Proprietary trading, proprietary trading desk, or “prop desk” are terms used in banking to describe when the firm’s traders actively trade stocks, bonds, currencies, commodities, their derivatives or other financial instruments with its own money as opposed to its customers’ money, so as to make a profit for itself. Prop Trading Firms are become more and more prevalent for traders trying to day trade at home. There are several ways these firms choose to set up and there is a reason they are becoming so popular as I will discuss below.
The SEC has a pattern day trader rule which requires Day Traders to have a minimum of $25,000 in equity. If you don’t have $25,000 in equity then you are stuck to doing only 3 day trades per 5 rolling days. Well prop trading firms have figured out a way to hire people but charge them commissions just like a broker would to make money. This actually allows people to day trade with as little as $2,000. This is the only way around the minimum equity required to day trade. So people with $2,000 – $5,000 are all over these offers. Most prop trading firms keep 10% – 20% of the profits so that is kind of a bummer. Of course they let you soak up all of the loss!!! There is one prop trading firm that we think has the best offer and they actually pay out 100% of the profits. Obummer is trying to band prop trading, but we don’t think he is getting anywhere with that bill and for now he has a million other things to worry about.
When prop trading firms keep 10 – 20% of your profits it really puts you at a disadvantage. Especially when you take into account they let you keep 100% of the losses and most prop trading firms charge $8.00 per trade. You can see how these prop trading firms can kill you with fees. Day trading is hard enough as it is without somebody nickel and diming you for money every chance they get. On top of that to even get your orders put in you usually have to pay a software fee. You would have to be hitting on all 8 cylinders to make money with a prop trading firm, but there is one firm that actually gives you an advantage.
To read more about this firm click on the link “Prop Trading Firm.” I will briefly discuss the advantage of this firm. For starters they pay out 100% of profits. This is so important that I can’t stress it enough. 100% pay outs is a must if you want to have a fighting chance at making it. Think about it for one second. Let’s assume after all fees you made $4,000 a month. Well if they are charging you 20% of your profits now you only have $3,200 left. Then 20% for taxes and you have a little over $2,500. So the money can disappear very fast if you are getting profits taken off the top of your hard earned money. Secondly they don’t charge commissions. That is right… they don’t charge commissions. Instead of commissions they charge a monthly fee of $700. Now you might be thinking… “$700!!” That is insane… but it isn’t. Do the math with a group like Scottrade and assume you are pyaing $7 a trade and doing 5 full turns a day. Well in that scenario you are paying $1,500 a month. So this actually saves you money. This company is even great for day traders with the 25k equity required to day trade.
Prop trading firms are growing but you must make sure you go to the right one if you are considering using one. They are great for day traders that don’t have the equity required to day trade or don’t want to tie up 25k in a trading account.
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