Quote from bawr:
Sorry, since you used the term "borrow", I assumed you trade instruments where actual borrowing is involved.
I understand the mechanics of the futures markets. If your goal is to obtain leverage in the futures markets, why not do it via a retail account, where plenty of leverage is available? Why do you need your prop firm? You mentioned your firm's economies of scale, but in the futures markets, favourable implied interest rates are available to everyone. You don't need economies of scale.
I don't believe the game is different at all. You are trying to make money with money (yours or someone else's). You need to know your rate of return.
What happens if you have a catastrophic loss? Who picks up the tab, you or the firm?
>> With a retail account... like I explained before, the costs are much, much higher initially. You are always better off with a prop firm at the start. This is very baby size example, I am a more than 5-times bigger than the current limits I am describing to you....
** If I wanted to just have 60 Australian 3-yrs I would need $700 x 60 = $42,000 in Margin.
** Then I would need 20 Australian 10-yrs, so that's 20 x $1300 = $26,000
** Just to have 5 Australian Spi would be 5 x $5000 = $25,000
** To have 5 S&P500 E-mini would be 5 x $5000 = $25,000
We're already talking over $100,000 needed in margin... and the size I have just told you about is the BARE MINIMUM starting. I have 180 Australian 10-yrs just as one example.
Prop shops require NO deposit. You get to come in and get trained up in an environment with other people, learn from others (hopefully) and grow. This is really hard to do at home by yourself.
>> There are catastrophic losses sometimes but it's the prop shops responsibility to monitor it. We got a 24/7 risk team. They got thresholds to watch and call you. You nominate a dollar stop and you get called up about your plan to exit.
They handle it well.
>> Also, yes, sometimes some people (like someone recently) can just walk away having owing the company $20,000 to $40,000. But that's the deal. You come and you trade for no salary, and you try to find something that works with effort.
When you get on a contract you sign a statement that ensures you won't do anything wreckless or excessive gambling otherwise you get chased for it. Just because you got hurt doesn't mean you were gambling. Some people do things such as... their account is -$10,000... they have one more shot left.... they're almost out the door... so they hit a Data figure wildly and hope for the best. This is obvious gambling and no-one is happy about that.
>> Also the losses are obviously controlled because you are monitored day to day. Risk is on you 24/7 to make sure no-ones numbers are breaching what you say your stop is.
>> In short, their risk team and management is really good and they handle it all. Like any other prop shop they know what their bottom line is, and what they can afford to lose/what they can't afford to lose.
>> Also, regarding ROI... the example above I listed was my very own baby-amount of size. You need to multiple that number by at least 9 times to get my real 'retail deposit required' (there's actually more because I'm not including some products).
So the number is at LEAST $1 million needed to be left in as a 'margin' with the exchange account.
However, be mindful that sometimes you're just given a few extra limits for 'just incase' moments. Like queue holding, or in case some rogue announcement comes, so it's possible.
Once again, the rates I mentioned are not the rates a prop shop would pay because of their sheer volume. For the volume a prop shop might do, instead of $700 per 3-year contract it might go down to like $400. Once again it's negotiable with the exchange I think so I would never know.
>> Also.... no-one in my firm would ever know or have any concern because we get provided limits and thats it. Our job is to just sit there and make money. Not to focus on anything else...
