Probably not too many since the leverage was extremely high because they were trading firm capital.
why does prop trading have such a high turn over?
- Thread starter spectastic
- Start date
I have prop traded before the "word existed" as such...in my opinion, there is no incentive to set up conditions that benefit the trader rather it is all to the benefit of the prop firm. The other thing is; trading cannot be taught and they never screen unsuitable traders, they just fail...hence the bad statistics and high turnover.
%%
LOL ;shocking truth teller /LOL.
Also any business/self employment has plenty of buffalow traps\bear traps.
Remington Arms has been in business for over 200/+ year$.
But they went belly up- bankrupt, not long ago; most all of it due to much debt. Court/creditors busted them up into 7 companies. Remington's loss = RGR + others gain..........................................................................................................
so what i'm getting here is that the main difference between good vs bad traders are mostly the same between prop firms and traders. And yes, I do realize that there are a lot of predatory prop shops who aren't even necessarily profitable from trading. What are some red flags to beware of, paying for education, high desk fee, and margin requirements?
I recall reading SMB's blog which indicated that 95% of people who apply never get an interview/seat with them, which made me think there's more to it.
Another thing I can see is psychological pressure of having to perform in order to simply pay the bills in the beginning. That can cause one to chase moves and look for suboptimal opportunities. Can someone who's actually worked in prop trading comment on that?
I recall reading SMB's blog which indicated that 95% of people who apply never get an interview/seat with them, which made me think there's more to it.
Another thing I can see is psychological pressure of having to perform in order to simply pay the bills in the beginning. That can cause one to chase moves and look for suboptimal opportunities. Can someone who's actually worked in prop trading comment on that?
From my experience, beginning prop traders either got paid a small salary or have their living expenses covered otherwise, so I don't think the pressure you are talking about was an issue. There was the pressure of having to perform to be able to stay on. I.e., if after say, six months, you are still a marginal or losing trader, the firm might want to kick you out.
and what separates the marginal/losing traders from the winning ones from your observation?
As for the salary thing, I asked about that in the other thread I made and the overwhelming response I got was something along the lines of "why should you expect a salary". Maybe the industry has changed since you were in it. It makes sense to me that as you're bringing on newer traders, to give them some stipend so they can focus on trading, and not worry about how they're going to pay for food/rent. But that doesn't seem to be the case in the firms I've seen. Maybe I'm not looking at the right places and you can suggest some places that are worth looking at.
There are prop shops and there are trading arcades.
Prop shops for the most part pay a small salary, because they are looking for top talent to trade their book. Today you probably won't get your own book right away but you will start as an analyst to a senior trader.
Arcades are places to leverage your own capital. Say you're a good trader but you don't have enough money. You go to an arcade, post your so called first loss and receive leverage, infrastructure and enjoy extremely low fees. Profits are split.
Let's say your first loss was 10k and your split 60/40 for receiving 500k in leverage. Losses up to 10k are covered by you 100%, after that it's the arcades risk. Profits are always split.
So if you only have 15k to your name, joining an arcade will always be better than walking the retail way. The difference between a professional setup and retail deals are night and day.
But these are two different business models. Prop shops want top talent, that's why they pay and that's why 98% of applications don't even get a reply. Arcades take everyone but you have risk
Prop shops for the most part pay a small salary, because they are looking for top talent to trade their book. Today you probably won't get your own book right away but you will start as an analyst to a senior trader.
Arcades are places to leverage your own capital. Say you're a good trader but you don't have enough money. You go to an arcade, post your so called first loss and receive leverage, infrastructure and enjoy extremely low fees. Profits are split.
Let's say your first loss was 10k and your split 60/40 for receiving 500k in leverage. Losses up to 10k are covered by you 100%, after that it's the arcades risk. Profits are always split.
So if you only have 15k to your name, joining an arcade will always be better than walking the retail way. The difference between a professional setup and retail deals are night and day.
But these are two different business models. Prop shops want top talent, that's why they pay and that's why 98% of applications don't even get a reply. Arcades take everyone but you have risk
As per your first question, I can't really tell to be honest, I have seen conservative, risk-seeking, sharp and not so sharp minds, hard working and more relaxed all succeed at some point. Though the really high performing ones probably were very sharp, hard working, and have a high tolerance for risk as you would expect.
Second, yes the firms I knew (if they still exist) do not pay a salary anymore.
You have zero comprehension of the business model of a prop shop. With a 90%+ washout rate paying a stipend would make the business a guaranteed loser.
If you want to work at a prop job as a beginner, be prepared to get a part time job, use your savings and/or get your wife/parents to support you, particularly in the profitless 1st year.
What are you bringing to the table that anybody would want to hire you even at zero compensation?
Retail trader with Tradestation: platform fees: $0
Prop trader platform fees: $150 - $250 per month
Retail trader with Tradestation: commisions: $0
Prop trader commissions: $0.0025 per share is typical for a decent firm ($2.50/1000 shares)
Exchange fees (NYSE, etc), Retail trader: Minimal. Maybe $30/month?
Exchange fees for prop trader: I think $150/month?
Prop firm cut for a retail trader: Non-existent
Prop firm cut for a prop trader: Possibly 0%, but many charge 10% or even higher.
Margin for a retail trader: 4x
Margin for a prop trader: 10x or more. While more "fun", the risk of wipeout is greater.
Licensing fees for a retail trader: $0
Licensing fees for a prop trader: $I don't know
Prop trader platform fees: $150 - $250 per month
Retail trader with Tradestation: commisions: $0
Prop trader commissions: $0.0025 per share is typical for a decent firm ($2.50/1000 shares)
Exchange fees (NYSE, etc), Retail trader: Minimal. Maybe $30/month?
Exchange fees for prop trader: I think $150/month?
Prop firm cut for a retail trader: Non-existent
Prop firm cut for a prop trader: Possibly 0%, but many charge 10% or even higher.
Margin for a retail trader: 4x
Margin for a prop trader: 10x or more. While more "fun", the risk of wipeout is greater.
Licensing fees for a retail trader: $0
Licensing fees for a prop trader: $I don't know