Would this work

[shortthelows]

Quote from Hydroblunt:

Call it gimmicks, call it whatever, but those were real edges which were great risk/reward and made traders a lot of money. They did not last and were not expected to last just like your automated system will not last and is not meant to last. Smart traders look for good edges to exploit on capitalize upon, rather than battle it out with the toughest conditions. Those edges were easily taught and let the "prop" firms generate some very nice revenues as well. Due to these "gimmicks" I was able to start daytrading with no money down.

Bottom line is that you business concept has a bad risk/reward ratio. In fact, I would stipulate that is extremely likely to fail. You cannot compare yourself to Swift, who has an extremely excellent clearing deal (an edge!) or WTS, who charges a 2 grand tuition fee or Title which I think does have a risk deposit/ tuition fee.

Let me put it this way. Obviously, there is much more profit in developing profitable traders and then taking a significant cut of their net earnings. But noone, except FNYS & Jane Street, is practicing that concept and has not for years. Even FNYS has scaled back significantly. Putting them aside, all other firms are focused on making sure that they take almost zero capital risk when bringing in new traders & even experienced traders.
What does that tell you? Think about it. Once you realize what that suggests about the trading environment of stocks & index futs, ask yourself what edge do you really have when applying this concept? The answer is none.

I never said that my "edge" is going to last forever that is why I always have something coming down the pipeline to take its place as my main money maker when market conditions change and my strategy stops working.

As for clearing, I will be paying 20 cents per 1000 shares which is low enough, not as low as swift but low. Just because no one else is executing this model doesn't mean it cant work. Its going to cost me 75k and year in Salary, that is not a huge risk.

If I changed my model to saying I would look for 3 traders each puts up 5k and has access to all the infrastructure to develop trading strategies using clean data, NN and GA's having access to programmers etc. Would it be a bad idea? I think you are too hung up on the 2k a month salary.

 

[shortthelows]

Quote from SteveNYC:

Interesting prop business model if you are for real. I like the deal b/c you actually invest in the trader unlike most chop-shops. So your firm will be in between a real prop firm and a chop-shop, if you will.

Since you actually pay/invest in the trader, you might not suffer the revolving door effect so to speak and will get decent human beings to trade for you. Whom you trade with matters a lot. It's hard to trade with and around traders you can't trust.

Ever since I stopped trading for WorldCo, I haven't found a decent chop shop in NYC. (I hear Bright Trading is so great but why don't they have an office in NYC?) They are all skewed in favor of the chop shop. They take almost no risk and the traders bear almost all the risk. The conditions are so "unmotivating". I even know a chop shop that pays once every 2 months. I don't know how a trader can live to trade under that condition, especially in times like this.

I am skeptical that you have an automated system b/c most chop shops don't. Technically, they might have one, but it doesn't work and the trader basically bleeds his tuition/risk capital.

There are a lot of naysayers on your business model, but they are all based on what they know and their perspective. If you are for real, have a profitable system, and have decent intelligent human beings working for you, then sky is the limit.

Actually there are more people who think its a good idea, its just the 4 or so on this thread that have told me I am bound to fail.

I am not sure why you are skeptical that I run a few automated systems to trade. There are a lot of people doing it. If you think I have an automated system that I am going to hire people to trade/monitor, that is not what I am doing.

I am looking to hire a few smart kids who in most cases would not get into trading (because of no income), who would use the tools that I have in place to develop their own strategies, have them coded and then ran on the live market.

Like you I think the sky is the limit. There are details that still have to be worked out, but I do believe it will work. Mav and Hydro have given me things to think about though and I have made some changes to the overall business plan based on their suggestions.

 

[SteveNYC]

Quote from shortthelows:

Actually there are more people who think its a good idea, its just the 4 or so on this thread that have told me I am bound to fail.

I am not sure why you are skeptical that I run a few automated systems to trade. There are a lot of people doing it. If you think I have an automated system that I am going to hire people to trade/monitor, that is not what I am doing.

I am looking to hire a few smart kids who in most cases would not get into trading (because of no income), who would use the tools that I have in place to develop their own strategies, have them coded and then ran on the live market.

Like you I think the sky is the limit. There are details that still have to be worked out, but I do believe it will work. Mav and Hydro have given me things to think about though and I have made some changes to the overall business plan based on their suggestions.

If the new inexperienced traders you hire don't trade the in-house automated systems, do they trade manually? Also, how would they know how to trade?

Almost every quasi-prop firm that I have been around has a method/system of trading which are all geared to generating maximum amount of commission irrespective of net profit.

It seems like your prop firm will be like a think tank that focuses on development and automation of trading systems. Very novel and smart approach since your emphasis is not on commissions but on profits. If this is where you are heading, couldn't you also hire traders who have systems but isn't automated? I have seen ads looking for traders who seek to automate their trading systems. But the catch is that the traders have to put up risk capital.

 

[Maverick74]

Quote from tradingjournals:

Hey Maverick74? Do you have a shop? If you do, am I wrong/right in understanding that the money of the shop owners is made from selling picks/shovels, and lending capital using SPAN margin and the commingled money of other traders?

If I am right, and one thinks deeper, the shop owners are actually seekers of capital, but tell some go around in forums to tell traders that they offer capital. It is similar to banks, except that in this case the bank lender and the bank borrower are the same guy.

If you have a shop, do not be afraid to put the link here. I will defend you. I am serious and I will honor what I wrote.

If addition if you want visitors to your site, I have actually a site. As soon as I make a post on my site, 1000 visitors show up on my site because google displays my site on Google finance. I can even send you traffic, or if you want to write a nice column I can consider publishing it.

TJ, I do not "run" a shop. To answer your questions, most firms make their money in a variety of ways. All of which are bleeding. There are commissions (margins getting killed), there are interest rate spreads (also getting killed), there is lending of capital, p&l splits with backed traders, stock loans, fees from use of proprietary software and from leasing space. Some firms also sell education or training courses.

All of these areas are getting squeezed. You are right in that prop firms biggest asset is selling "the dream". As long as greed exists, firms will find a way to exploit it. Of course this can be said of any business.

 

[Hydroblunt]

Quote from shortthelows:


If I changed my model to saying I would look for 3 traders each puts up 5k and has access to all the infrastructure to develop trading strategies using clean data, NN and GA's having access to programmers etc. Would it be a bad idea? I think you are too hung up on the 2k a month salary.

This would simply make it better on your wallet, but contrary to what you believe, you would not and are not doing anything new or different, whether it is with backing traders or backing + salary. A number of "prop" firms are geared toward automated traders and support new guys who work on developing systems. Some will back traders, some won't. None will pay any salary/draw, at least not at this moment. That should tell you something.

What you do with your trading is one thing, but what you are proposing with your concept is a business venture and you need to evaluate it from that standpoint. You're not grasping what I'm telling you or what Maverick is telling you. You do not have any competitive advantage and you are entering a very competitive & oversaturated industry. Additionally, companies that have been doing what you're proposing for years, whether just similar in nature or very close to your concept, are hurting.

If you want to do this as an intellectual challenge because you are flush with cash, then that's one thing. But as an investment of capital, it's simply a poor choice from a risk/reward standpoint.

 

[shortthelows]

Quote from Hydroblunt:

This would simply make it better on your wallet, but contrary to what you believe, you would not and are not doing anything new or different, whether it is with backing traders or backing + salary. A number of "prop" firms are geared toward automated traders and support new guys who work on developing systems. Some will back traders, some won't. None will pay any salary/draw, at least not at this moment. That should tell you something.

What you do with your trading is one thing, but what you are proposing with your concept is a business venture and you need to evaluate it from that standpoint. You're not grasping what I'm telling you or what Maverick is telling you. You do not have any competitive advantage and you are entering a very competitive & oversaturated industry. Additionally, companies that have been doing what you're proposing for years, whether just similar in nature or very close to your concept, are hurting.

If you want to do this as an intellectual challenge because you are flush with cash, then that's one thing. But as an investment of capital, it's simply a poor choice from a risk/reward standpoint.

The reason why, I even entertained this idea and felt like I should move forward with this. Is I know that if I didn't have the financial backing from the start, that I would have never got into trading.

I know there are a lot of smart kids out there who are not going to give trading a chance because they have bills to pay, their parents want them to get a "real" job and so on. So I figured paying that small salary would attract and retain these people.

But your reply was well written and well received. Thank you.

 

[tradingjournals]

Quote from Maverick74:

TJ, I do not "run" a shop. To answer your questions, most firms make their money in a variety of ways. All of which are bleeding. There are commissions (margins getting killed), there are interest rate spreads (also getting killed), there is lending of capital, p&l splits with backed traders, stock loans, fees from use of proprietary software and from leasing space. Some firms also sell education or training courses.

All of these areas are getting squeezed. You are right in that prop firms biggest asset is selling "the dream". As long as greed exists, firms will find a way to exploit it. Of course this can be said of any business.

Good post Mav! I agree with you. I think you are a good guy. I was under the impression that you were involved in some capacity with a prop firm. Did I miss something?

Seriously, post a link if you have something. I am interested to know. If moderators try to come after you, I will be part of the defense. You post extensively, so it would be fair that from time to time you can give a link if people ask for it.

 

[TCapital]

Quote from shortthelows:

The reason why, I even entertained this idea and felt like I should move forward with this. Is I know that if I didn't have the financial backing from the start, that I would have never got into trading.

I know there are a lot of smart kids out there who are not going to give trading a chance because they have bills to pay, their parents want them to get a "real" job and so on. So I figured paying that small salary would attract and retain these people.

But your reply was well written and well received. Thank you.

Yes the concept is brilliant and can work properly only if done with some adjustments as I will suggest below:

Rather than waste all that 250K+ just for setting up the business and to hire a programmer and move on if it didn't work plus the fact that a long time will be invested to train newbies to produce and learn new, untested strategies (shortthelows 08/17/10 05:21 PM). I have a better idea and if you decide to take this idea, I will be the first to sign up.

The idea is: there are lots of traders out there trading part-time with good strategies that they have developed in-house. They are unable to venture into trading full-time because they are under capitalized - me included.

You only need between 3-5 of these "good and willing" traders to remain in business and to make 10K profit a month, one would need a 100K account because I have been trading my system/ strategy successfully in the last 2 years with 90% probability in my favor and have never lost in any month because of strict risk management control.

A loss for me is when I did not make any profit - and that has only occured just twice. I started with a 10K account and averaged 1K-1.2K a month for a 100%+ yearly profit. My account did not grow significantly because of my drawings and the fact that I am undercapitalized.

Without taking my words for it, I will suggest a business model whereby you recruit 3 individuals only, with each person trading a 100K simulation account which you will monitor, with whatever proprietary strategy they have developed that may have worked for them but will not be disclosed to you.

If they can average 10K a month profit for three consecutive months through the simulation trading account then, THEY ARE HIRED!

That way, you are confident that you are hiring a trader that can really deliver and make money. The terms of the payout may have to be renegotiated to a 50-50 basis with the first month profit held in the account as proxy for any trade loss that may occur through an act of God that may bring the live! account balance below 100K in any given month.

This model I believe, will allow you to have a good night sleep and for the remote trader, something to build a full-time career on which allows him to stick around until you ever decide to close shop. A fair deal for both parties. Believe me, a single profitable trader will outlive ten newbies and the business will grow substantially in no time with less numbers of trader to deal with.

Why pay pay newbies $2-3K/mo to reinvent the wheel when you can run with my suggestion above and the trader and you WILL start making about twice that amount the second trading month!

 

[tradingjournals]

Quote from TCapital:

Yes the concept is brilliant and can work properly only if done with some adjustments as I will suggest below:

Rather than waste all that 250K+ just for setting up the business and to hire a programmer and move on if it didn't work plus the fact that a long time will be invested to train newbies to produce and learn new, untested strategies (shortthelows 08/17/10 05:21 PM). I have a better idea and if you decide to take this idea, I will be the first to sign up.

The idea is: there are lots of traders out there trading part-time with good strategies that they have developed in-house. They are unable to venture into trading full-time because they are under capitalized - me included.

You only need between 3-5 of these "good and willing" traders to remain in business and to make 10K profit a month, one would need a 100K account because I have been trading my system/ strategy successfully in the last 2 years with 90% probability in my favor and have never lost in any month because of strict risk management control.

A loss for me is when I did not make any profit - and that has only occured just twice. I started with a 10K account and averaged 1K-1.2K a month for a 100%+ yearly profit. My account did not grow significantly because of my drawings and the fact that I am undercapitalized.

Without taking my words for it, I will suggest a business model whereby you recruit 3 individuals only, with each person trading a 100K simulation account which you will monitor, with whatever proprietary strategy they have developed that may have worked for them but will not be disclosed to you.

If they can average 10K a month profit for three consecutive months through the simulation trading account then, THEY ARE HIRED!

That way, you are confident that you are hiring a trader that can really deliver and make money. The terms of the payout may have to be renegotiated to a 50-50 basis with the first month profit held in the account as proxy for any trade loss that may occur through an act of God that may bring the live! account balance below 100K in any given month.

This model I believe, will allow you to have a good night sleep and for the remote trader, something to build a full-time career on which allows him to stick around until you ever decide to close shop. A fair deal for both parties. Believe me, a single profitable trader will outlive ten newbies and the business will grow substantially in no time with less numbers of trader to deal with.

Why pay pay newbies $2-3K/mo to reinvent the wheel when you can run with my suggestion above and the trader and you WILL start making about twice that amount the second trading month!

Your idea is good, and it is what I suggested to him. My idea goes even beyond, as it shares part of losses.

There is only one potential problem: he most likely does not have the money!

I doubt that there is one single guy on this forum who has risk capital even if there are huge edges.

My comment extends to prop firms as well.

Even the Bright guy who keep posting bullcrap on this forum would not dare answer it.

 

[Maverick74]

Quote from tradingjournals:

Your idea is good, and it is what I suggested to him. My idea goes even beyond, as it shares part of losses.

There is only one potential problem: he most likely does not have the money!

I doubt that there is one single guy on this forum who has risk capital even if there are huge edges.

My comment extends to prop firms as well.

Even the Bright guy who keep posting bullcrap on this forum would not dare answer it.

TJ, there are plenty of guys here with capital. Please outline exactly what you are looking for. Please be specific. I've read your request a few times and I'm not sure if you are looking for backing or some partnership or some combination. What products are you trading, strategy, etc.

Seriously, I know guys on this site with 7 figures. There are firms in Chicago that give guys 7 to 8 figure lines to swing within 6 months at the firm. The one thing I can say about this business, if you can walk the walk, there is absolutely no shortage of capital. In fact if anything, the biggest problem with this business is the overabundance of capital, not the opposite. But I digress, give me the rundown.