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Prop Shops? Heaven or Hell?

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While the market was making its nice breakdown and rebound during lunch today, I was at a long businessman's lunch with a friend of mine. What were we discussing? Nothing less than my life and its direction. I have been looking into alternative possibilities to trading from home. He suggested this firm:

 

Kershner Trading Group

 

Which has its main trading floor in the city in which I live. This is a prop shop. Does anyone have any experience with these things? I realize they are basically going to supply me with capital, support and proprietary software with which to trade. And I realize they focus on stocks, though they say they do futures.

 

Any thoughts, ideas, dismissals or outright scoffs will be welcome.

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Have you tried contacting them?

 

Andy Kershner is a former ProTrader owner and a former chairman of Zone Trading Partners, LLC. Both firms were located in Austin.

 

I heard something scandalous occured with his partners at Zone Trading and it closed. Kershner later started up again as Kershner Trading Group. Sorry, I don't have any info on my computer anymore.

 

http://blog.bluestonelawfirm.com/legal-malpractice-news-former-protrader-owners-settle-legal-malpractice-lawsuit.html

New York Attorney Malpractice Blog: Former ProTrader Owners Settle Legal Malpractice Lawsuit

 

http://www.traderinterviews.com/programs/TI_03-26-07_AndyKershner.mp3

 

 

Here is a quote that I have of something he said to a reporter:

"Houston-based stock trader Andy Kershner sees the changes. Six years ago, Kershner was a day trader betting his own money on 20- to 30-point swings in individual stocks. In March 2000, he made a big bet that technology stocks were about to fall, but did it a day too early and lost several hundred thousand dollars. Kershner, chairman and chief executive of Kershner Trading Group LLC, now finances and oversees 90 traders who use computers to make enormous bets on far smaller stock movements, generally one to three points, he said.

 

"Back then, almost everybody traded manually, and they were scrambling and yelling on the phone," he said. "Now you're pushing buttons. You can automate all or part of your trading strategy, and if you don't, you're going to get crushed."

 

The long boom leading up to the 2000 peak made trading seem easy, Kershner said. "Then, you didn't have to be in the right spot to succeed because the market covered up your mistakes. You just held onto it until it came back," he said.

 

Today, "there's not the same euphoria.""

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I would look into a few things first.

 

1 - How much capital do they give you when you put up say, $20,000.

2 - What percent of the gains do you get to keep? There are some that let you keep 100%, I would lean towards those.

3 - What trading software do they use? Is it their own or do they use someone else's software? For example I know Bright uses RediPlus from Goldman Sachs.

4 - How strong is the firm financially?

5 - Does their style of trading interest you? If it doesn't, then theres no point. If you just want to trade the way you do now with more capital then I would look for a firm that just lets you be.

 

I looked through that Kershner Trading website and I liked the team trading idea. But if you like to work alone, that might not work. I suggest you contact them and ask to check out their office on a trading day and see what you think.

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I figured it would be better to resurrect this thread than make a new one.

 

I don't know much about prop firms, and the information I do have is a little confusing. What I know so far is that to trade for a prop firm, you usually need to have a series 7 or series 3. You deposit money with them, and in return you get to trade with their capital, and you have access to whatever platform they use and lower commissions that might be possible otherwise. You might be able to keep all of your profits, or the firm may take a %.

 

So my questions are: What is the point of trading for a prop firm exactly? Do you have a salary? I realize that you would have access to the firms capital, so you can trade larger size, but with e-minis for example, it's pretty easy to increase leverage simply by adding more contracts, and with many brokers offering $500/contract intraday margin, no one should be under-leveraged (in fact it's very easy to become OVER-leveraged, as I discovered when I first started with futures). And on the subject of leverage, I often read that these prop firms employ newbie traders. If the benefit of trading for a prop firm is the increased leverage, wouldn't this be a terrible move for a new trader to make? Is there something I'm missing? Let's say you deposit $20,000 into the firms account and gain access to $1M of their trading capital. If you take a series of trades and lose $100,000, would you then owe the firm $80,000 (like what would happen in a retail margin account), or would they somehow absorb the loss?

 

Thanks to anyone who can answer some of these questions.

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Prop firms I have dealt with require an initial deposit of 10k - 30k. Then given your track record the your trading skill, the management will decide how much capital to allocate for your trading. So you might work with $1million, $3million, etc....

 

Risk control is fairly strict. Any down month and you are likely to be suspended or even fired from the position. What prop firms want is conservative traders without the volatile PNL fluctuations. Some firms may limit your monthly loss limit to 3-4% of the capital allocated. Regardless, they will absorb the loss if it goes beyond your initial deposit.

 

The advantage within prop firms is you have access to institutional tools, high-end trading platforms, interact with professional traders, etc... You can pick up many strategies that your buddies may be implementing. Hence a great environment to learn.

 

Regarding profits, the percentage varies from firm to firm. Here in Tokyo, banks paid 5% while prop firms paid up to 40%. But the difference was with banks you have access to alot more capital than what a prop firm would provide. Hope this helps.

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.

____

Risk control is fairly strict.

____

 

____

The advantage within prop firms is you have access to institutional tools, high-end trading platforms, interact with professional traders, etc... You can pick up many strategies that your buddies may be implementing. Hence a great environment to learn.

 

____

 

 

Having strict controls on how much you can risk and on what is likely to be a be big plus for most. Generally there are all the pluses form a 'proper work environment' discipline will be expected, as James says you will have like minded people to interact with and observe etc. etc.

 

I have to disagree about the tools (as I have before) CQG TT et al have been available to retail traders for ages now (probablly a lot cheaper than a desk fee too ;-))

 

Really the main down side is you are essentially paying for this education and environment. (Why would you not expect to of course). Oh and you might feel pressurised into trading a particular way (that might not completely suite you) at certain shops. Actually put more accurately you might feel pressurised into trading a certain frequency at some shops.

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Have you tried contacting them?

 

Andy Kershner is a former ProTrader owner and a former chairman of Zone Trading Partners, LLC. Both firms were located in Austin.

 

""

 

There's also a trading platform called ProTrader! Any connection?

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