Trading for yourself

[fiftyfifty]

I'm slightly confused as to how arcade's work. According to traderpedia they involve putting up some of your own cash and having it leveraged by the house and then going into a profit share agreement. The example they use is 50:50 split. Now this is what I find confusing. Why would anyone agree to risking their own capital for a profit split when they can trade someone else's capital for as high as 80% profit split?

What I would have thought a arcade involved trading your own cash completely, paying desk fees or higher commission on contracts and then maybe a small % to the house. Can someone let me know what the standard arcade deal is.

 

[Directional]

if you put your own capital up, say £25k, you go "own account" and all you pay is your desk fee and commissions - all your profits are yours to keep, & you will get some decent buying power on your capital - say 5:1

if you dont have enough capital, some firms offer "part backed" deals where you put down £5-10k and they make up the rest and give you buying power on top - for a split of 30/70 in your favour (at Refco).

if you're on a grad scheme or are a good enough trader to make a business case for trading the firms money then basically you put no money down and the firm will give you buying power to whatever level they feel comfortable with "fully backed" - ie: thousand up in the bund if you're low risk/high profit.

The profit split would depend on experience & time with firm etc - a grad would likely start off at 50/50 or less, where a low risk, experienced & profitable trader could negotiate a much better deal - like the 80% cut that you mentioned.

 

[fiftyfifty]

Cheers for the response.

It's my understanding to have a segragated account with a clearer such as Fortis you require in the region of €150,000 (futures trading). When you suggest £25,000 for your "own account" in an arcade are you not in a pool of traders (capital pooled) where one trader could in fact (under bad risk management) blow up and lose everyone's capital?

 

[Directional]

depends on the firm - at Refco/Marex all accounts were individually segregated regardless of size

 

[fiftyfifty]

cheers, hadn't realised accounts could start that small