You're going to have to try harder then that Brad. I've got my eagle scout badge from P&R. That was pretty weak. Come on Brad number 10, take a deeper breath and square those shoulders. You need to drive with your legs. I don't mind getting insults but this is ET, the bar is pretty high around here for ad hominem. I'll try throw it slower for ya next time.
prop vs. retail brokers
- Thread starter pbanerjee
- Start date
You're going to have to try harder then that Brad. I've got my eagle scout badge from P&R. That was pretty weak. Come on Brad number 10, take a deeper breath and square those shoulders. You need to drive with your legs. I don't mind getting insults but this is ET, the bar is pretty high around here for ad hominem. I'll try throw it slower for ya next time.
I'll try one more time. Forget E-Trade and IB for a moment. There are daytrading firms that cater to retail traders exactly the same as prop firms. Same software, same active trading, same costs for marketing, personal, rent and keeping the lights on. Same thing, okay? The difference is that the prop firms need to put up their own capital, to provide sufficient backing to enable their prop traders to get 10:1 or 20:1+ leverage. The firms capital is at risk if one of their prop traders with a $20k account blows up and loses $80k ($20k in trader capital and $60k in prop firm/other trader capital). This is a risk to the prop firm (and a risk to fellow traders at the firm). As a result, the prop firm needs to charge higher commissions to account for their added capital that must be fronted and risked to back the traders at their firm. I'm not sure why this should be confusing.
Imagine you had a trading firm and had two clients. One was a prop client. Your firm needs to put up $100k of firm capital to enable the trader to get the $750k of buying power he desires with his $25k of capital. The other client has a retail account at your clearing firm. This second trader has $150k in his retail account and gets all of the buying power he needs with his own capital. Which trader would get the lower commission rate at your firm, the one that is providing his own buying power, or the one using your prop firms capital?
Yes! If leverage is an issue, then prop trading has its merits and can be a great solution. Why the argument? Read my original post again. What exactly do you disagree with, and why the attitude? I'm am speaking from my own experience and my own knowledge. If you have a disagreement, then point it out, otherwise, let's not waste our time. I will repeat my final line from the prior post:
"<b>If leverage is not a key issue</b>, then a retail account with a daytrading firm is the better alternative for many/most professional traders." (If you disagree, please feel free to explain why)
If you recall, you started with a blanket statement: "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:"
=> I know first hand that this is incorrect. Why? Because I do trade successfully at a retail firm. I went on to try to explain how you might be mistaken.
Eric,
The bottom line is that 95% of the traders on here are not as rich and successful as you are. We don't have 100's of thousand of dollars to open a retail account with.
Your claim that your funds are not at risk are false. SIPC only covers $500,000 and of that only $250,000 in cash. So you are at risk of your retail firm blowing up as well. Ever hear of Madoff Securities? If you keep under the SIPC insurance levels then at 6-1 you don't even have as much BP that I have with only $25,000 in deposit. Hmmmm.
In terms of rates you should really shop around. If you do the volume you say (which I have no reason to not believe you), then you should be able to trade at a pretty damn low rate.
The bottom line is that 95% of the traders on here are not as rich and successful as you are. We don't have 100's of thousand of dollars to open a retail account with.
Your claim that your funds are not at risk are false. SIPC only covers $500,000 and of that only $250,000 in cash. So you are at risk of your retail firm blowing up as well. Ever hear of Madoff Securities? If you keep under the SIPC insurance levels then at 6-1 you don't even have as much BP that I have with only $25,000 in deposit. Hmmmm.
In terms of rates you should really shop around. If you do the volume you say (which I have no reason to not believe you), then you should be able to trade at a pretty damn low rate.
Perhaps you could point out where I made my 'false claim' that retail accounts are "not at risk". Instead, I made the following statement:
"Prop enables better leverage, but at a cost of greater risk to your account security."
Do you disagree with this? Do you think that a prop account does not have a higher element of risk to account security than a retail account? Again, I don't understand your disagreement with my statements.
As you point out, for many traders on ET believe that increased leverage is a critical issue for them that warrants the added risk of a prop firm. I've got no disagreement with that. If leverage is a critical concern, then a prop firm can make sense. However, a trader CAN be quite successful daytrading in a retail account, contrary to your blanket statement. It might not be right for everyone, but it IS the best option for many. For what it's worth, I began my trading career with a retail account containing about $55k, and have compounded it quite nicely from there. I traded perhaps two years during my career at a 'retail prop' firm (no registrations), but with modest leverage and this was only a minor period of profitability for my overall trading career. I'm just trying to point out that retail is and can be an option for serious traders (many advantages, but also some disadvantages - it's worthwhile to understand them to best know what is best for each individual)
Regarding Madoff Securities... They were not a brokerage firm for retail daytrading clients. They were a ponzi scheme to defraud clients who entrusted their funds to be managed for them by Madoff. => On the other hand, have you heard of Bear Capital? Tuco? Or one of the many of prop firms that have closed and taken/stolen/lost the capital balances of their daytrader clients? This is a very real risk, which is why Don Bright often sounds like a broken record as he repeatedly says "check the balance sheet" in doing your due diligence on potential prop firms before opening your account.
Eric,
I agree with everything you said. Obviously traders can be successful in a retail environment. They can also be successful in a prop environment. Both have their pros and cons. I feel for most traders that have PM'ed me here over the last year fall into the "smaller" trader category and retail is out for them (I also fall into that category).
I think we can agree to agree on some points and agree to disagree on others.
I wish you continued success with your trading.
I agree with everything you said. Obviously traders can be successful in a retail environment. They can also be successful in a prop environment. Both have their pros and cons. I feel for most traders that have PM'ed me here over the last year fall into the "smaller" trader category and retail is out for them (I also fall into that category).
I think we can agree to agree on some points and agree to disagree on others.
I wish you continued success with your trading.
not really sure if this is applicable but the advantages also include short locates, education if that's you're thing, BP, lower clearing rates, darkpools and midpoints, etc. There's an article here that outlines it and a few others like this one floating around - http://www.prop-trading.com/proprietary-trading-and-retail-brokers-what-every-trader-should-know/
Just to be clear, not all "retail" account are the same. There is retail and institutional customer. Most retail accounts are Reg-t with "smart" routes. Shorting stocks is not a typical order. Institutional accounts get access to the same locates at the same clearing broker as the prop firm, and what ever dark pools that are offered by their broker plus DMA, if they want it, most don't care.
The big advantage for the prop choice is that a small account has access to whatever buying power your firm has available and wishes to assign you and typically lower rates. For smaller accounts, it is your only choice. Most bigger account would never choose to join a prop firm unless they have some technology that would offer some edge only available in that way.
It's just not typical for an account over $500k to choose a prop firm.
1245
Echoing what 1245 said, your comparison really seems to be prop firms versus traditional online discount brokerage firms (i.e. E*Trade, Ameritrade, etc). That's not a reasonable comparison as traditional online brokerage firms are not suitable (IMO) for daytrading.
The appropriate comparison would be a prop firm versus a direct access (retail) brokerage account. Such a retail account can be used and will include stock locates, lower clearing rates, darkpools, midpoint matching, opening orders, API trading, options, futures, etc. etc. etc. The sky is the limit on what's available for either a prop or a retail daytrading account. Certainly more leverage is available for prop (but typically with a tradeoff of incrementally higher risk to account security and potentially higher commissions). "Education" may also be available at prop firms, but it is typically of dubious value (and is often available on a fee basis). If you hope to go to a prop firm, sit next to their #1 most profitable traders each day, and ask them direct questions on how they are trading and why => forgetaboutit.