Prop desks...anyone with experience?

They are supposed to captialize so you may trade and basically risking the firms money.
I've been gettting lot of emails and seeing these guys popping up on various forums. Some of them I wonder if they are real.


Anyhow, im just looking for anyone with more insights.
Thanks.

I am not really sure of what your talking about, but I don't know of anyone that would allow you to trade for free and risk their money. There has to be some type of collateral used if you were to lose; you soul maybe? Or an arm? It's probably something along those lines.

From what I know of prop desks, they are mostly an English thing. Not many prop desk propagations going on here in the USA. However, the way I know it is, is that if you win, you pay the desk a percentage of your winnings. I'm not sure what the average pay-out rate is these days, but last I heard it was about 20-30% of your winnings, and you had to be a winning trader to even be considered for this. I would prefer if someone with some real experience were to come in and set us straight.

I have worked on prop desks before so I can give you a little insight. In London for example there are many prop desks - most of these sprung up after the Liffe floor was closed. There are 'prop shops' in other countries also. I know of a big one that is opening in Dubai for example.

Here is the nuts and bolts of different prop shop business models:

Firstly FX trading would be considered extremely rare for prop shops.

The favoured strategy is statistical arbitrage or spread trading and the government bonds are the most popular products to trade. In London the Bund, Bobl, Schatz is probably still the most popular. Some traders may also spread trade different indicies like the S&P500 against the Nasdaq or something similiar.

Most prop shops do not accept traders with directional strategies as they do not want the exposure hence FX trading is very rare. By trading for example the Bund/Bobl spread the prop shop has limited its potential downside dramatically. Of course with statistical arbitrage you are looking for a small inefficiency in the spread pricing to move in your favour and you close out the spread. This requires fast reactions and a fast thinking brain. Since algorithmic trading has come into play there are a number of applications that can take away some of the human calculations from the equation. TT Autospreader is one such product.

Most prop shops make their money by charging traders a desk fee as well as making money on the transaction costs. The traders benefit as they have very low transaction costs which is essential for statistical arbitrage trading. Then there is the percentage split of profits which varies. Some traders bring there own capital and take 100% of the profits and pay desk fees and benefit from low transaction costs. Others use the firms money and pay an additional fee for margin that is borrowed but there are strict risk measures in place even with stat arb trading.

Very few traders are allowed to execute directional strategies. The ones that can have very strict risk measures in place and if they dont perform they are out. The type of strategies employed by prop shops are very labour intensive but I think the experience gained is very much worthwhile.

okay thank you very much for the insight.

interesting to know ..