These Are The Inner Working Of The Business Side Of A Prop Firm

W

WinItAll

It's common practice for these firms to tell you how they don't usually just let ANYONE join and that you just happen to meet the requirements.

Just for common knowledge, any sucker with a check for 5,000 dollars will be accepted b/c the firm has no money at risk...... Worst comes to worst they only make money on your comissions

If you make money they win and if you lose money they still win, just not as much. Oh yeah, and you win too if you make. No matter what they're making commission money on you and if you are making money, by trading your own capital/deposit, then they get a cut of that too. As for the ignorant response above me, just by trading at a firm you are paying for using their space. Win, lose or draw the firm makes commission charges off you. So you know, the rate I trade at for myself is more than most prop firms and that's 90 cents per thousand shares.....

Any prop firm that has more than five trades pays anywhere between 50 cents per thousand to 1 dollar per thousand.... Not a cent more. Whatever your commission cost is per thousand subtract a dollar per thousand (just to high ball it) and that's what they make on you.

So someone who trades 50k shares a day and is charged 6 bucks per thousand is in actuality paying the prop firm they trade with $5,000 a month in pure profit.

TO CONCLUDE, IF YOU GO BACK TO THE BEGINNING OF THE YEAR AND TRADE ABOUT A MILLION SHARES A MONTH YOU WOULD BE CREATING $60,000 A YEAR FOR THE PROP FIRM WHILE TRADING WITH YOUR OWN MONEY (DON'T FALL FOR THE TRAINING BULLSHIT, ONCE YOU GO THRU THAT MONEY YOU'RE DONE) AND THE SCARY PART IS THAT'S BEFORE THEY TAKE A PIECE OF YOUR PROFIT.

So to put it all together if you made $100k this year and traded around 50k per day with a firm letting you keep 80% of your profits and charging $6 per thousand the the prop firm would have made exactly as much as you.......

You make 80k and the firm would make $20,000 from your profits and $60,000 on your comissions. So you both make 80k a year.
 
The only time prop makes sense is if you get to trade with the firms capital with zero contribution yourself. Otherwise, you'd be better off putting the 5k into a futures account with $500 margins and getting the leverage that way.
 
Prop firms are out there because many traders find that this is how they can maximize their profits.

*** Awesome News Flash *** Beginners have no business putting up 5k at a prop firm if it's their first time trading off a level II screen anyway. We've seen Tuco's papers, the losing accounts outnumbered the winning accounts by a spectacular margin.

Your time would be much better spent explaining to newbies why they should spend time learning and simulating trades before joining an entry-level no-deposit firm (i.e. Swift, Title) than to bash on prop firms.
 
Quote from krazyanyway:

Prop firms are out there because many traders find that this is how they can maximize their profits.

*** Awesome News Flash *** Beginners have no business putting up 5k at a prop firm if it's their first time trading off a level II screen anyway. We've seen Tuco's papers, the losing accounts outnumbered the winning accounts by a spectacular margin.

Your time would be much better spent explaining to newbies why they should spend time learning and simulating trades before joining an entry-level no-deposit firm (i.e. Swift, Title) than to bash on prop firms.
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Equity traders still use level II?!
 
I'm not bashing anyone..... I have named no firms, I am simply providing information that will be useful for any new or old trader who is looking join up with one of these firms.

Most people don't know or understand the way that these firms make money and how they are just another number and the firm is actually not taking any risk on them at all.

Not to mention that it will help in negotiating a deal for traders who aren't aware of the base costs that the firm pays.

I'm not trying to bash or promote any of these places, just unmasking what is hidden thru marketing ploys and exagerations made by these firms. Such as trading our firms capital when all that means is leverage on your money..... Or no risk deposit, but instead a training deposit that just happens to be the same amount of money that you are allowed to lose before you're fired.

No matter what the form it's told in, this information is valuable and can be of advantage to any trader.
 
Quote from WinItAll:

No matter what the form it's told in, this information is valuable and can be of advantage to any trader.
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Not really. Any trader who's traded for any reasonable amount of time -- and has survived and even thrived -- knows the score. I don't really get what your point is. Yes, a prop (or retail) firm will make $$ off a trader. I think they are in business to make $$$, just as a trader is. I don't know, maybe after 14 years full time, I just assume too much. I really don't care if my firm makes $$$. Actually, I hope they do as I think they're a decent firm. The fact I'm still trading implies I'm making enough $$$ to make this all worthwhile. So why are you ripping a firm for making "x" dollars while the trader makes a similar amount? A trader has a choice in how frequently he trades, and thus in how much he generates in commissions.
 
Quote from WinItAll:

Most people don't know or understand the way that these firms make money and how they are just another number and the firm is actually not taking any risk on them at all.
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good point DHOHHI, it is good if our prop makes money 'cause if they don't, our money may be in danger as they are usually just LLCs and we really have no recourse if they go under (or so said my accountant).
to the OP, the risk the arcade type firms are taking is in that they are giving sick leverage(i get 20X). yes, these firms are making money on the commissions and perhaps margin (if you are holding overnights). IB and some other retail accounts can give you a commish of $1 per 1000 if they pass on the rebates for adding liquidity. then again, you are getting 4X leverage and not 20.
pros and cons for everything and depends on the type of trading you do. if you are looking to scalp out avg. 5 cents on 20k shares or 50 cents on 2000 shares, then on the latter, even a penny per share doesn't make that much difference. however, on the 5 cent scalp, even .006 will take a huge % of your profits.
good of you to pass on the info regarding fees the firm pays so that a trader can better haggle with them for a better base rate when they start trading size and as far as I know, almost all will come down in rates and almost all pass on the adding liquidity rebates.
 
why are you guys ripping winitall? he's just showing how prop firms screw the hell out of people with rates and make fortunes with no risk what he's saying is after 1-2 months of overides these firms have no risk period.once they make 2 months or so of 5k a month in profits they're making overides risk free as they'll never have somebody lose more than 10k in a day and hurt them. winitall is just telling people hey don't pay over $2-$3 a thousand as your firm is still killing it. i'm an expert on rates and let me correct a few things. yes many prop firms do pay 50 cents -$1 a thousand but many prop firms like echo,assent and hold pay at best $1.25/1000.i know several huge prop firms making$1 mil month in overides.BUT ITS A TOUGH BUSINESS FOR MANY AS MANY PROP TRADERS DON'T MAKE IT SO FINDING ONES THAT LAST IS TOUGH.
 
You two morons above are missing the point..... I'm saying that it's ridiculous that these firms are taking a piece of your profits while you're trading your OWN money. Think about it in this sense.... If you used Morgan Stanley as your broker and you were placing your own trades, would you ever even consider giving them 20% of what you made on your winning trades. Or if Ameritrade took 10k from you every time you made 50k while trading your own funds would you be cool with that? Ofcourse not, I'm just saying the same thing hear and making that clear.

Prop firms have every right to take an override on commissions even though you're trading your own money and they have no risk b/c they supply leverage. Unless these firms are absorbing loses however, it's ridiculous to allow them to retain of portion of your winnings. All I did was make it clear about what type of money they're making off you.

And for the first genius, this post was for experienced guys to comment and for NEW GUYS to learn what they're giving up and better negotiate the terms of their agreements with these firms.

The only time it's legit for someone to take a piece of profit while your money only is at risk is when it's in the form of a fund where you're paying professionals to manage the money.
 
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