The Real Cost of being a Proprietary Equity Trader

Expenses?

Trading remote through a pro firm for the last year after spending 4 years in the office.

I was given a computer with two flat panels.
I pay for broadband, but I don't count that as an expense b/c I would have broadband regardless, who doesn't?
I pay for a news reader 80/mo (which is free in the office)
I pay for a stock scanner 30/mo
I don't listen to CNBC or anything for trading, but once again, who doesn't pay for cable?
Haven't been charged an exchange fee for a while, guess I am getting that comped, but not going to bother looking into it.

Don't really understand what was meant by this thread. Guess I have never been around a true prop firm aside from my first year and have been pro the last four.
Don't know why one WOULD NOT trade pro. I keep a whopping 5 grand in my account and have access to millions of BP. What is the downside that I keep missing? And in SHORT plain english. There is so much pontificating in this thread it was impossible to read.
 
Quote from limitdown:

good conclusions but simply put, most of those coming into the business as proprietary traders had ever reason to realistically work towards and expect the same outcome you so proudly recite...
More...

Hi limitdown

Good thread and I understand some of the concerns you are voicing. It's an interesting conversation for those of us who are considering some sort of prop deal.

A couple of points. I think it was you who made the distinction between pro firms and prop firms (I hope it was you - if not, someone else on this thread). I was unaware of such a distinction. In my mind, a prop firm was a place where you could trade someone else's money on the understanding that their business was generating commission in ticket charges. In fact there is a thread which is active right now in which someone says that anyone considering entering into a prop deal should ask the firm about their primary income streams - that is, how they make the majority of their money. I have a feeling that many firms would tell you to go to hell if you asked, but anyway; the point is that I had never developed the impression that a prop firm's bottom line was anything other than generating profits by charging transaction fees. I wish someone would set me straight on this if I am totally wrong.

My second point is about the quote above. I am not sure that 'most of those coming into the business as proprietary traders' ha(ve) any reason to realistically expect any particular outcome. It is a given that in any business endeavour, a certain percentage (quite a large percentage) of those who try will fail because they don't have everything it takes to make it - a good business plan, sufficient capitalization, a good work ethic, an understanding of the business they are entering, the right location, etc., etc. Most of those who start small businesses fail. So we can say wth certainty that most of those who start small businesses absolutely do not have the right to reasonably expect success. Certainly they can work towards it, but expect it? In fact anyone who starts a small business should probably be telling him/herself that since most people will not succeed, they better have a good plan and the willingness to work harder than ____% of those who start small businesses.

Trading is apparently even harder on those who start out - we have all heard the estimates of the number of new traders who fail within the first 12 months.

Maybe you meant that the new prop trader can reasonably expect success because the management is going to show them how to succeed. Even if that's what you meant, I'm not sure if I would agree.
 
re: "Can someone tell me who is offering these rates at .0015 -.002. I would make so much more money at that rate."


Genesis
 
honestly guys, I only wish I had seen this thread before I began with those marmalukes that ran Onsite....

Gary Mednick and his crew of thieves,

honestly how Rush Trade or any other firm would be associated or have that bastard in their employ is beyond comprehension....

LD, great thread....

don't see why more don't understand how beneficial this thread has and continues to be.....
 
This Refco thing has a lot to do with the mentality of these big cheese's.


Just who do you think that $430 million dollar unreported loan was that the CEO stole?

That's what Gary Mednick did with Onsite, and did it again when he sold the company to AB Watley,...


get this, he got paid $1,000,000 whilest the rest of us Class B members got bub-kiss....

in case you're wondering, he's over at Rush Trade in Syosset, Long Island....

probably sceeming to rip off more...

where the hell are those damn SEC Regulators or NASD Regulators....?

I guess they're helping FEMA figure out whether they're going to help New Orleans or not....
 
wow, haven't checked this thread in a long time....

seems that its just as relevant now, as when I started it....


keep the participation up guys....

we're all learning from each other and preventing each other from continually being taken by all these thieves....
 
that's really funny,,,

and yet, that's exactly how its continues to be....

what with all this information out there to protect the sheep, hmmmmm.....


perhaps they need to get sheerrrreeeeeddddd....


bahhhhahhh
 
Although I do not trade at a prop firm and I do not care to attack or defend the concept of prop trading, I would like to just contribute another perspective to this discussion.

This thread has been very focused on prop trading as an activity, some looking at it more as a job and others more as a business. I think that almost any trading endeavor, prop or not, has to be looked at as a business. And from that angle, it should also be compared to other businesses in terms of risks and potential rewards.

So if we take a step back and look at opening a small fast-food restaurant in a large metropolitan area, let's consider the costs, risks and rewards.

Although I won't mention any company name here, I will quote real costs and facts based on opening a franchise from one of the top 10 national fast-food chains in the USA.

- First of all, opening a new restaurant takes time and effort, which means one will have to quit their current job or at least put it on hold for 6 months if that's possible. So there go 6 months of missed salary.

- To open a restaurant downtown, you will have to lease a commercial space in a building. These types of leases usually come with a 5-year term and relatively high rent. You may be able to negotiate to get a couple of months for free to prepare the location for business, if you're lucky. The franchiser will "help" you to choose a location but won't make any real commitments in terms of how successful their choice will prove to be.

- The initial franchise cost, which will include the one-time fee to the franchiser, the cost of purchasing all the equipment, the cost of furnishing and decorating the location, the cost of a trip to a training center for manager training, etc. can easily reach $250,000 for a small location. You may be able to get some amount of financing but none of this money is refundable, independently of the results you obtain.

- If you want to operate your restaurant, you'll need employees. Employee recruitment will cost money for ads and will consume time for interviews, selection and training. You will need ongoing recruitment and training because fast-food employee turnover is very high. Of course, you will need to pay employees independently of how many customers you have, how much revenue you generate, etc. You will also have to handle ongoing complaints about low wages, schedule, etc.

- And finally, if you want to generate revenues, you will need customers. That will require advertising, which can be expensive. It will require promotions that will eat part of your profits. It will require top customer service, which implies extra employees to handle lunch hour rush and associated costs since no employee will come to work for only one or two hours.

Now, the most interesting part in this picture is that even if you:
- Quit your current job
- Purchase a franchise
- Complete all required training
- Commit to a commercial lease
- Build a restaurant
- Stock up the place
- Hire a bunch of employees with fixed salaries
- Purchase advertising
- Follow all operating instructions from the franchiser
- Deal with a number of various costs and challenges

There is absolutely NO guarantee you will succeed in your endeavor. You may end up losing most of the money invested and even more. The franchiser will not be held liable for any of the results and will not refund any of the costs.

This is simply the reality of starting/running a business. It's hard and risky, whether it's trading or a restaurant. Trading IS a business.

I think the problem is not that trading is overly risky or difficult (although it is both). The problem is that too many new entrants see it as a path to high profits with low capital requirements. And it is, to a certain extent, but not to the extent that the majority of new/potential traders think of it.

You just have to be realistic about it.

Can you make good money trading forex with a $500 account? What's the chance of success?

Well, can you make good money opening a fast-food restaurant downtown with that $500, or with $5,000 for that matter? You wouldn't even be able to make the deposit to lease the location...

When you start looking at trading as a real business, then it becomes easier to evaluate whatever opportunity is presented to you, whether that's prop trading, trading your own account, or any other variation of the business.

I hope someone finds this perspective useful.

Alex
 
Alex,
Your perspective is welcome but it is implying that trading is a lot simpler than most other businesses and if one just has enough capital, the chance of succeeding is about the same. I disagree.
Capital or its availability in trading is probably the equivalent of your business person having a signed 5 year lease for his restaurant. In other words, he's only 20% of the way there. It really says nothing about his prospects for profitability or chances of success. Yet, capital (or lack of it) is the #1 cause of failure for most traders. But once properly capitalized, many still fail depending on experience in the marketplace. I'd have to say that in order to succeed in this business you need several things at the same time.
1. a "good" market(s) to trade
2. adequate capital to take any/all necessary positions
3. several years/preferably a decade of hands-on experience trading.
4. some years, none of the above matters, and you can't make any money, no matter what the hell you try.
5. And then there are all of the other unmentioned skills needed to compete in devising a trading plan and the capacity to endure its ups and downs on a daily basis just like a regular business.

On the other hand, a McD's, once opened and profitable, rarely goes downhill . Whereas in trading, you can have several quarters of negative returns or your strategies just plain stop working which means you're again out of "business".
 
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