Prop Shops in Australia

[skc]

yeah. Get some bamboo, sharpen it, stick it under your finger nails and slowly insert it into your nail beds over a 4 hour period. Once you are about to be physically sick walk to the corner of your desk and smash your head into the corner of it as hard as you can. Once you wake up call up someone and pretend they are the risk department and beg and promise that you will do better in the arvo and can they increase your daily loss limit just this one (again!).......Then proceed to zig when you should zag. until you dig another hole that makes you spew all over you keyboard. thankfully this blows up your computer and you finally stop trading for the day and go to the pub which will finish up at the jack the rippers and dropping another $500 that you will not remember tomorrow.. That will get you partly used to trading size...... only partly.

Lol. I was wondering why I struggle to size up so much. I will try following the above routine next week.

 

[craft]

Lol. I was wondering why I struggle to size up so much. I will try following the above routine next week.

Hi SKC

Is it your pairs trading that you are trading Prop? I'd imagine trade execution gets pretty hard pretty quick with scale. Must be nice to have some mentors around to help guide through that.

It seems there's a good mutually beneficial opportunity for prop shops and frequent traders.

A couple of questions if I may.

TH mentioned no risk - question to follow that up. Is it actually possible to trade your own capital along side? Can you leave your profit in to build. Is their any counterparty risk if you had your own funds/profit in if the prop shop failed?

Also is the profit split after a charge for capital/hurdle rate?


Can't think of the mutually beneficial equivalent for those more investment focused.....yet. Have you heard of anything?

 

[prawn_86]

yeah. Get some bamboo, sharpen it, stick it under your finger nails and slowly insert it into your nail beds over a 4 hour period. Once you are about to be physically sick walk to the corner of your desk and smash your head into the corner of it as hard as you can. Once you wake up call up someone and pretend they are the risk department and beg and promise that you will do better in the arvo and can they increase your daily loss limit just this one (again!).......Then proceed to zig when you should zag. until you dig another hole that makes you spew all over you keyboard. thankfully this blows up your computer and you finally stop trading for the day and go to the pub which will finish up at the jack the rippers and dropping another $500 that you will not remember tomorrow.. That will get you partly used to trading size...... only partly.

haha quote of the thread

 

[skc]

Is it your pairs trading that you are trading Prop? I'd imagine trade execution gets pretty hard pretty quick with scale. Must be nice to have some mentors around to help guide through that.

Yes mostly pairs trading there. Yes sizing up is hard but at my current size, the difficulty comes more from getting used to the increased PnL swings mentally, more so than execution. The order execution takes a bit more time and care, as I need to split my orders and the top line of the market depth no longer has enough volume... but with a bit of practice it hasn't been a huge problem yet.

TH mentioned no risk - question to follow that up. Is it actually possible to trade your own capital along side? Can you leave your profit in to build. Is their any counterparty risk if you had your own funds/profit in if the prop shop failed?

Also is the profit split after a charge for capital/hurdle rate?

No there is no facility to put up your own capital. And no there is no capital charge or hurdle rate.

Contrary to one's normal perception to trading, prop shops don't actually tell the trader "Here's $1m, go trade". The shop gives the trader a maximum size (e.g. N contracts, or $X in ASX200 companies with maximum of $Y total exposure) and other parameters like daily stop loss or whether they can hold overnight. But that's it, you don't know how much capital the firm actually set aside to support your trading. You can work out something like "What capital would I need as a private trader to trade these size/parameters?", but that number will be very different to that of the shop.

I don't know about funding costs of the shop, but I'd imagine it would be quite low. For a lot of short term trading strategies, the capital is not there to support positions, but instead to support drawdowns. A shop with 100 good traders will have an infinitely smoother shop-wide equity curve than a single individual very good trader for obvious reasons. So their requirement for drawdown would be much smaller.

Here's an example (all numbers fiticious). Say TH trades 10 HSI contracts which has ~A$12k margin each. So he only really needs $120k to trade that size. But he runs a daily stop of 100 ticks x 10 contracts which equates to ~A$7k, and he wants to keep that daily stop to be 1% of capital, his "notional trading capital" for risk/drawdown purpose is thus $700k. But from the shop's perspective, assuming TH has a positive edge over the long run, they probably only need $150-200k (if that) to support his trade. As TH's drawdown phase would be offset by the positive expectancies of the other 99 traders.

Equity is a different game again. If CFD providers let any retail mug trades BHP @ 5% margin, imgaine what sort of deal a professionally run prop shop can get with a prime broker. With my market netural pairs, the margin could actually be close to zero.

So any capital put up by the trader is difficult for the shop to workout exactly what proportion of your trading that should account for, and chances are it will either erode the shop's own return, or be quite uneconomic for the trader.

Unless the shop is capital constrained and has more traders wanting to trade larger sizes that it cannot support, getting capital from a trader will not be a priority. The truth is, if a shop ask traders to put up capital, I'd probably question the financial strength of the shop.

Can't think of the mutually beneficial equivalent for those more investment focused.....yet. Have you heard of anything?

A mutual fund manager?

 

[craft]

Thanks for taking the time SKC

Your description of capital requirement from the shops perspective is pretty much how I assumed it would be which prompted the question as to whether you could run your own capital along side.

Last question/thinking out loud (ignore if you wish)

Do you get enough time and remaining emotional energy to still maximise your own capital? If you can’t do both adequately does the potential of the prop scale dwarf that consideration – Is there a tipping point?

A mutual fund manager?

Unfortunately nothing mutually beneficial there along the lines of prop for a budding undercapitalised investor – you’re an outright employee unless you’re the owner and owning a fund means retail customers to keep happy/bamboozled.......

The closest I have seen to a potential business model is Marketocracy in the US but nothing in Aus that I'm aware of.

 

[Trembling Hand]

Thanks for taking the time SKC

Your description of capital requirement from the shops perspective is pretty much how I assumed it would be which prompted the question as to whether you could run your own capital along side.

Last question/thinking out loud (ignore if you wish)

Do you get enough time and remaining emotional energy to still maximise your own capital? If you can’t do both adequately does the potential of the prop scale dwarf that consideration – Is there a tipping point?

In fact the capital requirements of the prop shop to back a good trader dramatically drops as time goes on. As you don't take all your profit each month, and some take hardly any, the trader actually becomes self funding to some degree by leaving his/her share of profit with the firm.

 

[craft]

In fact the capital requirements of the prop shop to back a good trader dramatically drops as time goes on. As you don't take all your profit each month, and some take hardly any, the trader actually becomes self funding to some degree by leaving his/her share of profit with the firm.

So you can leave profit in? I sort of read SKC's response as you can't. I would think if you can apply your skills to your own capital at the same time its all the better for the trader (bar possible counterparty risk)

 

[kid hustlr]

I assume the only reason not to take all your profit each month would be to smooth your 'monthly equity/payment curve'?

I cant think of any other reason not take your payment as its just idle money not earning you a return? tax perhaps?

 

[Trembling Hand]

So you can leave profit in? I sort of read SKC's response as you can't. I would think if you can apply your skills to your own capital at the same time its all the better for the trader (bar possible counterparty risk)

Oh no they prefer you to leave it in. If you were a bit sceptical you would say cuz it is funding their operation. But i see it as building a physiological buffer against draw-down. Its probably somewhere in between but you don't want to have a bad start to the month and be looking at a daily account balance in negative.

Oh but as skc did say you don't have a capital base to work off. You don't use tradition risk management position sizing. in fact you blow the F out of the typical positions sizing models. So it is not a matter of if you have "trading capital" in there or not as that has nothing to do with position size. They don't say ok you max size is 10 contracts + 3 from your own capital.

 

[craft]

I assume the only reason not to take all your profit each month would be to smooth your 'monthly equity/payment curve'?

I cant think of any other reason not take your payment as its just idle money not earning you a return? tax perhaps?

Surely net funding requirements would enter into the calculations for the Prop shop when negotiating profit split.

- - - Updated - - -

Oh no they prefer you to leave it in. If you were a bit sceptical you would say cuz it is funding their operation. But i see it as building a physiological buffer against draw-down. Its probably somewhere in between but you don't want to have a bad start to the month and be looking at a daily account balance in negative.

Oh but as skc did say you don't have a capital base to work off. You don't use tradition risk management position sizing. in fact you blow the F out of the typical positions sizing models. So it is not a matter of if you have "trading capital" in there or not as that has nothing to do with position size. They don't say ok you max size is 10 contracts + 3 from your own capital.

Thanks

Sorry for the questions - just find it an interesting business and don't know much about it.

Cheers

 

[skc]

Do you get enough time and remaining emotional energy to still maximise your own capital? If you can’t do both adequately does the potential of the prop scale dwarf that consideration – Is there a tipping point?

Whether a prop trader finds enough time and effort to invest his own capital is really no different to any other employees in other industries. Perrhaps there's a small element of "Having stared at the market all day do I really want to analyse more investments?". But in actual fact my trading activities and thinking are completely different in mindset to investing.

I have worked in several different careers prior to trading and actually I find trading to require the LEAST emotional energy.

As you don't take all your profit each month, and some take hardly any, the trader actually becomes self funding to some degree by leaving his/her share of profit with the firm.

I take most of my profit out every month, leaving enough in there for a bad week. But yes it suk when you look at a negative number in your account balance. But then I just look at my account equity curve over the longer term and tell myself it's just a blip.

 

[aussiefx]

Another Propex trader here. Whilst I feel their in house training could do with some refinement there is no denying they success they are having with their trainees.

 

[Trembling Hand]

Another Propex trader here. Whilst I feel their in house training could do with some refinement there is no denying they success they are having with their trainees.

Hi there aussiefx. What are you trading? Are you in one of their offices?

 

[aussiefx]

Hi there aussiefx. What are you trading? Are you in one of their offices?

I'm trading bonds and equities currently. Yep I trade from the office and looking at doing a few nights at home soon.

 

[CanOz]

I'm trading bonds and equities currently. Yep I trade from the office and looking at doing a few nights at home soon.

Hey, great to hear you made the cut aussiefx...

You spreading bonds or trading outright directional?

 

[havaiana]

Just wondering if anyone from the darkside knows or is able to find out for me what sort of minimum live track record in terms of time I should build up before considering trying to get in by way of the back door? ... so to speak

I know it will depend on a lot of things but even a guesstimate would be good

 

[Trembling Hand]

Just wondering if anyone from the darkside knows or is able to find out for me what sort of minimum live track record in terms of time I should build up before considering trying to get in by way of the back door? ... so to speak

I know it will depend on a lot of things but even a guesstimate would be good

Yeah it is very much dependant on market you want to trade and then how much experience you have. Then of course there is also the in the office vs remote problem. I think whatever the answer is its more favourable to be able to be in one of their offices.

 

[havaiana]

Thanks TH

Got another question for any of the prop guys, is there anything in particular your shops are looking for at the moment that could help aspiring candidates get a leg up?

It seems spreading interest could give people an advantage at the moment, anything else? Which asset classes should people be looking at and which ones should they skip (for Australian/Asian shops)?

 

[db94]

ive got a question:

Im currently at uni studying economics and finance at sydney uni. My worry is that ive been hearing that a lot of traders need to know how to program. How much truth is there too this? I just cant get my head around how exactly coding is used to trade as well.

Would you recommend me learning coding like C++ or java, maybe VBA or even how to use matlab. I might change my major and do computer science

thanks

 

[CanOz]

I reckon the Spreaders are all arm chairs economists so I'd think it would do you some good to learn that...especially trading the curve.

Can't understand why a Prop Shop would need coders unless it was designing algoes..