The Perfect Prop Firm

SteveNYC · Jan 24, 2012

Quote from syswizard:

Absolutely...been there, seen that.
However, the other side is now quite the reverse with algo and high speed trading. Only academics need apply to that trading camp...and egos only matter with regards to your math and coding skills. You don't have to be smart at all to prop trade, but you better have honed trading instincts and intuition, otherwise you'll bust easily.
Prop vs. Algo: Profits are tiny, but consistent....that's the big difference. Traditional prop trading can bring huge profits...at a cost of course....your marriage, your sanity.....

That's what I thought long time ago.

But now, IMO, fundamentally:

Business is business. Trading is trading. Academics is academics.

Academics isn't business nor trading. Academics is school.

trom · Jan 24, 2012

Quote from Maverick74:

Let me address this point. These guys are clever and obviously they have thought of this. What most firms do that back traders is they only pay you out a portion of your earnings, the rest go into deferment. In other words, it has a vesting period. If you leave the firm before it's vested, you don't get it!!!

Let's use an example here. Say you get a 50/50 split. Every month, you might get 80% of that and the other 20% goes into deferment. So let's keep the math easy and say I make 60k a month. That leaves me 30k in payout. Of that 30k, 6k if it goes into long term hold which is usually 2 years, could be 3 years. Over the course of year one, I now have 72k in deferment (12 X 6). Year 2, I do exactly the same and another 72k goes into deferment. I now have 144k owed to me in deferment. If I only have a 2 year vesting period, at the end of that 2nd year I could take out the first 72k.

If I quit and leave the firm then, I give the other 72k to them! If I have a 3 year vesting period, I would leave behind 144k!!!!!! Think about it, most traders are too damn cheap to pay for premium cable channels. The idea of just giving away 72k is a lot of money regardless of how rich you think you are. Imagine if that amount is 250k or 500k. Would you really just give that money away for nothing. Some guys actually do, but most don't. The guys that don't have much capital in deferment won't be giving up much if they leave, but that usually means they weren't that successful and leaving their backer might not be the best thing for them to do.

I trade fully backed at a firm with a "golden handcuffs" provision in the contract like you've described. It's frustrating as an individual because, obviously, I'd like my earnings sooner rather than later. Yet, at the same time I realize it's a safeguard against some other trader going all in on a stupid trade and potentially damaging the firm. The guys with enough buying power at my firm to trade that kind of size all also have quite a bit of money waiting as a deferred payout.

So essentially, the perfect firm would have have golden handcuffs for everybody - except me.

Maverick74 · Jan 24, 2012

Quote from trom:

I trade fully backed at a firm with a "golden handcuffs" provision in the contract like you've described. It's frustrating as an individual because, obviously, I'd like my earnings sooner rather than later. Yet, at the same time I realize it's a safeguard against some other trader going all in on a stupid trade and potentially damaging the firm. The guys with enough buying power at my firm to trade that kind of size all also have quite a bit of money waiting as a deferred payout.

So essentially, the perfect firm would have have golden handcuffs for everybody - except me.

I'm curious, do you care to share your style of trading. As you know there was some debate on this thread about how guys trade that get fully backed. You don't have to go into details.

Don Bright · Jan 24, 2012

Quote from trom:

I trade fully backed at a firm with a "golden handcuffs" provision in the contract like you've described. It's frustrating as an individual because, obviously, I'd like my earnings sooner rather than later. Yet, at the same time I realize it's a safeguard against some other trader going all in on a stupid trade and potentially damaging the firm. The guys with enough buying power at my firm to trade that kind of size all also have quite a bit of money waiting as a deferred payout.

So essentially, the perfect firm would have have golden handcuffs for everybody - except me.

That sounds pretty much like the Steve Schonfeld model, and some of his sub's. Perfectly understandable, but frustrating as well. I have some "transferee's" that had to wait for $$, not the "bad kind" of waiting, Schonfeld is a stand up firm, but just their contractual agreements.

Don

Don Bright · Jan 24, 2012

Quote from syswizard:

Traditional prop trading can bring huge profits...at a cost of course....your marriage, your sanity.....

Although true, a good "LOL" for this, especially the sanity part.

Don

eusdaiki · Jan 24, 2012

I think that one very important aspect of "the perfect prop firm" is that it runs a model based on trading floors, not remote trading. I believe there is a lot of value from the atmosphere you get from the trading floor, which many people underestimate.

I also want to point out that i find it very amusing how many folks describe their perfect firm as one that pays out 100%, & charges nothing on the fees... I mean the firm has to make money too!

I think that firms which take a cut of trader's profits at least have their interests lined up with that of the traders.

Great thread Maverick

(actually read through the whole 41 pages of it...)

syswizard · Jan 24, 2012

Quote from Don Bright:
Although true, a good "LOL" for this, especially the sanity part.
Don

Well Don, to blow off the steam, you need women.....and there's the impact on the marriage.
I've asked prop firms point blank:
What time doe the female masseuse arrive ? They give me this blank look.....
Wow, it just makes sense with all of the pressure of trading.

trom · Jan 25, 2012

Quote from Maverick74:

I'm curious, do you care to share your style of trading. As you know there was some debate on this thread about how guys trade that get fully backed. You don't have to go into details.

Currently, spreading and some special situation stuff. I'll still enter some directional trades, but usually only if I have a clear edge in execution, such that I'm pretty much guaranteed "free" money or a scratch. But as far as going long XYZ @ 100.00 at the market because of an indicator or gut feeling - very rarely.

That said, I do know some guys that are successful directionally. However, they are usually looking at relatively illiquid instruments in which they've identified another market participant doing something unusual. They essentially are trading 1 vs 1 against someone else - and have a decade of trading experience behind them. I would say it would be extremely difficult for a new trader to be successful strictly trading directionally.

caementarius · Jan 25, 2012

Quote from trom:

Currently, spreading and some special situation stuff. I'll still enter some directional trades, but usually only if I have a clear edge in execution, such that I'm pretty much guaranteed "free" money or a scratch. But as far as going long XYZ @ 100.00 at the market because of an indicator or gut feeling - very rarely.

Not to derail Mav's thread - but can you also share some of the general story of how you made your start in the business?

trom · Jan 25, 2012

Quote from caementarius:

Not to derail Mav's thread - but can you also share some of the general story of how you made your start in the business?

College -> Aptitude test/Interviews -> Job