Quite a bit of the successful prop trading strategies are ones that cannot be executed on a small scale. It is impressively complex today and is miles away from just hitting the buy or sell button on a stock when a chart looks good.
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why does prop trading have such a high turn over?
- Thread starter spectastic
- Start date
Quite a bit of the successful prop trading strategies are ones that cannot be executed on a small scale. It is impressively complex today and is miles away from just hitting the buy or sell button on a stock when a chart looks good.
Prop trading is probably no different than the retail traders.
It is a vastly different world. Complex algorithms, complex derivative agreements, multi-leg trades, software tools to measure risk and trade opportunities in infinite ways, often high leverage, etc.
That's the reason why retail loses:
Equities Prop Trader: Direct market access, realtime orderbook of every exchange, 200+ order routing options
Equities Retailer: Zero commission, gets fleeced on every execution because his orders are sold to market makers to lean against
Futures Prop Trader: Pays 1,5k/month for professional grade execution software with co-located algo/spreader functions. Pays exchange member rates and a couple of cents/contract in commissions. Has access to volume rebates
Futures retail: trades one contract for 2$ half turn and uses software that runs on the client. Has 300ms latency one way.
All those "prop trader" tools you mentioned are available to you too and cost less than hiring a single employee at most any business. These are definitely not barriers to entry. The barriers to entry are knowledge.
What I'm saying is that, there are also a lot of individual traders or "retail traders" who are as successful as the prop traders. This is where the "self-directed" traders are. They trade their own money. To some, that is a better world than paying fees or share the profit with some prop firm.It is a vastly different world. Complex algorithms, complex derivative agreements, multi-leg trades, software tools to measure risk and trade opportunities in infinite ways, often high leverage, etc.
To some, that is a better world than paying fees or share the profit with some prop firm.
These are apples and oranges comparisons. Many strategies can only be performed on very large scales such as the bond spreads LTCM was trading. Very different career paths imo.
If someone really has the edge, I can see that he/she would want to get more capital than he/she can get on his own.
But if someone has seven figure of capital, a 30% to 50% return would make a good living. They probably won't need the backing of a prop firm.
We must be talking about two different things. I call a "prop firm" a company that hires people, negotiates employment agreements, raises capital and works as a team to operate a proprietary trading strategy. This group of people might include software developers, mathematicians, finance specialists and traders (who utilize the rest of the team and the things they create). Key people in this organization can make substantial amounts of money that far exceed 30% to 50% of their personal savings. You do this by raising money from investors and charging fees that are primarily a percentage of returns, such as 2 and 20 (or even 5 and 44 if you are the Medallion Fund).
I'm fairly convinced that the days of hiring someone and letting them go at it with a little capital to see how they do are long gone. But some of that probably still exists.
What you said is a prop trading desk or group. I do not think it is the common prop trading firms. The owners of this type of firms get revenue from the prop trading infrastructure and some trading profit from firm's capital.
There are different flavors of the prop trading firms. Not all are created the same.
There are different flavors of the prop trading firms. Not all are created the same.