Prop Firms from the Inside

[Prop prop 10]

Hi,

 

I am a part of a prop firm and actually represent a group of traders.

 

I like to read what people say about prop firm (bad or good) and actually understand how we could offer a better service.

 

I know that there is a lot of firms out there promising that they will make you rich with their training or recipes for success, charging you exorbitant fees and that maybe most of them are a scam but at some point, individual traders need stop and think about it.

 

If there were any kind of magical formulas for trading, do you really think that people will waste their time in recruiting traders and ask them to put money down. They would trade their magical recipes, recruit people to trade their own money ( you probably heard of hedge founds or prop desk at banks:haha: ).

 

Nothing is more important that experience and that is my next point, prop firms are just here to give you access to the trading business and that is why you give them commission, nothing else.

 

The rest, paying for a training or coaching or whatever else they can come up with is really up to you and the confidence you have in your group.

 

Trading is a business, it takes time, capital, commitment and there is no shortcut. You should wonder why brokers online are faring better than traditional brokers with the retail investors and apply this thinking to active trading. They offer an access to the market for a fare price, free information and the rest is really up to you.

 

Thanks to tell me what you think about that.

[SIUYA 11]

a lot of this depends on what is defined as a prop firm.

is it just a broker, is it a scam to really just double charge brokerage, is it a firm that provides real guidance and backing or a put a bunch of monkeys in a room figuring one or two will make it?

 

For me, prop firms by some definitions dont take enough risk and are more like brokerage firms. If all they do is give you access to trading and you pay them commissions then they are a broker.

In my mind no body who is working for a prop firm should be putting their own money down. You can access leverage, systems, data etc without a prop firm. So why then give away your upside. That is why I feel too many prop firms are more scams, or brokerages.

 

The trading firms that I trust and know of, will pay a salary, give you access to risk limits and capital and once you cover the costs (that the firm wears if you get it wrong) then you share the profits. They dont benefit from you paying commission, buying desk space, buying systems, they benefit from you making money.

 

so in short - a broker may be, but generally is not, a prop firm in my book.

 

(eg; interactive brokers, gives you access to a market, access to leverage, a platform, accounts etc etc BUT they are not a prop firm, nor they consider them selves to be. They are a broker)

[BlowFish 10]

Most provide training too SIYUA. The sceptical would say that the training in the less scrupulous shops encourages you to churn your account generating commissions for the house.

[SIUYA 11]

Most provide training too SIYUA. The sceptical would say that the training in the less scrupulous shops encourages you to churn your account generating commissions for the house.

 

and thats why i made the distinction!

[Prop prop 10]

Hi,

 

I am a part of a prop firm and actually represent a group of traders.

 

I like to read what people say about prop firm (bad or good) and actually understand how we could offer a better service...

I got an answer on one of my posts that I wanted to share with you:

 

 

Re: Prop Firms from the inside

I totally agree with what you have said. I worked at a firm where I put up $5000 in capital and they supposedly were going to train me and take an interest in me. I have read pretty much every book about trading and came in with a strategy I wanted to execute where I have returned 19% on a simulator.

 

They started me off saying they wanted me to front run big bids and offers so that I would know how to hit my out. In recruiting me, they give you the whole lip that every trader has a different style and we are very open to new methods. All of our traders are different, etc. This is a bunch of crap. They do that and then push you to size up so they can rake in commissions. Just about every trader there had less than a year of experience and my mentor was a girl who had been trading for about 8 months and was deep in the hole. I left because they were not open to me executing different strategies.

 

Best Options

1. Go to a firm that will provide you a draw and you trade their capital--They make an investment in you so they are going to do what they can to make you successful. In the end it is still on you to teach yourself to trade but have the benefit of being surrounded by seasoned traders.

 

I am trying to find a firm that will take me but most are not hiring. I have a decent GPA from an ivy school and have demonstrated a strong interest in the markets but such is life.

 

If anyone can help me with this I would be much obliged.

 

2. Open an account at home and teach yourself to trade. Your commissions will be cheaper and will not be distracted by the opinions of others at these chop shops who do not know anything about trading.

 

The one hiccup is how do you afford the computer equipment to start? That is where I am at and if I buy a legitimate computer I will not have enough money to trade but you need the computer to trade.

 

 

3. Do what I originally did and put up money to work at a chop shop. Any firm where you have to put up capital to be able to trade is a load of sh**. They do not take any risk or make any investment in you so there is very little benefit in them teaching you to trade. In reality, you need to teach yourself how to trade so you are better off opening up an account at home and teaching yourself to trade.

 

Lastly, an owner of one of these chop shops will probably reply to this post to defend himself. You should write the name of that firm down and make sure to never consider it. Any firm that defends who they are is probably a bad firm. Good firms do not care what people think of them because they are too busy making money.

[Prop prop 10]

Here is my answer:

 

I am going to be the one defending prop firms, not in general but in the way I see them.

 

I started like you, with $5000 in one of those prop shops. They taught me exactly the same thing than you, how to scalp to generate a lot of commissions.

 

But you know what, I got lucky and a real trader became part of the group and started to tell us what to look at. What I knew anyway was that you need to see that as a business and the "training" is mostly on yourself.

 

Now, 3 years later, I have my own group and recruit traders. The difference is that I am very honest with them about their chances in succeeding and that if I were a great trader, I wouldn't recruit anyone, I would trade.

 

Now, as I said in my previous post, there is not many places where you can find someone to teach you how to trade and I really believe that. Find a job with a bank or Hedge fund...

 

Now, if you are like me and you want to trade anyway because you think that time and experience will put you on the right track then prop shop/ brokers are not that bad.

 

You get a better commission for active traders ( more than 1 trade per day) than with a traditional broker, you don't have to put down a lot of money, get free leverage and if they have an office, you don't have to pay for the internet and a computer.

 

Let me know what you think about that...

[SIUYA 11]

Here is my answer:

 

But you know what, I got lucky and a real trader became part of the group and started to tell us what to look at. What I knew anyway was that you need to see that as a business and the "training" is mostly on yourself.

 

Now, 3 years later, I have my own group and recruit traders. The difference is that I am very honest with them about their chances in succeeding and that if I were a great trader, I wouldn't recruit anyone, I would trade.

 

Now, as I said in my previous post, there is not many places where you can find someone to teach you how to trade and I really believe that. Find a job with a bank or Hedge fund...

 

Now, if you are like me and you want to trade anyway because you think that time and experience will put you on the right track then prop shop/ brokers are not that bad.

 

You get a better commission for active traders ( more than 1 trade per day) than with a traditional broker, you don't have to put down a lot of money, get free leverage and if they have an office, you don't have to pay for the internet and a computer.

 

Let me know what you think about that...

 

What i think....

 

I am not sure how you are defending anything here.....???

1) you got lucky, and yet the training is still mostly on yourself

2) if you where a great trader you would trade and not recruit

 

if you are recruiting and not trading, then you sound like a trading coach.

if you are recruiting - who offers the leverage - you or the broker?

what exactly is it that you provide. Is it simply that you give the uniformed/lazy/inexperienced easy access? so you act like a middle man.

Who covers the losses? Where do you make your money - commissions, desk space, profit share?

 

About the only benefit mentioned seems to be that a computer, internet and desk might be supplied. (so long as these are not charged for), and for that you act as a middle man between yourself and a broker being able to offer some economies of scale.

 

Many would argue that if you cant afford a computer and internet hookup, you dont have enough money to trade, and that if you really need access to super cheap brokerage as a beginner trader then you are over trading.

[MightyMouse 12]

I think you guys need to get real.

 

Do you expect some firm to rent space, furnish and equip the space, and then pay you money as a draw or a salary as you learn to trade and give you the money to trade and then eat the losses as you learn? You are going to begrudge them and call them scammers if they want to charge you a fee?

 

Besides which, you seem to be missing the point of the capitalistic nature of the markets with your socialistic desires.

[SIUYA 11]

Do you expect some firm to rent space, furnish and equip the space, and then pay you money as a draw or a salary as you learn to trade and give you the money to trade and then eat the losses as you learn? You are going to begrudge them and call them scammers if they want to charge you a fee?

.

 

Yes. if they are a true prop shop and not a broker.

It all depends on what you wish to define as a prop shop, what they offer and what they promise. etc (if you read the thread)

 

And in terms of capitalistic nature of markets..... doesnt it have something to do with those who take risk receive the rewards, as opposed to those who take no risks, and expect others to pay them for convenience?

 

Imagine if no employer took on new apprentices to train then it would not take long for the business to die. Imagine if those same businesses, charged their employees for their desk etc. For me its all about who takes on the risks, and who reaps the rewards....

that for me is getting real!

[MightyMouse 12]

Yes. if they are a true prop shop and not a broker.

It all depends on what you wish to define as a prop shop, what they offer and what they promise. etc (if you read the thread)

 

And in terms of capitalistic nature of markets..... doesnt it have something to do with those who take risk receive the rewards, as opposed to those who take no risks, and expect others to pay them for convenience?

 

Imagine if no employer took on new apprentices to train then it would not take long for the business to die. Imagine if those same businesses, charged their employees for their desk etc. For me its all about who takes on the risks, and who reaps the rewards....

that for me is getting real!

 

They are taking risks. If you can't see what they are, then contact a real estate broker and find out how much it costs to rent space for, say, 3-5 years, then contact an office furniture dealer and technology firm to determine how much it cost to furnish it, wire it and furnish it with workstations. The costs associated with setting this up are very real. If you can trade or learn to trade, then the added leverage they are giving you will make it very worth your time. You will earn 4-20 times what you would be able to do on your own. Is that worth it?

 

 

if a business earns X dollars of net profit per employee, do you think, they keep a small piece and divide the net profit up and give it to their employees because they are the ones who did all the work?

[SIUYA 11]

yes i can see that, that is why all along I have said, distinguish between what is a prop shop v what is a broker, or a scam.

 

I understand what it costs to set up, pay people and take risks. This is something I have done. Telling people to get real does not help, implying I have socialist tendencies just means you cant read and are getting all emotional. :helloooo:

 

Alerting people to the realities that not all proposed prop shops are worth it and that if you are taking all the risks, putting all the money up and paying extra fees to someone just for a desk then you should probably stop.

when it comes to leverage - there are a lot of options around. If you are trading futures or FX this is easy. Even if you are trading stocks, its available at reasonable rates.

If they offer proper training, not just commission gathering expertise in a churn and burn mentality then great.....most dont.

 

"if a business earns X dollars of net profit per employee, do you think, they keep a small piece and divide the net profit up and give it to their employees because they are the ones who did all the work?"

You answered the crux of it - look at WHO takes the risk. If you are the trader and you take the risk and someone provides a little bit of training and a desk, but takes most of the profits then what more do I need to say.

[MightyMouse 12]

yes i can see that, that is why all along I have said, distinguish between what is a prop shop v what is a broker, or a scam.

 

I understand what it costs to set up, pay people and take risks. This is something I have done. Telling people to get real does not help, implying I have socialist tendencies just means you cant read and are getting all emotional. :helloooo:

 

Alerting people to the realities that not all proposed prop shops are worth it and that if you are taking all the risks, putting all the money up and paying extra fees to someone just for a desk then you should probably stop.

when it comes to leverage - there are a lot of options around. If you are trading futures or FX this is easy. Even if you are trading stocks, its available at reasonable rates.

If they offer proper training, not just commission gathering expertise in a churn and burn mentality then great.....most dont.

 

"if a business earns X dollars of net profit per employee, do you think, they keep a small piece and divide the net profit up and give it to their employees because they are the ones who did all the work?"

You answered the crux of it - look at WHO takes the risk. If you are the trader and you take the risk and someone provides a little bit of training and a desk, but takes most of the profits then what more do I need to say.

 

if they are putting up 9 dollars for every 10 that you trade, then what, in your mind, would be a fair split of profits and losses?

 

it may look like it is just a desk, but it is probably about $1000 or so a month or more. If they charge you $2 per hundred shares and you have a $10,000 account that they leverage 10 times for you and you trade 5 trades of 500 shares of NFLX at $170 a share per day. Your trade cost with no profit or loss is 100 a day. Their cost per trade is probably around 60 cents per hundred shares so they are making $1.40 per hundred on your trading. So, they are making about $70 a day from commissions on your trading. So, 70*20 trading days is $1400 a month if you break even and they have a cost of your "desk" of $1000. And, that is if you make those 5 trades a day. I am probably missing some costs too, but only trying to tie some numbers to the "just a desk" and that speaks nothing of the cost of the time and effort and materials to try to train the trader.

 

This is why I said you have to be real. it is not emotion and it is not just a desk.

 

Its admirable that you want to warn people of the "dangers" of a prop shop. The point is that you are probably getting more than you think when you join a prop shop.

 

If you are going to succeed, you are probably better off there, than on your own. If you did a swing trade on NFLX and and you made $20 a share on 500 shares, you doubled your $10,000 account. If you were on your own you would have been able to buy about 100 shares on margin and you would have made $2000 instead of $10,000. That's worth something isn't it?

 

 

Regards,

 

 

MM

[SIUYA 11]

Then yes, the way you describe it regards the brokerage, it sounds a reasonable deal.....I would not imagine anyone would have a problem with such deals. Especially if the brokerage is a minimum payment to cover the costs of the desks and they are offsetting. The other deals whereby they charge you brokerage on top of a desk, and the brokerage is exorbitant, then thats different.

however....

 

if they are putting up 9 dollars for every 10 that you trade, then what, in your mind, would be a fair split of profits and losses?

 

MM

 

If they are actually putting up 9 for every ten as opposed to you losing your money first, and then you are out the door, then this is the difference between exposure and leverage.

 

As a simple example - a trader puts up $10,000, and gets access to 10x leverage. The trader looses, $15,000.

What happens there?

I would suggest that if the trader looses his 10, and then owes 5, then if there are any profits, they would also keep 100% of those.....this I call a broker

if the trader looses his 10, the prop shop looses 5 and wears it then a profit split is also only fair. (what those percentages may be I dont know what the industry norm is). This is more a prop shop.

 

This is my point..... who actually wears the risk? compared to the rewards.Trading someones levergae, as opposed to trading their capital are two different things.

 

From purely a definition point of view, to me a broker (or clearer) is NOT a prop shop but can still provide all the leverage required. Except they dont take a percentage of the profits.

 

It all of course boils down to the traders doing their homework, but we all know there are enough unscrupulous people out there happy to take others money without offering much.

I saw and heard some stuff the other day at a seminar that made my skin crawl, while a few other peoples eyes lit up with the dollar signs they were promised.

 

(There are a lot of different ways to do things and different business models, and I am first to admit I do take a rather harsher skeptical line, but thats what discussions are for )

[BlowFish 10]

I think you guys need to get real.

 

Do you expect some firm to rent space, furnish and equip the space, and then pay you money as a draw or a salary as you learn to trade and give you the money to trade and then eat the losses as you learn? You are going to begrudge them and call them scammers if they want to charge you a fee?

 

Besides which, you seem to be missing the point of the capitalistic nature of the markets with your socialistic desires.

 

Why not? Most other business works that way. You show qualifications or aptitude or even just willingness to learn or 'personality' and you get a junior job.

 

As society 'progresses' I can see things changing. I wonder how long it will be before kids starting out have to pay to go to work whatever their vocation?