Iâm interested in hearing thoughts about how much money it would cost to open a daytrading firm in India or China (1 office initially) as well as the potential pitfalls involved in doing so.
Iâm going to be completely honest here as to my motivations and goals: Iâm a failed daytrader. I was fortunate enough, however, for this to happen when I was young (still am â under 30). Aside from market microstructure, I learned a TON about the profitability of the prop business model and I truly believe that the active trader community would benefit from being served by one who formerly traded, who knows how hard it is, and who wants to provide solid business value to help increase their profitablility as professional traders.
It seems to me that the reasons more people are not opening prop firms have mostly to do with the classic barriers to entry:
1. <b>Cost.</b> Most people who are aware of the prop business model are failed daytraders. These types donât have much money to put behind their ideas and probably donât have very good credit either since they are most likely fish who have routinely overextended themselves throughout their lives. Again, Iâm glad I learned young.
2. <b>Information.</b> Like many great business ideas that have not become fully attenuated, prop firms are not very well understood by those whoâve not actively traded.
3. <b>Will.</b> Most people are just pure lazy. There are at least a handfull of guys here who are not bound by 1 or 2, who trade successfully, but who simply lack the will to execute it. Hey, they donât need the money. Thereâs no shame in that.
Ok â so now that weâve addressed some of the initial reasons why everyone and their mother isnât opening a prop firm, I very much would like to know what some of the other challenges might be.
To give you more detail, within 5 years, my goal is to open up a prop firm somewhere in either India or China (probably India) giving foreigners access to the US markets. I do not feel that I have a good enough understanding of market microstructure to try to trade foreign markets⦠not to mention that the necessary liquidity to ensure tight spreads is absent and would expose me (as the Class A share holder) as well as the other traders, to too much risk.
I would provide all of the traditional infrastructure, but would mostly likely try to establish myself at the high-end right away by providing a high quality environment (nice/clean office, fast/new computers, central location) so as to be referenced as The Standard when other entrants arrive as well as to be able to effectively compete against existing firms (weâve all seen the condition of many prop firm offices in the US â can you imagine what they are like in India/China if they exist?).
I know that this post sounds sophomoric, but Iâm in the stage now (and for the next year) where Iâm simply trying to analyze the reasons why this cannot work and then try to refute them each in turn.
Here are some problems that Iâve identified:
1. <b>Time Zones.</b> When it is 930am in New York, it is:
-- 7pm in India.
-- 930pm in China.
2. <b>Regulatory Issues.</b> What are the barriers for foreigners being able to trade the US markets? This might constitute a standalone barrier to entry if the costs are high enough to deter prospective traders.
3. <b>Currency Conversion Issues.</b> Currency exposure could constitute a barrier to entry. Traders would have to be allowed to trade all listed US stocks, which means their accounts would have to be in USD, which means that they would be exposed to currency fluctuations on both legs of the the transactions (funding and withdrawing funds). Perhaps an analysis of the expected cost would add granularity. For example, would it be optimal to convert all account each day or would it be optimal to redeem them on some fixed (less frequent) time schedule? Should this just be left up to traders and justified as a cost to them as a trader?
Please let me know your thoughts. Specificity is always appreciated. Also, if anyone can point me in the any direction of a book or regulatory bulletin regarding foreigners trading the US markets, that would be very much appreciated as well.
Cheers.
Iâm going to be completely honest here as to my motivations and goals: Iâm a failed daytrader. I was fortunate enough, however, for this to happen when I was young (still am â under 30). Aside from market microstructure, I learned a TON about the profitability of the prop business model and I truly believe that the active trader community would benefit from being served by one who formerly traded, who knows how hard it is, and who wants to provide solid business value to help increase their profitablility as professional traders.
It seems to me that the reasons more people are not opening prop firms have mostly to do with the classic barriers to entry:
1. <b>Cost.</b> Most people who are aware of the prop business model are failed daytraders. These types donât have much money to put behind their ideas and probably donât have very good credit either since they are most likely fish who have routinely overextended themselves throughout their lives. Again, Iâm glad I learned young.
2. <b>Information.</b> Like many great business ideas that have not become fully attenuated, prop firms are not very well understood by those whoâve not actively traded.
3. <b>Will.</b> Most people are just pure lazy. There are at least a handfull of guys here who are not bound by 1 or 2, who trade successfully, but who simply lack the will to execute it. Hey, they donât need the money. Thereâs no shame in that.
Ok â so now that weâve addressed some of the initial reasons why everyone and their mother isnât opening a prop firm, I very much would like to know what some of the other challenges might be.
To give you more detail, within 5 years, my goal is to open up a prop firm somewhere in either India or China (probably India) giving foreigners access to the US markets. I do not feel that I have a good enough understanding of market microstructure to try to trade foreign markets⦠not to mention that the necessary liquidity to ensure tight spreads is absent and would expose me (as the Class A share holder) as well as the other traders, to too much risk.
I would provide all of the traditional infrastructure, but would mostly likely try to establish myself at the high-end right away by providing a high quality environment (nice/clean office, fast/new computers, central location) so as to be referenced as The Standard when other entrants arrive as well as to be able to effectively compete against existing firms (weâve all seen the condition of many prop firm offices in the US â can you imagine what they are like in India/China if they exist?).
I know that this post sounds sophomoric, but Iâm in the stage now (and for the next year) where Iâm simply trying to analyze the reasons why this cannot work and then try to refute them each in turn.
Here are some problems that Iâve identified:
1. <b>Time Zones.</b> When it is 930am in New York, it is:
-- 7pm in India.
-- 930pm in China.
2. <b>Regulatory Issues.</b> What are the barriers for foreigners being able to trade the US markets? This might constitute a standalone barrier to entry if the costs are high enough to deter prospective traders.
3. <b>Currency Conversion Issues.</b> Currency exposure could constitute a barrier to entry. Traders would have to be allowed to trade all listed US stocks, which means their accounts would have to be in USD, which means that they would be exposed to currency fluctuations on both legs of the the transactions (funding and withdrawing funds). Perhaps an analysis of the expected cost would add granularity. For example, would it be optimal to convert all account each day or would it be optimal to redeem them on some fixed (less frequent) time schedule? Should this just be left up to traders and justified as a cost to them as a trader?
Please let me know your thoughts. Specificity is always appreciated. Also, if anyone can point me in the any direction of a book or regulatory bulletin regarding foreigners trading the US markets, that would be very much appreciated as well.
Cheers.
