Trading the Firm's Capital?

@TsTrades:

You seem to making good progress cutting through the marketing bs and getting to the essence.

I have been weighing prop trading vs. forming a hedge fund or advisory business, and for a small operator such a myself, I am not seeing a lot to recommend either. I have also found that as I get more experienced and more consistently profitable, managing other people's money (OPM) is becoming much less appealing. I am starting to appreciate the virtues of simplicity.

One of the considerations I mentioned earlier, safety of capital, is worth repeating. Unless you are an ordinary customer, you have no SIPC protection. A second financial crisis is not entirely unthinkable at this point. You need to perform due diligence on whoever holds you money, and that may harder than it looks.

I believe that insufficient trading capital is rarely the limiting factor that people think it is. If you really have what it takes to trade, you will find a way. In a worst case, you can always grow your own stake. It just takes longer.
 
Quote from TsTrades:

rwk,

Exactly. It seems like, from the prop firm's perspective, a "heads I win, tails you lose" scenario. If you (the trader) make money, they get a cut of it. If you lose money, it's only your contribution you've lost anyway, and the firm still gets the commissions and desk fees, etc.

Yes, of course it's extremely difficult to get hired to trade by a GS or MS. But my hope is that there's some kind of middle ground (that's really the operative term here) between the two. Is there?
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you are using their capital and space.
 
That's precisely correct...... 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.
 
Quote from WinItAll:

Redi Plus, Ninja and Bberg
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Hey WinItAll, have enjoyed your informative posts:D

Anyway, besides Bright and TradePros, who offers RediPlus? From your posts displaying the rates you are getting, I am guessing you are with neither of them?
 
Quote from CarolinaCpaGrad:

most of these prop firms are glorified day trading shops.

seems if the can give you a prop trading title and tell you your trading firm capital you'll sign up and pay their huge commish rates.
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aka

chop shops

chop houses

wishful thinking shops

see the post of the guy calling it quits after 5yrs trying, and saying the market is really out to get you?

only those on the top of the pyramid walk above the clouds....
 
Myshkin,

Yes I wouldn't trade at firms like those..... Some people gain enough from these firms to justify the teaching fees and overbearing commission fee structures. The one thing you have ot think about is whether you want to be with the firm down the road b/c paying much larger commissions can take away large chunks of your profit.

From what I've been told Bright and similiar firms charge relatively high rates.... I would rather just clear straight thru a clearing house than pay a middle man, especially since they require the same 25k fee that you'd need to trade professionally thru a clearing firm. You'd have less leverage but that's probably a good thing. I'm from the old school and believe that trading with more than 4 times leverage is just asking to get blown up.

And before I forget I have an account at GS so I use redi right thru them. I don't do the majority of my trading on that platform though, more for swing trading and information.
 
Quote from WinItAll:

Redi Plus, Ninja and Bberg
More...

I have not used either Ninja or Redi. WinItAll, could you very briefly summarize what you consider to be the pros and cons of those platforms as compared to others you've seen or tried?
 
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