Question about getting a job in a Prop Shop Trading

[ScalperJoe]

The small guys didn't have a chance obviously.

Yes, just like putting up 5k and getting 100k bp in a capital contribution firm has low odds.

Live and learn. You can have all the "edge" in the world, but equity is key, not the lure of trading with 20x bp.

My guess is the guys with 100k to 250k who were "anxious to blow all their money" had zero game plan to monetize that equity, either by taking excessive risk or by having improper money management.

 

[trilogic]

Not to be judgemental but I collected data on at least the guys in my group and there was a pretty strong correlation with guys with credit issues and the probability they blew out their account, had a negative balance and refused to pay us. The guys with good credit didn't seem to have this issue. I'm not judging everyone with bad credit here as I know everyone has a story to tell, but in my experience the risk is not worth it. Whatever you make on commissions you will lose when they blow out. The losses we had to absorb due to guys blowing out was substantial. Spoiler alert: my firm is no longer a going concern.

Outside of buying power what does a prop shop offer anyone, with 25-50k in options you can get plenty of leverage to scale up eventually if your any good, what the prop firm value these days ?

 

[dealmaker]

Outside of buying power what does a prop shop offer anyone, with 25-50k in options you can get plenty of leverage to scale up eventually if your any good, what the prop firm value these days ?

Biggest value in a prop firm is not leverage but ability to trade from their office (IE ecosystem), especially if you are a rookie it will put your career fast track to profitability ( assuming the said person has the required attributes to become a successful trader) and if you are a seasoned trader aggregate information/ knowledge. Prop firms that do not accept capital contribution do not have remote traders.

 

[Maverick74]

Outside of buying power what does a prop shop offer anyone, with 25-50k in options you can get plenty of leverage to scale up eventually if your any good, what the prop firm value these days ?

At the time, there were huge benefits to trading in a JBO. One was the risk based haircuts which was light years ahead of Reg T margin. Two, we allowed traders access to floor brokers so they could could shop spreads at advantageous prices. Three, the JBO offer 60/40 mixed straddle tax treatment similar to futures for equity options. And 4th and probably the biggest of them all, we helped traders through margin issues. Talk to anyone with an IB account who has been auto-liquidated on a short option trade at the worst ticks. We floated guys capital when their accounts would have otherwise been liquidated and they could have lost 100% of their capital when with us they actually didn't lose any money and many time exited their trades profitability. That was really the biggie.

 

[rmorse]

MAV,

Before the advent of portfolio margin, I agree with all these benefits, if you did not have enough capital to be a member of an exchange on your own. The 60/40 can be big. Are JBO members exempt from self employment tax like "customers" are? Also, institutional relationships don't normally auto liquidate unless there is a risk call and the customer is non-compliant.

 

[Maverick74]

MAV,

Before the advent of portfolio margin, I agree with all these benefits, if you did not have enough capital to be a member of an exchange on your own. The 60/40 can be big. Are JBO members exempt from self employment tax like "customers" are? Also, institutional relationships don't normally auto liquidate unless there is a risk call and the customer is non-compliant.

That's not true. We also ran the first PMA's with Fimat and we DID auto-liquidate PMA accounts. We had to. It was actually 100% illegal for us to move capital into a segregated securities account for ANY reasons, and certainly not to meet a margin call. It was the one advantage JBO's had over PMA accounts. JBO members had S-corps that shielded self employment taxes.

 

[rmorse]

Our clients can get margin calls and DT calls and meet them next day. Risk calls have to be addressed when the clearing firms calls or we call the client.

 

[Maverick74]

Our clients can get margin calls and DT calls and meet them next day. Risk calls have to be addressed when the clearing firms calls or we call the client.

I'm not talking about "meeting" them. You cannot move capital into their accounts. We were able to do that. And that saved traders. When a guy is blowing out he doesn't usually have another 100k to 200k liquid to meet a call on the spot. Because we were a JBO with "sub-accounts" that were not segregated, cash could flow easily to the sub-accounts. Ask Victor Neiderhoffer what happened to him on his short puts and how the ES options pit bent him over backwards. He filed suit against his broker for the liquidation. This was a 200 million dollar account btw. I'm sure he was entitled to any special privileges that were available at the time.

 

[rmorse]

I'm not talking about "meeting" them. You cannot move capital into their accounts. We were able to do that. And that saved traders. When a guy is blowing out he doesn't usually have another 100k to 200k liquid to meet a call on the spot. Because we were a JBO with "sub-accounts" that were not segregated, cash could flow easily to the sub-accounts. Ask Victor Neiderhoffer what happened to him on his short puts and how the ES options pit bent him over backwards. He filed suit against his broker for the liquidation. This was a 200 million dollar account btw. I'm sure he was entitled to any special privileges that were available at the time.

A prop firm with PM accounts is not a typical set up. We don't have this issue.

 

[Maverick74]

A prop firm with PM accounts is not a typical set up. We don't have this issue.

Rob, Vtrader "was" a prop firm with PM accounts.

Let me try a different angle. Either A: you offer customers segregated accounts and therefore they are insulated and protected from the losses of other accounts or B: your customers are NOT protected and if one account blows up, they all go under. Which setup is yours?