The truth about trading arcades

[Parky]

With all this in mind, why do many prop firms only deal employ fresh graduates, preferring those applicants with little or no prior trading experience?

For a number of reasons, experienced traders have established trading patterns and will be trading reasonable volume and may be percieved by some trading rooms as a higher risk.
Also a lot of traders jump from trading room to trading room running up losses and then moving on and arcades are getting wise to these guys and now a-days do a lot more background checking. For small to medium prop houses taking on guys they do not have personal knowledge about is not how they want to grow preferring to grow by taking on trainees.
Graduates or trainee traders are a blank canvas and will be low volume and low risk to start with. All reasonable trainee trader programs expect and anticipate a percentage of wastage in terms of traders not making the grade and a period when they will loose money. However good training programs will always produce sufficient profits in the medium to long term to pay for the whole intake and come out ahead of the game.

Is it likely that funded fresh traders would have a lesser say on the trading style to be used- at least initially, until they gained experience and proved their worth?
Does the arcade also allow the trader to choose their own market and instrument to trade, or are traders pushed towards certain markets/instruments?

Good question, the answer is yes however here is a tip for sorting the men from the boys. A "mincing machine" approach would be to sit a trainee in front of a screen tell him how to trade and what to trade. Some houses do this simply because they do not want too much exposure in any one sector of the market or any one contract.
A good training program will take the complete opposite approach, learning from the trainees mental approach and aptitude and placing him on a contract that best suits their mentality. If the trainee has a short term approach and is leaning towards scalping or is more directional by nature, these factors should be taken into consideration to give the trader the best chances of success. This is why some house will take 20 -25 trainees at a time and only 7 - 8 will make the grade while others houses will take on 5 trainees and usually get 3-4 make the grade.

It's quite scary to think what could be achieved with up to £50,000 in margin to play with .
Is this kind of deal typical for partially funded traders?
Or, can the additional margin put forward by the arcade, on top of the traders $10,000 input, be much less than $50,000?
Is it generally agrees that if you lose the arcades $50,000 - they would keep your $10,000? how does this aspect tend to be managed?

OK, I have said this many times but you cannot say it enough, trainee traders should never be asked to put up any money. FSA client money protection is designed to protect people from just this sort of problem but is obviously not working. If the company you are joining is not FSA registered to hold client money and is asking you for money dont go there. Simply check them on the FSA web site.
However for an experienced trader getting into a partially funded situation most houses would offer intra day leverage, usually up to 3 times your balance so a US$ 50k balance would give you US$ 150K margin intra day. As you say more then enough in most cases. But how much is required to get started is very much dependent on what you will be trading and how much "rope" you need to trade. A self funded traded can usually open a clearing account with £ 25K.

Can traders commence trading at their own chosen position size, or does the arcade control their progression in volume as and when they progress?

Risk management is down to the trading arcade and their attitude to risk. Remember if you are trading with a prop house that a weak balance sheet (up to £ 4 million) then you are at risk as well if they have a lax attitude to risk management and for example offer excessive leverage (over 3 times) then they are an accident waiting to happen.
A good trading room will be diligent in working with the trader to ensure intra day limits and clip limits are agreed and adhered to. They are protecting themselves and every other trader in the room. This is not just a matter for prop houses, even if you are self financing your trading limits should and are dictated by the funds on your account and the agreed leverage.

How would a trader with some successful home based intra-day trading experience under their belt, and a comprehensive understanding of TA and financial markets, approach an arcade with a view to being partially or fully funded by the arcade?

Regardless of how and where you are trading you will have statements to back your claims in terms of volume and profitability. Send in a CV, and bring the statements along to the interview.
Everyone has to start somewhere and a fully backed deal would be the usual starting point, from here you can migrate to a partially backed deal. As you progress the percentage of profit you take should grow in line with your profitability, experience and confidence. It is expected that in time, if you are successful, you will go self funded and move to a commission only clearing deal.

How much experience is needed in order to be considered and "experienced trader" - 6 months? 1 year? or longer?
Does a large part of being selectable it involve presenting an effective business plan to the arcade, about how you would plan to trade and profit?

Compliance officers would usually apply a rule of thumb that states you are not an "experienced" trader until you have successfully made a living from your trading for at least six months. However "experienced" in terms of a backed deal could boil down to you showing knowledge of the markets and showing that you have a trading pattern or model that has a good chance of succeeding. The most important quality cannot be determined until you are trading and that is discipline. At the end of the day its a risk to the trading house and as with all job interviews it will boil down to how you come across in the the face to face meeting.

Are experienced traders typically allowed to get on with using their own tried and trusted trading methods/strategies?

Yes, if they are or have historically been profitable. As stated before in the thread "if it aint broken dont fix it"

How often do traders split profits with the arcade?
Does this tend to be monthly, quarterly, deducted from the original account balance?
Or, can the trader fully manage their own account - i.e. determine how much margin they want to maintain and increase to, volumes traded, and how often or at what account balance they will split their profits with the arcade?
Or, to increase margin, does the trader need to ask for more funding?

Monthly. The way we do it is to have two accounts, a trading account and a cash account. Each month the profit is split and the traders share posted to his cash account, he can then decide if he wants to take all or some of it immediately of leave it.
If a balance is left on the cash account then the trader is given the benefit of using this for additional leverage on his account.

Does this mean that a trading arcade is a bigger operation than a prop house, and that essentially a prop-house/firm is often just a relatively small group/team of traders?

No. A trading arcade as a cosmopolitan site with a mix of clients from individuals to prop groups whilst a prop house is just that, but their style bares no relation to their size. There are some very big prop houses and quite modest arcades.

 

[JTrader]

Thanks Parky

I really appreciate you taking the time to answer my questions .

In your experience is it likely that a trading arcade will scrap the contract of a fully or partially funded trader, not because they are losing money, but because their profit levels are very low, and the arcade thinks that they could do better by backing another trader? or would the arcade be glad to take the desk fees and the split of the traders small profits?


Many thanks

jtrader.

ps. optional questions here - How long have you traded in an arcade for, how many arcades have you worked in, and are you self, partially or fully funded?

 

[Directional]

good post parky.

In your experience is it likely that a trading arcade will scrap the contract of a fully or partially funded trader, not because they are losing money, but because their profit levels are very low, and the arcade thinks that they could do better by backing another trader? or would the arcade be glad to take the desk fees and the split of the traders small profits?

If you arent net losing money, its unlikely the arcade would terminate a contract, since you would be making them money from commissions and desk fee, and hopefully *some* from your trading, even if not a lot directly from trading.

I dont know about other arcades, but Refco had £60m in their account for backing traders with, and Marathon today revealed they had injected £100m to display their confidence in the firm and commitment to the future.

So we're not exactly short of cash to back good traders with, if backed traders accounts are net positive at the end of the month, then the firm makes money regardless.

 

[JTrader]

Thanks again chaps.

I'm starting to think that trading in a trading arcade, either partially or fully funded could be a route that I'd like to explore at some point - a more active and socially and professionally stimulating environment than home based trading that should bring out the best qualities in me, trading with much higher margin levels than I could afford to trade with using my own money, alongside the lower personal financial risk, even if it involved splitting profits 50:50 - would perhaps be a quicker route to achieving financial objectives............

...........I know it isn't good to be presumptuous, count chickens or to set targets in trading, but I'm thinking something along the lines of with £50k margin = with just 20-40 EuroFX pips profit per week * 20-30 contracts per trade = £25,000-£37,500 (approx) margin requirement. 20-40 pips * $250-$375 per pip profit (from 20-30 contracts) = $5,000-$10,000 or $7,500-$15,000 gross profit per week *46 weeks trading per year = $230,000-$460,000 or $345,000-$690,000 *2 (2 year contract) = $460,000-$920,000 or $690,000-$1,380,000 / 2 = $230,000-$460,000 or $345,000-$690,000 (my share of the gross profit) - £12,000-£48,000 desk costs & - tax contributions = one nice little nest egg, thankyou very much indeed. The theory is good anyway, and it certainly would be a nice reality :cheesy: .............ps. Don't worry, I only come up with such equations to stimulate debate !

From my point of view, from what Parky and Arbitrageur have said, I think I would really need to bring my trading "game" together, or hone my game, in terms of producing a portfolio of tried and tested profitable core trading strategies ( whether discretionary, semi-mechanical or mechanical in nature, or a combination of all 3), contingency plans and perhaps gain a further 6 months of putting my strategies into practise through profitable home-based trading experience - before considering applying for partial-full funding from trading arcades.

I'm 28, a graduate, so this alongside sound and profitable trading experience and good all round market and trading knowledge could be advantageous.



Cheers

jtrader.

 

[JTrader]

Thanks Parky, Arbitageur, Tsuntzu et al.

Final questions -

In your experiences, how noisy do the trading arcades that you have traded in, tend to be? Is the noise level comparable to a library or is there a lot more talking going on, and is the talking louder? do you find it easy to concentrate?

Again, a bit of a random line of questioning, but it helps you get a better picture of the trading room environment........

Many thanks

jtrader.

 

[JEDI]

Jtrader

I note you live up north like me so does that mean you would move down south then in order to trade from an arcade? The reason why I ask because I dont think there is much opportunity to get into a arcade around our parts not that it bothers me trading from home, I have been doing it for 4 years now and I personally quite like it and also it gives me the chance to get involved in other business ventures that I can run alongside trading the ym.

 

[JTrader]

Hi JEDI

there are advantages and disadvantages to trading from home or from an arcade.

Trading from home is as convenient as it gets.

But physically being around other traders who would be doing the same thing, and being more active as a result I feel could benefit me.

Trading with significantly higher margin rates than I could afford to trade with from home, is also an advantage, as is trading with the arcades money and not my own.

With significantly higher margin available to trade with, I would expect to make more £ in profits, meaning that I could achieve certain financial objectives in less time. I'm not sure that London is my cup of tea, but there are trading arcades in other South-east locations such as Brighton, and somebody also mentioned Cardiff. These places I could certainly handle. So considering moving South for 2-3 years could be a future possibility.

Perhaps Leeds may get a trading arcade or 2 in the future? There's also places like Edinburgh that you'd think would meet the criteria........


I'm really just exploring the possibilities though. A very large part of my interest in trading remains being your own boss, and the ability to generate your own healthy salary from home.

Cheers

jtrader.

 

[Parky]

Thanks Parky, Arbitageur, Tsuntzu et al.

Final questions -

In your experiences, how noisy do the trading arcades that you have traded in, tend to be? Is the noise level comparable to a library or is there a lot more talking going on, and is the talking louder? do you find it easy to concentrate?

Again, a bit of a random line of questioning, but it helps you get a better picture of the trading room environment........

Many thanks

jtrader.

Jtrader,
Ok lets start at the top:-
No, as Arb has said as long as you are not consistently loosing money for the arcade it is very unlikely you would be asked to leave. I do not know of any arcades that are "full" but I presume if an arcade was full for any length of time then they may start pruning a few to ensure they never have to turn away good business but given how over supplied the arcades are with capacity I doubt this will happen.

As for noise levels! Arcades differ greatly but the rule of thumb I have seen is the bigger they are noisier they are, however alot of the bigger arcades have listened to the experienced traders complaining about the "new kids" making too much noise and have divided up the space a little. Some of the smaller arcades have deliberately placed themselves in the market as "quieter, more professional" trading rooms. However I have heard of traders leaving these because they are too much like libraries and there is no atmosphere so it boils down to personal preference.

I am pleased you are considering taking space in a trading arcade, but please take your time and shop around, on T2W I am sure you have found the list of trading rooms they have supplied.
Arb always makes me laugh at how many times he can drop "Refco" into his replies, I sure hope he is on a commission, but they are one you should check out now the dust has settled, but do a comparison with some of the others.
I suggest you consider the following points:-
1) The balance sheet of the company you will be contracting with. DO NOT get sidetracked with talk of segregation and who the company you are signing up to clears. This gives you no protection. If you sign with XYZ then that is where your risk is. The fact they clear Goldmans or whoever is totally acedemic to your protection.
2) Do they have DIRECT connectivity to the markets. If they route via a hub then they will be slower and less resilient. Alot of these arcades do not have the exchange servers on site. Dont get fobbed off, if they have cut corners on the IT they are not worth considering.
3) What front end trading systems do they have, make sure you have the front end that suits you best, many only have a small selection of trading systems, speak to other traders and try them out on a simulator, most good arcades have these.

I hope this helps.

 

[JTrader]

Thanks Parky.

I may know what you mean by front end trading system, but know of it under a different term. What do you mean by this? Are you referring to the trading/broker platforms available, or a direct connection, or lack of it between the arcade and the exchange?

I think the traderpedia lists 41 trading arcades, but to me many of these seem more like proprietary trading companies. Is there any more? How many trading arcades do you reckon there are in total in London, and how many desks do you reckon each trading arcade tends to have for traders, on average in London?

Do you reckon more and more of that the number of trading arcades are on the increase?

Does the arcade use an external broker, or does/can the arcade also provide the brokerage service to the traders using the arcade?

The level of noise might be the last thing that many people would think of, and it would only be once they bought their desk space that they'd realise that it was an issue. As you mention, library quietness may lack atmosphere, and some noise. But at the same time classroom level noise would be too much noise and would = hard to concentrate. Therefore a noise level somewhere in between would be best for me.

Interaction, discussion and idea sharing should help keep me alert, engaged, interested and focused.

Thanks again

jtrader.

 

[JTrader]

Hi again

do you think that a person with 6-12 months of profitable, home based intraday trading experience and trading account statements to prove this, together with comprehensive evidence of a thorough trading, TA and financial markets knowledge, a professional approach, good business plans and trading strategies - whether discretionary or mechanical, stands a good chance of being given full-funding by an arcade upon application?

Or, if not full-funding, partial funding with x times leverage by the arcade, which, with continued successful trading may result in the arcade increasing their financial backing in you, or offering you even greater leverage (partial funding)?

Many thanks

jtrader.

ps.

Would it matter what form of financial derivative your prior trading experience had been in. i.e. intraday spreadbetting experience, with a view to trading futures at the arcade? I would have thought not, but you never know..............

Once fully or partially funded, how does the relationship work between an "experienced" trader and the arcade -
After negotiating a contract, desk fees, profit split, and your preferred contract to trade -
Can the trader essentially choose what hours they work, as would be the case if trading from home?
Or, does the arcade impose certain terms and conditions on the trader about when they want them to be trading (with their money)?

Would the trader tend to have something along the lines of a weekly or monthly performance review with a line manager?

Of all the traders who trade at "the average" trading arcade, what % do you reckon are self-funded traders, traders who are partially funded/leveraged by the arcade, and traders who are fully funded by the arcade?

Cheers

jtrader.

 

[JTrader]

Trading arcade futures trading commissions

Hi

to trade ES (CME emini S&P), Interactive Brokers charge $3.30 per round trip, per ES contract. This is the cheapest commission that I am aware of.

What would be an typical level ($) of commission that a trader operating within a trading arcade/prop firm would be paying to trade one ES contract, with whatever brokerage service they use?

Thanks a lot

jtrader.

 

[Parky]

Hi

to trade ES (CME emini S&P), Interactive Brokers charge $3.30 per round trip, per ES contract. This is the cheapest commission that I am aware of.

What would be an typical level ($) of commission that a trader operating within a trading arcade/prop firm would be paying to trade one ES contract, with whatever brokerage service they use?

Thanks a lot

jtrader.

Jtrader,
I am assuming that this is an inclusive rate (as exchange fees are usually the largest portion of an inclusive rate). In any case the rate quoted is a retail rate and most, if not all, prop shops will offer much better than this.
As tsuntzu has stated, based on the information you have given, most Prop shops would be more than happy to offer you a deal and as with fixed costs, commission rates are negotiatble based on the volume you are trading, the risk profile your trading requires and percentage of profit you are looking for based on a fully backed deal.
Atlas isnt a bad place to start, the principals are traders or ex traders and they offer an excellent grad program. others worth considering, Xconnect Trading, Saxon Financial & Pelican West.
But PLEASE be very wary of part-backed deals or self financing deals, make sure if you are putting up ANY money that the company is FSA regulated and authorised to hold client money and if they are, ensure they have a solid balance sheet.
Remember regulated prop trading companies with balance sheets of over £ 5 million have gone bust taking client money with them. The companies that offer the lowest commissions, the highest leverage and biggest splits are usually those with totally inadequate balance sheets.

 

[Directional]

What would be an typical level ($) of commission that a trader operating within a trading arcade/prop firm would be paying to trade one ES contract, with whatever brokerage service they use?
.

RTS/Marex were doing $0.55c a side upto a max of $0.68c a side for CME futures, depending on volume, and inclusive of exchange & NFA fee's and a volume variable Refco rebate. This was at the end of Dec, so it may have changed since - I had hear that they were going to get rid of the rebate and just do a lower commission instead so the rate may now be lower.

 

[JTrader]

Arbitrageur - RTS/Marex were doing $0.55c a side upto a max of $0.68c a side for CME futures, depending on volume, and inclusive of exchange & NFA fee's and a volume variable Refco rebate. This was at the end of Dec, so it may have changed since - I had hear that they were going to get rid of the rebate and just do a lower commission instead so the rate may now be lower.

Hi Arb

This must show how difficult it is for the average individual private, self-funded trader to compete on a level playing field in the direct access market with traders trading much higher volume. A $1.36 round trip on ES is much less significant than the $3.30 per round trip that interactive brokers offer.

How many ES lots per month would you need to trade to get the $0.68 commissions?

Is RTS/Marex a Russian direct access broker?

Thanks

jtrader.

 

[Directional]

Marex is the new name for Refco Trading Services in London, no Russian connections that I know of

the 0.68 rate was for anything below 10,000 lots a month.

 

[VSATrader]

Hi Jtrader;

I was trading mini's until I switched to FX which I find much much better, and my broker is www.infinitybrokerage.com Speak to Jeff Gil, he's a solid guy and they are offering $1 per side all inclusive, might even be lower now. They are a solid company and won't rip you off.


Regards VSATrader

Hi

to trade ES (CME emini S&P), Interactive Brokers charge $3.30 per round trip, per ES contract. This is the cheapest commission that I am aware of.

What would be an typical level ($) of commission that a trader operating within a trading arcade/prop firm would be paying to trade one ES contract, with whatever brokerage service they use?

Thanks a lot

jtrader.

 

[Tentola]

Jtrader/Dashing Blade



I’m a fan too of FB so I did a bit of research and the CS 0.4 spread on S&P 500 is smoke and mirrors.

The S&P 500 is $25 per 0.1 minimum movement, so the actual CS bid to offer spread is $100.

FB quote the E-mini S&P which as you’ve pointed out is $12.50 per 0.25 minimum movement, giving a bid to offer spread of 0.2 + 0.25 + 0.2 = 0.65 or $32.50……much cheaper, surprise surprise.

Also on the margin FB give intra day 2.5 times, so the $4000 per lot actually equates to $1600 per lot.

Hope this helps.

Hi

to trade ES (CME emini S&P), Interactive Brokers charge $3.30 per round trip, per ES contract. This is the cheapest commission that I am aware of.

What would be an typical level ($) of commission that a trader operating within a trading arcade/prop firm would be paying to trade one ES contract, with whatever brokerage service they use?

Thanks a lot

jtrader.

 

[JTrader]

Hi Tentola

the SP500 emini contract is $50 per point, $12.5 per 0.25 points or tick.
The full sp500 futures contract is $250 per point. The full contract is not as liquid as the emini, and therefore most electronic traders trade the emini.

CS do two seperate daily rolling bets, one based on the SP500 cash index, and the other based on the emini SP500 futures.............

The CS bet based on the emini has a .4 spread, whereas the emini is a .25 spread. At %50 per pint, in the emini futures market the spread is $12.5 + commission, with CS, trading the same volume, the spread is $20 @ $50 per point. But, CS do not charge a commission and the profits are tax free...............Delayed executions trade request rejections, potential price bias etc. etc. may make CS a less favourable option to direct access though...........

jtrader.

 

[JTrader]

Hi

if you trade from a trading arcade, put up £20k of your own dosh, which through the arcade and with 3:1 leverage entitles you to trade as if you had £60k (?) does this mean that you are a self-funded, or partially funded trader?

Would the trading actually be putting up the extra £40k, or is it the relationship that the arcade has with their clearers that enables you to leverage your personal stake?

If you lost the full £60k, would you as the trader be responsible for your £20k only, or would you be responsible for your £20k plus the extra $40k also? i.e. would you have to pay back the £40k?

I'm just assessing risk considerations................

 

[Parky]

Hi

if you trade from a trading arcade, put up £20k of your own dosh, which through the arcade and with 3:1 leverage entitles you to trade as if you had £60k (?) does this mean that you are a self-funded, or partially funded trader?

Would the trading actually be putting up the extra £40k, or is it the relationship that the arcade has with their clearers that enables you to leverage your personal stake?

If you lost the full £60k, would you as the trader be responsible for your £20k only, or would you be responsible for your £20k plus the extra $40k also? i.e. would you have to pay back the £40k?

I'm just assessing risk considerations................

If you are putting any money up then the company you are contracted to has to be FSA registered to hold client funds and your money should be segregated. The leverage is accedemic in so far as this is a risk call by your clearer and does not affect the status of your account in terms of self or partially funded. If you are with a small Prop house or trading room, because there is no additonal funding on intra day positions (at the moment but this has been looked at for some time by LCH) the leverage is entirely down to their risk appitite and any constraints placed on them by their clearer, if they are not General Clearing members.
Your statement should read £ 20,000.00.
As a self financed trader, if you lost more than the capital in your account, then your company will have to foot the bill for the £ 40,000. However depending on your contract they may attempt to recoup this from you but they would have very little real legal recourse to do so. They could make it very difficult for you to go to another trading room but if you gave up altogether then you are capped at £ 20,000.00.