Setting up a Algo prop firm

I’m toying with the idea of setting up a prop trading firm around algo and systematic quant trading.

The idea would be we would train new traders and provide them with proven software and systems to trade for free initially. Once someone is happy on a demo account, self funded traders that wish to continue using our software and training would give up 25% of any profit they made, subject to limits etc. If the trader then goes on to develop their own successful system we would then look to back them, or assist them in raising capital. We have some FX systems that only trade 5-7 times a week and could be easily traded from work etc so the trader wouldn’t have to go full time initially.

I’m hoping to rope in a couple of friends with backgrounds in IB prop trading and hedge fund management.

I’ve found most traders just give up or end up loosing too much, if we can provide a profitable system from the start it gives people time and impetus to continue learning.

I’d be interested in any feed back, if people think there would be a demand for something like this.

Trying to teach or train others takes a supreme amount of patience. Your idea doesn't sound far fetched and I wish you well!!

Keep us posted.

Peter

neilcharlton said:

I’m toying with the idea of setting up a prop trading firm around algo and systematic quant trading.

The idea would be we would train new traders and provide them with proven software and systems to trade for free initially. Once someone is happy on a demo account, self funded traders that wish to continue using our software and training would give up 25% of any profit they made, subject to limits etc. If the trader then goes on to develop their own successful system we would then look to back them, or assist them in raising capital. We have some FX systems that only trade 5-7 times a week and could be easily traded from work etc so the trader wouldn’t have to go full time initially.

I’m hoping to rope in a couple of friends with backgrounds in IB prop trading and hedge fund management.

I’ve found most traders just give up or end up loosing too much, if we can provide a profitable system from the start it gives people time and impetus to continue learning.

I’d be interested in any feed back, if people think there would be a demand for something like this.

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cool...a million quid start up capital should cover it...

Neil

will it be office based or remote?

neilcharlton said:

Once someone is happy on a demo account, self funded traders that wish to continue using our software and training would give up 25% of any profit they made, subject to limits etc. If the trader then goes on to develop their own successful system we would then look to back them, or assist them in raising capital.

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Hey Neil,

Is this correct. They back themselves and you take 25% of their money rather than pay for rental? Then, you may or may not back them? Out of interest how much are you thinking they will back themselves?

Cheers,

Phil.

Good business model for you.. but not for your traders.

hand out five or more different systems, one might make decent money next year the other four break even or lose money. no one knows before had which system will fit best the conditions for next year.

you get 25% from each trader who trades the system that is profitable (with his own money).

The other traders who are trading the other systems, make nothing or lose money.. but thats not your problem..

Great business model.

We obviously only take a cut if the trader is profitable , if they're not they haven't paid for office rental , training , walked out of their job etc.
Initially everyone would be home based and would login to the software via VPN / logmein etc.

We wouldn't back people who trade our systems , what's the point, I'm going to give you my money to trade my system. The idea is they learn and build their own program , once they are profitable on their own developed system then we would look to back them or assist in finding backing etc. I've not got a spare million lying around but I've raised seed capital before, so I know what I'm doing.

Realistically you'd need about 20k in the account to start with , you select a broker of your choice. We don't make a cent on your trades, so no vested interest.

The major goal would be for our self sponsored traders to go full time trading their own capital using their own systems or ours.

If you want to be a prop trader in london the way i see it you have 4 options:
1. Work in a IB
2. Work for STA , FUTEX etc who make money on the lots you churn
3. Pay a SAVI or Rich Regan type outfit to train you in the hope of backing
4. Read the books and learn over the years.

The downside to this business is if our systems are cr@p you loose money , however the leverage would be low and stops tight.
The downside to the other options listed above i think are far greater, leaving a job , paying desk fees, training fees or loosing money trading when learning.

Thanks for all the feedback good and bad .. keep picking away at it.

donaldduke said:

Good business model for you.. but not for your traders.

hand out five or more different systems, one might make decent money next year the other four break even or lose money. no one knows before had which system will fit best the conditions for next year.

you get 25% from each trader who trades the system that is profitable (with his own money).

The other traders who are trading the other systems, make nothing or lose money.. but thats not your problem..

Great business model.

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This is true, but if you work for any other prop firm and your not profitable you're simply out of a job. And you could be down 3k on training and another 10k or so on living costs.

There would be a degree of faith for the new trader that our systems are better than anything than they could develop them selves. I'd look to provide audited accounts to prove profitability etc. I'm a specialist in hedge fund trading software , and providing i can rope my friends in, they have all managed multi millions and now trade independently. It wouldn't be in our best interests to let anyone fail as they'd just come on trade2win and slag us off ..haha

You would be stupid not to negotiate wholesale broking/clearing rates with who ever you choose to do business through and then skim a few cents/pence off the top when you pass on the costs to the traders. The prices you will be able to negotiate, assuming you can get some half decent volume moving, will be far far superior to what 99.9999% of individuals could get.

It doesn't have to be much on a per RT basis, but it will add up as you scale up the size of the business.

I think that with "free systems" on demo initially and home based your biggest issue will be sifting through the applications..
..So I better register my interest quick LOL!! IT consultant/programmer, working from home, current client US/LN based IB... keen interest in FX, more ideas than time at the moment...but that could change for the right op

worth a try, shy bairns get nowt.

Sounds like you need a healthy slug of capital to cover all this? Also, low frequency systematic trading = trend following? If you teach them, they'll end up doing the same thing as you and your previously large equity swings will get even bigger .. ? or am I missing something here.

The traditional arcade model worked due to 1) very short term trading horizon (capital requirement for margin is thus reduced) 2) high frequency, thus rebates from the exchange and 3) gentle fleecing of participants. Your model doesn't have 1) or 2).

most of the systems are FX based , would take a lot to move that market.
trade length is few mins to a few days max 4. Not really long term stuff.
i agree no rebates , no fleecing with high desk and IT fees.

Isn't a better bet setting up a hedge fund with a buddy? It sounds like you're fairly well capitalised ... for £50k or so you can create your new fund, registered in the Cayman Islands. Spend the first 2-3 years making some tidy coin (but don't withdraw it), then look for external investors. As long as you don't touch the money it stays tax free. After ten years, you could be sitting pretty. Why bother with training other people = passing on your hard earned knowledge?

Give it a sexy name like "Nemesis Capital" or "Chimera Investments"

Uh, "Nemesis Capital" is already taken as a name, can you Adam and Eve it.

meanreversion said:

Isn't a better bet setting up a hedge fund with a buddy? It sounds like you're fairly well capitalised ... for £50k or so you can create your new fund, registered in the Cayman Islands. Spend the first 2-3 years making some tidy coin (but don't withdraw it), then look for external investors. As long as you don't touch the money it stays tax free. After ten years, you could be sitting pretty. Why bother with training other people = passing on your hard earned knowledge?

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Yup , looking into that. Takes a long time to get an audited record with a decent slug of capital so need something to do in the mean time.

I spoke to a lawyer about this a couple of weeks ago, he specialises in setting up hf. He spent a few years in Cayman (said it was awful incidentally). If you're based in London and want his details, send me a PM.

all this prop trading firms will no more able to churn money as new CGT tax will kill all their prop trader who were somewhat making peanut cash... in shorts end of "we back u with out money bull****

Is that accurate?

meanreversion said:

As long as you don't touch the money it stays tax free. After ten years, you could be sitting pretty. Why bother with training other people = passing on your hard earned knowledge?

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Yup think so