What actually happens inside a prop firm?

[squall321]

this is just purely for curiosity from a retail perspective

what do people trade there? lots of people seem to trade fixed income and interest rates, why is this, and any particular reason why german issues are so popular?
is it just scalping, or longer term as well? is it just orderflow and news, or TA/Fa/other things as well? what's the most common strat? is averaging used a lot?
what's with all the spread trading, is there more success rate using spreads?
how many people who come through the doors end up making money in prop?

 

[NoRhino]

Hey again Squall,

Prop houses offer easy entry into the markets when you have no capital, no losses to cover yourself etc. Desk fees and comissions seem to be larger than doing it yourself through a broker but you get more support and backing.

German bonds are very liquid, which is good for scalping. Yea a lot of prop houses trade those things, they spread trade because it's a way to keep their risk smaller, try to get people to churn out the round turns (which is one way they profit) and they get you to keep to tight'ish stops too. Spread trading is essentially a way to profit without a real understanding of any invidiual market.. If you trade EURIBOR you could be sitting on a box for months waiting for it to move. I traded the bund bobl schat fly etc and sometimes held positions over the weekend or for long hours but generally 1 second to 1 hour.

I typically averaged up to 3 times, I had a very good net income from the markets but gross was quite small, hence why I am now seeking cheaper alternatives. I found the difference between succeeding and failing was being able to read the markets somewhat to the extent you can get good entries in and out of the spreads (I.e take a good leg when you see it, don't hesistate) also fast on the keyboard etc, being sensible and scaling in and out with your size depending on where the spread is. Also being aggressive to reduce your size once you have averaged (and were wrong) and it retraces a little, not hoping to get to 0 or positive by holding it 1 more tick!

Almost everyone who makes it to the floor leaves within a year, because it's tough to cover all the costs and when the spread blows out repeatedly not everyone has the cushion in their account to see it through.

Hope that helped!

 

[DashRiprock]

this is just purely for curiosity from a retail perspective

what do people trade there? lots of people seem to trade fixed income and interest rates, why is this, and any particular reason why german issues are so popular?
is it just scalping, or longer term as well? is it just orderflow and news, or TA/Fa/other things as well? what's the most common strat? is averaging used a lot?
what's with all the spread trading, is there more success rate using spreads?
how many people who come through the doors end up making money in prop?

hi

well similar line to your question

why do so many people trade forex???

Seems to me that forex is just about the worst asset class for retail/prop traders to trade. TROOF!

 

[NoRhino]

I am sure others can answer better than me, but from what I gather, up to 200:1 leverage. You don't have software and comissions to pay. You can open an account with as little as $500 I think.. so it's quick and easy to get into. I am pretty sure you can trade on ladders with direct market access and not pay a spread and just pay comissions though but doesn't seem widely known, after all someone has to be making the market. Also it's 24 hour trading.

 

[Bint_Crusher]

hi

well similar line to your question

why do so many people trade forex???

Seems to me that forex is just about the worst asset class for retail/prop traders to trade. TROOF!

Forex is ok for swings/position trades, bit dodgy for intraday unless you give it breathing space:smart:

As for the reasons whu so many trade it , well it is the easiest instrument to learn, I could teach someone the mechanics inside a couple of days. All the expos tell everyone how easy it is to trade it, especially the brokers, and finally it can in theory be traded 24 hrs a day.
Don't get too concerned with minor details like how quickly you can blow up yer account, thats not how real traders think, is it?

 

[TimYoung]

I trade fixed income but oil is pretty big too in the firm. Basic strategy is mean reverting and deffo not long term. Don't think we are allowed to hold overnight positions either in the beginning.

I would like to trade on news but news don't really do much for spreads. Think I am missing out on £££ big time by not being able to trade outright. Was also told TA doesn't really work for spread trading tho I do use it and think I can find better entry and exit points from it.

The reason for spread trading is that it is less risky than outright. So if you are hedged between two instruments, the spread should just represent the difference between the two and can probably even take external shocks like 9/11 and won't get killed on it compared to outright.

The idea is that low risk low reward is better way to trade at least for beginners since every winning trade, no matter how small should give a good boost to confidence.

I guess also spread trading is preferred due to more commissions.

The probability of success is pretty low and not many people make it as a prop trader. As been said, most people run out of money. Basically, to make a basic £1000 take home pay probably looking at making about 5-6 ticks a day after desk fees, splits, travel cost etc. Considering we only get one clip to trade from the beginning and from sims I think my average is probably about one tick a day, it does seem a long way to breaking even. Idk, my team leader did say if we consistently shown to profit we will be given more clips to trade quickly. Hopefully, I can improve my average as well so I can get to magical 6 ticks a day soon.

 

[Bint_Crusher]

I trade fixed income but oil is pretty big too in the firm. Basic strategy is mean reverting and deffo not long term. Don't think we are allowed to hold overnight positions either in the beginning.

I would like to trade on news but news don't really do much for spreads. Think I am missing out on £££ big time by not being able to trade outright. Was also told TA doesn't really work for spread trading tho I do use it and think I can find better entry and exit points from it.

The reason for spread trading is that it is less risky than outright. So if you are hedged between two instruments, the spread should just represent the difference between the two and can probably even take external shocks like 9/11 and won't get killed on it compared to outright.

The idea is that low risk low reward is better way to trade at least for beginners since every winning trade, no matter how small should give a good boost to confidence.

I guess also spread trading is preferred due to more commissions.

The probability of success is pretty low and not many people make it as a prop trader. As been said, most people run out of money. Basically, to make a basic £1000 take home pay probably looking at making about 5-6 ticks a day after desk fees, splits, travel cost etc. Considering we only get one clip to trade from the beginning and from sims I think my average is probably about one tick a day, it does seem a long way to breaking even. Idk, my team leader did say if we consistently shown to profit we will be given more clips to trade quickly. Hopefully, I can improve my average as well so I can get to magical 6 ticks a day soon.

I might be a bit dim here (not that I am) but isnt 5-6 ticks per day a bit limiting? Its not even 2 ES points ffs. What sort of risk strategy do yer have if yer taking profit after a 1 tick move?

 

[TimYoung]

*shrug* That is spread trading. It is all about making half tick here a tick there.

From what I have seen so far these last two weeks, the spread I trade has pretty low volatility so even if I were Nostradamus and were able to predict exactly how the spread will move there would be days I could only have made one or two ticks.

I was quite concerned about it thinking I'll never be able to make a living from it. That was when I raised the issue to my team leader who told me just to concentrate on getting it right since I'll get sized up so the volatility don't matter.

 

[Chartsy]

Do prop firms take swing traders? (like 1-2 trades a week)

 

[tommog]

Prop firms are unlikely to take a new trader/retail trader on that is a swing trader. Unless you are making big money already (in which case you wouldnt need a prop firm to give you seed capital). They want scalpers, its seen as lower risk, they earn more comissions off you, and also they get a better feel for what sort of trader you are when they are seeing you do 30-40 trades a day. Someone that turns up 2 days a week and puts a 1 lot on in the FTSE isnt much of an appealing prospect.

Having said this, every firm I have ever been at has encouraged the successful guys to run longer term positions in conjunction to their scalping. They know if you can crack that there is huge money and they can potentially farm you out to investors

 

[cmcu3]

so at a prop shop do they give you pre defined stop limits, i'e "you have 5 ticks risk on this" or can you run the trade until you blow up?

 

[Bint_Crusher]

so at a prop shop do they give you pre defined stop limits, i'e "you have 5 ticks risk on this" or can you run the trade until you blow up?

If that is what your trade plan states then yes.

 

[TimYoung]

Depends. At my place we have one trade stop limit and a daily stop limit. So you can only lose x amount in one trade and y amount for the day and you can't trade any more. Whilst on other teams they just have daily stop limit.

On the floor below me, the guys don't have our short stop limits and can hold trades for long.

Is a bummer because our group stop limit is so low and most of the time in marginal trades I lose money because of the stops than anything else. Basically have to trade less because of it. I personally think that due to the stop loss scalping is really not profitable and need to take a longer view. Or have to cut out and go back in the trade again when it moves against me paying double the commissions. Risk reward is pretty bad due to the short stop loss. But as you progress, the limits are relaxed.

One of the guys that started with us on the floor below is already rolling in money 'cos he doesn't have our short stops whilst all of us that have the stop limits are struggling.

 

[Bint_Crusher]

Agreed Tim but the whole point I wanted to emphasise is that everybody has to follow a plan.

 

[TimYoung]

ah. sorry BC I wasn't try to disagree with you. I just saw his question and answered.

As to trade plans, we are provided with a trade plan that we are suppose to email in to our team leader every day. But the their standard trade plan didn't really suit my style and I make my own one.

If I had my way, I deffo won't have any stop loss or at least a big a r s e one. When I trade I have an idea why I think I am right. Now if the circumstances have not changed and even if it does go off side, I expect to make money on the trade so I shouldn't have to take a loss then and cut back in again.

If circumstances have changed then I'll cut out myself at an appropriate time without some fixed limit that forces me to do so.

I dunno I guess the good thing is it does make me more discipline and sometimes my pride gets the better of me. Like I know I have messed up a trade but just held on even though I knew I got it wrong so take a bigger loss than necessary. It is not often I do that tho and prefer the flexibility in deciding myself whether I should take a loss or not rather than some arbitrary limit.

 

[Bint_Crusher]

ah. sorry BC I wasn't try to disagree with you. I just saw his question and answered.

As to trade plans, we are provided with a trade plan that we are suppose to email in to our team leader every day. But the their standard trade plan didn't really suit my style and I make my own one.

If I had my way, I deffo won't have any stop loss or at least a big a r s e one. When I trade I have an idea why I think I am right. Now if the circumstances have not changed and even if it does go off side, I expect to make money on the trade so I shouldn't have to take a loss then and cut back in again.

If circumstances have changed then I'll cut out myself at an appropriate time without some fixed limit that forces me to do so.

I dunno I guess the good thing is it does make me more discipline and sometimes my pride gets the better of me. Like I know I have messed up a trade but just held on even though I knew I got it wrong so take a bigger loss than necessary. It is not often I do that tho and prefer the flexibility in deciding myself whether I should take a loss or not rather than some arbitrary limit.

Hi Tim,
Are you sure you are not female? Yer "team leader "must be a ****. All traders need to realise:
Have a plan and follow it
Have pre determined risk to reward limits and stick to them
Have no pride even if it means sitting on the trading floor naked showing orf yer tiny *****
Have no more decisions to make other than what to buy in the BAR after trading finishes.
Be prepared to be ridiculed as a miserable effemminate cocksucker if they make mistakes.

I hope this helps yer to be a better trader
:clap::clap::clap::clap::clap:whistlingwhistling:whistling

 

[Hotch]

To answer your original question: buggery.

 

[Bint_Crusher]

To answer your original question: buggery.

Onsite Hotch? You must give me her contact details.
whistlingwhistling

 

[TimYoung]

eh?

No that is not how I trade. I look at price action first to make decisions on my trades more than target prices. If I had a target price but the price action is telling me a different story then I won't trade it.

As to pride, it is something I wish I have none of but I do. It is easier to say then doing it. I guess I can become a more mechanical trader if I were a programmer or can afford an Autotrader

I am still trying to figure out the market I am trading right now so don't really have enough knowledge to set a core system. Slowly getting there and maybe when I am more experienced I can become a more mechanical trader.

As to ridicule, I don't really take in account of other peoples opinions... or rather I take in much less what people say than the usual. I am my own worse critic and nobody can do worse than what I can myself anyway lol

 

[Pazienza]

To answer your original question: buggery.