The Real Cost of being a Proprietary Equity Trader

L

limitdown

There have been many Shill threads on this and related Pro Firm topics, however, these all share the commonality of being promotional complimentary advertisement type discussions.

The real costs of being a proprietary trader, whether remote or in the offices of one of these "also ran" firms is a discussion that really doesn't get the light of day and is a serious one from the perspective of those serious enough to go through the Series 7 General Securities license process as well as agree to allow a clearing agent to hold ones funds in a segregated account, which some firms have embezzled, pilfered and never returned.

One needs to factor in the costs of ones:

1) median average past 3 year monthly wages as being forgone during one's trading (learning to be profitable) phase

2) [using the example of being remote to conserve expenses vs. commuting to an office]
-- the 3 month / 6 month estimated offices expenses:
2a) high speed internet access
2b) sufficiently robust computer and terminals
2c) computer technical support contract services
2d) heating, A/C, lighting, furnishing office
2e) phone, cell, Business news channel on CATV
2f) various other sundries associated with running an office (paper, printer, etc.)

3) MDF's (market data fees) associated with the Prop Shop's DA (direct access) Software, for example using Redi+ through Speer Leeds Kellog / Goldman Sachs:
3a) $200 / $400 monthly license fees
3b) $50 NYSE Openbook
3c) $20 CME futures realtime
3d) $50 NASD services/quotes
3e) $80 other associated service fees
3f) $80 to a Squawk Box vendor
3g) $80 to (stock screening software) for trading leads during typical trading days
3h) $80 for Paltalk, Hotcomm or other communication software license monthly fees
3i) $180 for eSignal, Tradestation, eQuotes or other outside charting software
3j) $65 for news / magazine subscriptions, etc.

4) Training classes and associated travel/lodging fees, whether to:
4a) learn about Pairs Trading or...
4b) learn about Trend Trading or...
4c) learn about Tax Strategies or...
4d) learn about ....etc...

5) Professional service fees associated with Legal, Accounting, Tax or other support roles...

6) Profit / Loss account slippage changes in one's principal balances

It is no wonder that the excitement of being self employed as a trader is sold by these firms and real discussions regarding the true costs of running one's own operation are avoided.

((please, let's keep this thread professional, real and substantive, not petty or degrading))

What have been your experiences or findings and how can your comments add to this realistic discussion?
 
Quote from limitdown:

What have been your experiences or findings and how can your comments add to this realistic discussion?
More...


An outstanding post. Long overdue. I'm amazed, and pleasantly surprised, that it hasn't been deleted.
 
Here's my experience, and I've been trading via a prop firm since 1998. I don't need to trade prop because I have enough money to fund my account, but I really like the fact that if "ALL HELL BREAKS LOOSE", then I'm the hook for only the amount in my account ... so in a way, it's very cheap insurance.

1. Exchange Membership Fee ~ $500 a year ($41.67/mo)
2. Series 7 Continuing Education ~ $50 every 2 years, plus time and expense to get to the test site ... no studying required. ($3/mo)
3. Market analysis software ~ $1,000 every two years ($41.67/mo)
4. New computers every 3 years - $1,500 per system x 5 systems = $7,500 ($208/mo)
5. Trader Magazines ~ $5/mo ... need something to read in the bathroom.
6. Misc. Office expenses ~ $10/mo.
7. Trading platform software fee ~ $200/mo, rebated if you trade at least 1M shares.
8. Miscellaneous exchange fees ~ $50/mo
9. Data Feed Fees ~ $180/mo
10. Internet Connection ~ $90/mo for 5Mbps cable with static IP.
11. Cable TV ~ $90/mo ... gotta watch CNBC and Bloomberg ... NOT!
12. DSL Back-Up ~ $35/mo
13. Cell Phone ~ $60/mo ... gotta have a worst case back-up!
14. Don't go to any bullshit courses or seminar crap.
15. Don't listen to Squawk Box or other distracting noises.
16. If you rent your place, you can deduct the percent of rent and utilities used as office space.

That's it - the average monthly outlay is ~$1,015. All of these expenses are tax deductible, so assume a 25% tax bracket, and your real monthly cost is $761. Subtract an additional $200 if you get the volume rebate, and an additional $X dollars if you can deduct a portion of your rent. I struggle to come up with extra expenses and do my best to have lunch or dinner with anybody trading related, so that I can write if off as a business expense. IMHO, it's a pretty damn cheap business to run ... BWDIK.


Regards,

Slave2Market
 
what exchange or corp membership is this lease
and what futures (?) and or other savings are there for you vs non member rates commissionwise?

-1. Exchange Membership Fee ~ $500 a year ($41.67/mo-
 
Quote from SethArb:

what exchange or corp membership is this lease
and what futures (?) and or other savings are there for you vs non member rates commissionwise?

-1. Exchange Membership Fee ~ $500 a year ($41.67/mo-
More...
I'm a member of the Chicago Stock Exchange ... it has the cheapest annual fee. The only reason that I'm a member, is that my prop firm requires it.

Regards,

Slave2Market
 
I have had a very positive experience at my prop shop. Have been there for 6 years. No fees except for TT software fees. Other then that, none. No desk fees, no CQG fees, no connectivity fees. Of course they recruit a little harder and are looking for a bigger commitment, but they are not in the space rental business and commit massive resources. Including IT, risk management, programmers, and a cook.

Not all prop firms are shiesty deals.
 
Quote from Slave2Market:

so that I can write if off as a business expense. IMHO, it's a pretty damn cheap business to run ... BWDIK.


Regards,

Slave2Market
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don't know what BWDIK means, however, I appreciate your contribution, I think we know each other and even if we don't we certainly know which firm you're in reference to.

The most important factor remains these:

1) the variance to one's principal balance that is used to:
1a) pay those ongoing normal expenses as well as
2b) provide the trading balance upon which "the leverage" is based upon
3c) handle trading losses and gains as well as account expenses and fees

2) trading market conditions, which never remain constant and increased competition in trading as represented by the ever increasingly sophisticated computerized programs used to automate trading.

3) whatever your average monthly expenses net out to being, they're paid firstly even before you reap your anticipate salary or living requirements, let alone profit expectations, hence you're guaranteeing the other guy's living and being fooled into thinking there's much left to profit from or live on....

those three factors, almost increase exponentially the risk of doing business as well as need to be factored in as significant contributors to the overall marketplace.

we tell professors to publish or perish in academia, and that expression is in reference to the underlying expectation that the collegiate role is to produce research and teach secondly or thirdly.

similarly, with respect to trading, being aware of the trading competition and the figurative other pieces of the pie or traders represented in the volume of the tape is more important than just being solely focused on trading (whether profitable, partially profitable or not), as if that were all there were to the equation

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picture this reality that there are sophisticated programs that calculate hundreds of permutations per interval and fire off hundreds of hedged (whether through paired, spread or straddle) orders in the same interval and still manage to take the lion share of the movement in stocks.

these orders whether executed or cancelled are reflected in the tapes that we read on each security and lead to conclusions that, for lack of a better expression, simply are manipulated

some of the strategies are large enough to swing the larger, more common TA (technical analysis) indicators in decidedly misleading directions. imagine getting a major buy indication using MACD and Stochastic readings on a basket or partial family of stocks only to see then whipsawed in another direction, almost without indication.

imagine that you use envelopes, opening orders,hedged or paired orders or other strategies to capture what deceptively appears to be inefficiencies in the pricing of those equities only to be duped and taken almost without the ability to see how you lost on what seemed like sure win trades...

one logically has to factor these concerns into the fact that the trading environments are significantly different and vastly more fractious than years ago, and regrettably these common trading strategies barely accounts for these significant changes in sophisticated trading that goes on...

simply put, those reaping a living and profiting most from these newer trading environments, for the most part are not the proprietary traders but the private trading shops that invest millions in these sophisticated trading software programs...

its not surprising that more and more traders are moving to scenarios that allow position trading instead of high speed (what seems like high speed) frequent intraday trading of stocks in an attempt to scalp daily profits...

there will always be the extreme few who through substantial assets who can ignore the expenses but for the vast majority of those turning towards proprietary trading, these odds just don't add up to any edge worth taking
 
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