Proprietary Trading Firms — Everything You Need To Know by Emmert Moose
Trust me, I know how to advertise, and here is my way to have these brokers calling me for ad space, at least i hope that’s what happens when they read this review. Some of this information made seem redundant, simplistic, or opinionated. In fact, this post will most likely be too long for many readers, but just enough information for the ones that are new to proprietary stock trading companies. Before I jump into this, I believe it is crucial to remember I have been trading since 1996 and have witnessed a great deal of changes within the stock trading industry. I had been about during the late 1990’s when day trading stocks burst upon the scene, and leverage inflated the Nasdaq to a bubble, which of course blew up in 2000. A lot traders, and day trading companies obtained the blame for the Nasdaq bubble, and these criticisms aren’t without merit. The brokerages adored it because stocks where only going higher, along with the brokerages earned commissions and gross interest on these huge inventory orders. It was all fun, until is wasn’t. Margin ruined many firms and day traders alike.
If you execute four or more day trades over 5 consecutive days, then you are regarded as a Pattern Day Trader. The principle is clear. And all US based brokerages, if they wish to remain in operation, don’t violate the rule.
However, with any rule that attempts at fiscal regulation, the trading community of brokerages, prime traders, margin lenders, traders etc. will always attempt to creatively execute fringe solutions to avoid regulations. Through the years I have observed every conceivable scheme where everyone with a profit motive attempts to chip away in Rule 2520. It is never a matter of if, it is only a matter or if. So lets jump to the present condition of prop trading for 2015, examine the landscape, and supply you with useful details.
Proprietary Trading — Types Of Businesses – Emmert the Conman
In its simplest description, a Proprietary Trading company is a just a partnership of investors. People today get together, pool their money, and trade from one account. Many prop trading companies are personal. Meaning that they do not actively seek out outside traders, these kinds of firms typically receive cash from hedge funds and they try to exchange just for profit. The majority of these firms are managed by seasoned market operators, and are just seeking to add personal computer scientists, PhD’s, and will recruit new employees through colleges and professional staffing agencies. For the interest of people studying this, I will not present a list of those firms only because the vast majority of us would never get our resume glanced over.
The next kind of prop trading company are United States established prop trading companies that behave like a conventional stock broker. To put it differently, someone would start an account and make a deposit, the individual would then have the ability to exchange at generally 20X of the initial deposit. So, if you deposit $10k, then you finally have a buying power of $200k to day trade stocks. Most of all, you can avoid Rule 2520, nor need to maintain a balance of $25k. In addition, the leverage is a lot greater compared to a conventional United States based broker that typically will only allow 2X margin. If you plan on day trading stocks, and do not have $50k in your account, you’ll need margin. Unless of course, you only want to win or lose very little. The bottom line is that you simply need spending power and this is the sole function and purpose of these sorts of prop trading firms. However, all United States based brokerages that operate as a prop trading company demand that traders possess a minimal string 56, 55, or even 7 securities license. With this post, I will not get to the specifics of obtaining one of these licenses. Another post on this site will provide exact details about the best way to receive your license. Don’t enable the permit be a hindrance, a series 56 is quite simple to maneuver.
Additionally, there are non invasive United States based prop trading firms. These firms typically will service anyone not located in the United States. Suppose you live in Brazil, are you really going to fly into the United States to attend a Finra approved testing centre, together with the sole purpose of taking the series 56? This wouldn’t be feasible. Another sector of the populace that opts to get an offshore prop trading company would be anyone with a prior felony conviction. Finra and the regulators are similar to the Department of Motor Vehicles, sure they serve a function, but they also exclude many with fringe convictions. In my opinion, the system is unjust to many that might of made of a error several years earlier in their lifetime. Or perhaps a individual has issues with the IRS, or even a country government and owes back taxes, etc.. Or perhaps they have a judgement from a lawsuit, or an ex partner searching for money. I’ve heard every imaginable reason.
Is your money safe in a prop trading firm? Prop trading companies do not have any sort of governmental guarantee. Whether they are US based or offshore, neither can guarantee the return of your trading capital. And this is the basic flaw with prop trading firms, they occasionally go bust. Many dealers lost their deposit and any winnings. And in all honesty, don’t expect much relief from the SEC, they have a tendency to turn a blind eye on prop businesses that neglect. However, they maintain a keen eye to be certain everyone is paying their fee’s. With this said it is necessary to note that a United States established prop trading company will be under the criminal jurisdiction of the Federal Bureau of Investigations. So if your prop firm is located at New York, along with your cash disappears, then you can file a complaint.
When a prop firm is situated abroad, and your cash disappears, then you must rely upon the regional authorities for relief. This is something you need to think about, especially if your prop company is located in the Bahamas, Israel, etc.. The most common reason why an offshore prop company goes bust is because the owners are also trading, will suffer losses and then begin trading with your cash, only to lose that money. The next thing you know, you cannot log into your accounts and the web site disappears. Think this doesn’t occur? Since it occurs quite often. So you need to be careful.
Prop Trading Firms To Avoid – Now i’ll get ad space for sure!
We have talked about three types of prop trading firms. The first type would be private firms that typically just hire PHD’s. The second kind are United States based prop trading firms that function like a conventional stock broker, pool dealer funds into a frequent account, usually provide 20X margin, demand a minimal series 56 securities license, and comply with all United States securities regulations. The third sort of prop trading companies are offshore firms that cater to non United States established dealers, or United States based dealers that cannot qualify for a securities license, or would like to protect themselves against the IRS or suits, and are almost immune from United States criminal legislation.
The fourth, and final types of prop trading firms will need to be avoided. Why? These are prop trading companies that are actually only educational companies that are masquerading as prop trading companies. On the surface, they behave exactly like a Forex company, but before you can start an account and start to trade, you have to have a course or pass a collection of tests you have to cover. The typical costs vary from $2k to upwards of $30k. There are too a number of these firms to name, but I will give you two or three examples. The scam works by promoting the dream of becoming a full time dealer, you must purchase a comprehensive day trading class for $9,000. As soon as you finish the course, the messiah then may provide you a little part of your $9,000 to trade within the ifundtraders.com prop account. It’s a hustle of the highest order.
I wont get into each one of these shady hustlers looking to”hire” professional prop traders. I have a list of nearly 60. A few of the more noted scams are Apiary Fund which costs several hundred dollars each and every month to access a useless chain of videos and exchange from a simulator before you eventually discover a prop trading job cannot ever be obtained. Or Maverick Trading that requires $5k to be”hired”, a complete scam. Or SMB trading, which suckers in school age children from campuses and sells them on the dream of getting a prop trader and making their parents proud, simply to market a several million dollar trading class that is tailor made to sell to confound parents. The majority of these children have no idea what they’re getting involved in and drop out in a few weeks. Yet more, prevent any prop trading companies that possess a”pay to play” policy.
Which Prop Trading Firm Should You Select? The one that pays me the most in Affiliate money!
I will make this short and sweet. If at all possible, your first choice must be a United Stated established prop firm. Firms that comply with United States securities legislation are making a considerable investment to stay in compliance. They often have a brand to protect. And since they operate within the jurisdiction of the USA, then they are less likely steal your money since they understand that FBI and the SEC is simply a telephone call away.
Your next choice needs to be a well vetted foreign exchange trading firm. Steer clear of any firm that doesn’t answer their telephone calls on the first attempt. Many of these offshore brace firms are just a one or two person operation that is working under a sub account of the other offshore company. If they disappear, then your money will even disappear. There is no 911 about the island of Nevis.
Steer clear of any firm that wants you to pay either a monthly instructional commission, a course fee, a training fee or any commission which isn’t related to the trading platform or information. All of these are scams intended to meant to drain you of available resources.
What About The List…
On top of this page you will see a listing of prop trading companies. When I originally put together this listing, I started with over 300 potential firms. Gradually I whittled away in the list, I phoned each firm and did a huge quantity of research. These are the only firms that I personally feel comfortable dealing with. Too many to count at which outrageous frauds that comprised everything from email addresses that bounced, disconnected telephone numbers, no return phone calls, even where masquerading as a prop firm but are now only selling an educational package, misspelled and poorly written website content, never returned my emails, refused to give me information on whom had been clearing the transactions, whom owned the company, etc..
Over the Next Several Weeks I’ll be Scratching my big Emmert Hemorrhoid
Over the course of 2015, I’ll be releasing a set of articles that contain specific information for each of these companies. This may include in-depth details of every prop firm. Whom you need to contact, how to start an account, the trading platform that the firm uses, and many more details which can help you make the proper choice.
I apologize that this post consumed a lot of the time. In fact, it may of been much longer. Please ask me questions and I’ll answer them as much as you can. Thank you for reading.