The Future Of Prop Firms (Marex Up For Sale)

T

tommo

I've been a prop trader for about 10 years and things have changed so much. I am based in London so can't speak for America but am sure its not too dissimilar. From lots of boutique firms investing in training up grads and doing tons of volume to a consolidation into a few big firms that are pretty much just trade facilitators, dont't take much interest in the traders. I feel sorry for the new guys coming through.

Now it seems Marex's prop division (one of the biggest in London) is up for sale

http://www.reuters.com/article/2015/06/11/marex-spectron-sale-idUSL5N0YB4HO20150611

Prop firms don't seem to add much value these days, I am self backed so I don't need a prop firm's capital, I just need their access to low round turns and favourable margins that I wouldn't get if I went direct to a FCM. So all the prop firm does is let me piggy back their economy of scale for a small cut of my profits. And this business model is proving unprofitable as more and more prop firms go to the wall.

I think prop firms will either disappear entirely as clearers innovate new ways to just take traders directly. Or the prop industry has a huge overhaul and go back to investing in people.

But to be honest this doesnt include the headwinds of regulation which are taking a lot of the volume out of the markets.

Its a shame, I love this industry but seems to be taking it from all angles at the moment.

Anyone got a more positive outlook?
 
tommo said:
I've been a prop trader for about 10 years and things have changed so much. I am based in London so can't speak for America but am sure its not too dissimilar. From lots of boutique firms investing in training up grads and doing tons of volume to a consolidation into a few big firms that are pretty much just trade facilitators, dont't take much interest in the traders. I feel sorry for the new guys coming through.

Now it seems Marex's prop division (one of the biggest in London) is up for sale

http://www.reuters.com/article/2015/06/11/marex-spectron-sale-idUSL5N0YB4HO20150611

Prop firms don't seem to add much value these days, I am self backed so I don't need a prop firm's capital, I just need their access to low round turns and favourable margins that I wouldn't get if I went direct to a FCM. So all the prop firm does is let me piggy back their economy of scale for a small cut of my profits. And this business model is proving unprofitable as more and more prop firms go to the wall.

I think prop firms will either disappear entirely as clearers innovate new ways to just take traders directly. Or the prop industry has a huge overhaul and go back to investing in people.

But to be honest this doesnt include the headwinds of regulation which are taking a lot of the volume out of the markets.

Its a shame, I love this industry but seems to be taking it from all angles at the moment.

Anyone got a more positive outlook?
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Strong prop firms will adapt and survive, perhaps in a few years their business model would have changed so much that we won't recognize them as traditional props eg Schoenfeld Trading. In 2006 there were over 50 prop firms just in US....
 
Yeah but adapt to what? Its good for traders to have lots of prop firms out there, they compete for the good guys (purely from a selfish point of view) but I love the industry and want to see new blood encouraged in and helped. Not just faceless offices where you need $50k to sit down. If that was what I had to do when I started I wouldnt be here now. Hopefully we start moving back into the realms of boutique firms taking on people and training them up
 
The Chicago prop firms that I know of that are doing OK are for the most part employing autonomous groups of traders that have an automated approach, and they tend to invest heavily in ECN infrastructure. The firms that stayed with the manual "point and click" scalping style of traders are long gone.
 
I think it is necessary to distinguish between 'pay to play' prop firms where you rock up with $50k and well capitalised true prop firms where you get salary plus % bonus. Plenty of the former including sub groups have popped up with 'education' models of varying toxicity. True prop firms, hedge funds and other fund structures will continue. The pay to play outfits are struggling for competitive advantage. HFT has been a contributing factor imo.
 
I think the point and click firms have died out, but to be honest I think that has a lot to do with bad management more than people not being able to make money. I know plenty of "point and click" traders that make money. Myself included.

I think the hedge fund style prop firm is more successful because it is generally more professional and have more investment into innovation and risk. The "Pay and play" style firms generally just let people sink or swim with little input
 
US registered electronic futures proprietary trading firms are not allowed to risk the trader's capital - only the firm's. In fact, the trader is an employee who gets paid on a Form W-2. As such, the firm will define that trader's daily risk limits, and will at some point when a certain debit value is reached in terms of losses that trader will get fired.

There is no doubt in my mind at least that since the advent of HF and automated trading, that manual "point and click" scalpers and futures day traders have had a very tough time of it. So, I would argue that the market dynamics have shaken out more traders than bad management. Just my own observation over a long period of time. Very difficult for a human being with a mouse and a screen to hang on to a short term flat price position when the DOM is constantly getting flipped and gamed and the micro market environment is very choppy and noisy.
 
Hi Bone. We have the same risk limits and rules of risking traders capital in the UK. Thats a very macro level risk management. Im talking more about support from management.. how are they trading at the moment? Should they be encouraged to increase their size, should they tighten things up after a bad month? How about looking at this market or that? This is all the support I had when learning the game. Nowadays traders just put down some money, get a tap on the shoulder if they are down more than "x" on the day and kicked out the door if they go negative on the account. No wonder they have such high failure rates.

As for the change in market dynamics it has certainly changed, but to be honest I have made good money off of the games that go on in the DOM. Flippers or spoofers were my bread and butter for a long while. Its just about adapting. Now I do a lot of synthetic spread trading. I dont know if that is classed as "algo trading". As far as regulators go they treat me as if I am and have been cautioned on the amount of quotes to fills ration I have, despite the fact I am just an individual trader. It gets frustrating that the regulators are trying to change the rules to a game they don't even know how to play.
 
tommo said:
Hi Bone. We have the same risk limits and rules of risking traders capital in the UK. Thats a very macro level risk management. Im talking more about support from management.. how are they trading at the moment? Should they be encouraged to increase their size, should they tighten things up after a bad month? How about looking at this market or that? This is all the support I had when learning the game. Nowadays traders just put down some money, get a tap on the shoulder if they are down more than "x" on the day and kicked out the door if they go negative on the account. No wonder they have such high failure rates.

As for the change in market dynamics it has certainly changed, but to be honest I have made good money off of the games that go on in the DOM. Flippers or spoofers were my bread and butter for a long while. Its just about adapting. Now I do a lot of synthetic spread trading. I dont know if that is classed as "algo trading". As far as regulators go they treat me as if I am and have been cautioned on the amount of quotes to fills ration I have, despite the fact I am just an individual trader. It gets frustrating that the regulators are trying to change the rules to a game they don't even know how to play.
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I like the smell of your cooking. Paul Rotter was my best friend in that I would hit or lift his size against Euribor or Gilts. Loved it. BTW what idiot would scalp Schatz against that ??? What pissed me off was LIFFE going to Pro Rata order matching. FU. They are still calling me to this day asking me to trade Euribor. When I get FIFO for having the balls to be first with 500 and not piling on after the fact, then we'll talk.
 
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