Quote from razor99:
if you are going to hold overnight or for a few days,there is no reason to seek out a prop firm as leverage no longer becomes an issue. prop firms offer no better leverage than a run of the mill retail/brokerage firm when holding over night positions. that said,intraday leverage is very liberal with some doing 20-1 depending on your skills and experience importantly,prop firms can offer much better commission rates than a retail/brokerage firm. this becomes less of an issue as well if you do not do many intraday trades...
Whoa, let's not disseminate such wrong information, at least as far as my traders are concerned (Maybe where you are).
Our traders use $millions at times, overnight, for weeks or months, with $20K or so.
And, "20 to 1" "leverage" is hardly worthwhile for intraday trading, heck my guys would laugh at that. Let me try to explain.
"Use of Capital" vs. "leverage" actually does mean two different things. It generally takes a $million or more to make a decent living in this business. For example, I "use" about $3million every morning, pre-open, entering "Opening Only Order" on the NYSE. 3000 shares to buy, and 3000 shares offerered to sell short, on about 50 stocks. I try to get filled on 5-10 stocks, and try to make $500-$1,000 right on the opening. This is not possible with any retail account, since most traders don't have that kind of money, and most brokerages won't allow "buys and sells" on the same stock at the same time.
Our pairs traders, where a good 30% or more of all the money at Bright is made, might take home 25 pairs of 2,00-4,000 shares each, rolling in and out of them, taking profits, but keeping many of these pairs on. They may need to "use" a few hundred grand or so in this activity.
Mergers and acquisitions, another top money maker, requires holding a lot of shares for months. There are a lot of "retail trading myths" out there, and apparently a lot of wrong information about serious, professional trading.
You can check some articles pertaining to, at least, our way of doing business.
www.stocktrading.com/articles.html
Basically, my brother and enjoyed the same treatment, when (after buying seats on the Exchange), we put up $25K or so with Spear, Leads, and Kellogg (now Goldman Sachs) - and were able to use $millions, keep all of our profits, and run our trading business within theirs...and all they asked is that we clear our trades with them. (We are still with Goldman, after all these decades). So, in 1992 we duplicated that business model, and now have hundreds of traders using our capital to trade with.
Regarding SIPC "protection" - again our traders would laugh at being limited to only $100K or so of "protection." What we do, is we put (at minimum) $10Million of our cash directly in with the traders (class b members) - which is 100 times SIPC protection.
There are many (too many, look at Babak's new list, LOL) of, how shall I say it, "Firms of Concern" out there, who aren't even Exchange members or Broker Dealers, who may limit the unwary to some "XX times" leverage, but not the decent organizations.
We are all traders at Bright, and we monitor our traders "risk" not so much their "use of capital" (within reason of course). We have had very (very) few cases of traders needing to be "nudged" by any of us for excessive risk, even though they may be using a lot of capital.
I hope this helps explains some of this.
All the best,
Don
