrader4]

Maverick,

I think we are on the same page but I do take a little offense to "under capitalized" I definitely don't have $500k to $1 million like the people that you trade with. But I do have a liquid net worth of about $150,000. Of that, $25,000 is at a prop firm supplying approximately $500k of intraday BP. I usually only use about half of that on any given day. But the ability to go higher and have a lot of pending orders so I can trade 4-5 positions at the same time in priceless. On my $25,000 of deposit at the prop firm, I consistently make $3,000 to $7,000 per month and my best month was $12,000. It might not seem like a lot to guys with $1 million in their account but it's a pretty good living for a guy that never went to college! I am experimenting with different strategies and different indicators and can easily do that with the flexibility that a prop firm supplies. I have found that trading is always changing and you need to change as well.

Quote from Maverick74:

Well, let's be more specific. For an active trader who only trades equities, who is under capitalized and who does massive volume, then yes, for that guy it absolutely makes sense to go prop. Most the equities guys I know moved over to futures or options. Other equity guys I know have enough capital that they don't need to plop 25k down and get 50 to 1 leverage because they have 500k to 1 million dollar accounts. It all comes down to each individual's needs. Back in the day we had solid edges at prop firms that you couldn't get retail i.e. bullets. And yes, back in the day MOC's were great as well. Bullets are gone and MOC's are dead. But sure, if you want to leverage your money 50 to 1, then prop firms can provide that.

 

[Maverick74]

Quote from textrader4:

Maverick,

I think we are on the same page but I do take a little offense to "under capitalized" I definitely don't have $500k to $1 million like the people that you trade with. But I do have a liquid net worth of about $150,000. Of that, $25,000 is at a prop firm supplying approximately $500k of intraday BP. I usually only use about half of that on any given day. But the ability to go higher and have a lot of pending orders so I can trade 4-5 positions at the same time in priceless. On my $25,000 of deposit at the prop firm, I consistently make $3,000 to $7,000 per month and my best month was $12,000. It might not seem like a lot to guys with $1 million in their account but it's a pretty good living for a guy that never went to college! I am experimenting with different strategies and different indicators and can easily do that with the flexibility that a prop firm supplies. I have found that trading is always changing and you need to change as well.

When I use the word under capitalized it's trader specific. Some guys might have 100k and feel under capitalized. Some guys may only have 5k. Again, everyone has different numbers. It wasn't meant to be a jab. I'm just saying if one "feels" they are under capitalized and wants to only trade stocks, then prop firms can fill that purpose. And you might want to think about going to college at some point. I would strongly encourage it.

 

[brad10]

Quote from Maverick74:

Your view of trading is very myopic. Has it occurred to you that flipping shares of AAPL is not the only game in town? Ever trade carbon credits? Do you even know what they are? What about basis swaps in nat gas? Ever trade a physical market?

Maverick,

Do you purposely try to come off as a self righteous elitist prick or do you not even realize you are doing it?

Trading carbon credits!!!! nat gas basis swaps!!! HA!! You sit here on elitetrader all day telling us "stock flippers" how naive we are that we are not trading these exotic instruments. How can you possibly trade all day and still find time to educate us peons about how real traders trade. You must be so talented. What's your point on even being on elitetrader when you have all these real traders with $500,000 to $1m accounts around you?

Whatever.

 

[textrader4]

Quote from EricP:



Think about it. Your prop firm has to make a cut out of the commissions to enable them to profit from providing you the added leverage, right?

Commission rates are not materially different for a prop account versus a retail account with a daytrading firm (although a retail account should be cheaper, since there is no prop firm taking an added cut out of your commissions to cover their risk in providing you leverage).

If leverage is not a key issue, then a retail account with a daytrading firm is the better alternative for many/most professional traders.

I didn't realize that E-Trade and IB were non-profits! That makes no sense that "prop firms take an added cut out of your commissions to cover their risk in providing you leverage"

Don't the retail firms take a cut out of your commissions to pay for marketing, personal, rent, and keeping the lights on at their 100s of branches? I guarantee you that the cost of running a prop firm is 1/100000 the cost of running E-Trade.

We all strive to have fat bank rolls like you big traders and can trade our own retail accounts one day but for the 95% of us here on elitetrader.com the prop firm is the perfect solution and can put us on equal footing as you rich guys.

 

[1245]

Quote from textrader4:

I didn't realize that E-Trade and IB were non-profits! That makes no sense that "prop firms take an added cut out of your commissions to cover their risk in providing you leverage"

Don't the retail firms take a cut out of your commissions to pay for marketing, personal, rent, and keeping the lights on at their 100s of branches? I guarantee you that the cost of running a prop firm is 1/100000 the cost of running E-Trade.

We all strive to have fat bank rolls like you big traders and can trade our own retail accounts one day but for the 95% of us here on elitetrader.com the prop firm is the perfect solution and can put us on equal footing as you rich guys.

Sorry, sometimes I can't tell when people are joking. Both prop (JBO-deposit-your money is first loss) firms and retail brokers make most of their money from commissions. Traditional prop firms, which put up their own money don't take money from their traders, and each trader is and employee with a salary and bonus,make their money from trading, not commission. They are set up like a hedge fund, but don't look for investors. They only charge their traders a commission to cover costs.