Why is it so hard to survive as a prop trader?
I am a senior studying Finance and got offered a job from T3 Trading in NYC after a lot of research everybody say it is so hard to become profitable and most get out after few months because they lost so much money. The way I see it is that if you have a limit on your loss on every trade you make and no cap when the trade is going north even if you are not a very good trader you should be doing ok, no?
Please share your thoughts with a guy who is thinking of making this into a career but is too worried from all the reviews on prop trading out there.
Let's say you decided to short GOOG on Tuesday, which would have been a perfectly reasonable trade. The stock moves in your favor and you're profitable immediately, so you're dancing. Then the market closes yesterday, and the stock blows up after hours. Your stops are worthless when the market is closed, and the stock opens +$45 today. Your stops trip immediately and you get filled near the high of the day, possibly resulting in a Margin Call. Next thing you know you're selling pencils from a can on the corner. It can happen that fast.
Plus there's the hookers and blow.
Mate I've got a better idea - similar to your strategy and you don't need to waste your time interviewing:
Take your tuition money for your senior year, let's say 10k Put USD 20.00 on red at the casino, every time you lose you double down to regain your money. So let's say: Put $20, you lose. Put $40, you lose. Put $80, you lose. Put $160 - you win. Then start again put $20, you win! That's $20 in your pocket. And you just repeat until you are a millionaire, see you on the croisette in France this summer.
This works with P=1 probability, do it Mr.Roberts!
Well Mister Roberts, it really all depends on your trading ability. The only reason it would be hard to survive as a prop trader is simply because you make no money. Other than that, you can survive fucking great! Most prop firms have a % payout. The ones I've heard of had anywhere from 35% - 50% (though I've heard of 75%, I think you have to put up your own money for those). The one I worked at this one time insisted on no overnight positions. I still made money (albiet very briefly) scalping Citigroup (trading at $3 back then, before their reverse split) for about 3 months. I just managed to find a floor broker ECN, and I'd use that to play the spreads. The floor broker ECN filled my orders faster than ARCA or BATS or EDGE or whatever ECNs we had. That system worked great, and I thought I was amazing... until Greece decided to collapse and SEC decided GS was a naughty boy. Then all of a sudden that spread idea didn't work so great because Citigroup decided to act like a normal stock for once. I subsequently quit because the strategy was no longer profitable (not to mention that I had to discover it myself, in an office of about 3 people with zero trading knowledge), I was new to the industry, and I took a non-trading opportunity, which ended up being quite lucrative. 50% of $0 is still $0, and so a moment of brilliance had just turned futile after the sky started falling, and I simply didn't have the risk tolerance to keep going, with so much uncertainty, so early in my career.
And THAT is why it's so hard to survive as a prop trader.
Do I have a point to all this? I don't know... but I guess in my limited experience, there are a few things that I have concluded are necessary, all of them leading to the ultimate point of your existence: whether you can be a good trader or not.
1) Resources: will you actually learn anything? Where I was at, there were hardly any people... much less anyone that had prior experience trading successfully. The trading platform was shit, and as a matter of fact they didn't even have a TV to blast CNBC with, they played some online radio (that guy loved going long btw... I could hear the sorrow in his voice when markets would down). Really it was just some d00d who decided to open up a prop shop, throw shit on the wall, and see what sticks. You'd be surprised how many people came in with some next level UFO graphs all planned out, and they ended up walking within a week. You need resources to learn from your mistakes/figure out strategies/understand the market/whatever. This can be peers (if they choose to divulge anything to you), classroom, boss, or anything that will complement your experience beyond you having to go home and Google shit on your own.
2) Ability to learn: so lets say T3 has an excellent training program, great people, just fucking marvelous like wow, etc... now what? You need to actually learn from what you're doing. The resources are useless if you're still just guessing (and not getting it right). The propensity to cash out, or wait for a loss to turn around, is very high. Of course, sometimes cashing out takes place too early, or a loss never turns around. The fact is, in trading, you have to figure shit out on your own. If you know what you're doing, and trades go your way while you predicted it going your way, and you pull this off consistently, you become very very valuable.
3) Poverty tolerance: I don't know how good or bad you are... but if you give yourself time to learn the trade (not an unreasonable assumption for people relatively new to this), you will have to accept a significant chunk of time will be allocated to you earning no money. This is the real deal breaker for most people. We can assume they have the resources and ability to learn, not making any money for a few months and figuring out what you did wrong can be very very expensive. Especially if there's no end/improvement in sight. Then you're wasting precious time, you're not networking, who knows how much value this thing actually has on your resume (trust me, the first thing they'll ask in interviews is how much money you made trading)... it's really not easy to earn $0 for that long. They say this can go up to 6 months, 1 year, longer even... there's really no limit to how long it can take for someone to learn trading.
Have a good one, Mister Roberts, have a good one.
Thank you Black Night for all this valuable insight... For me I think I am pretty good in picking stocks I have been an equity research analyst for a student fund for 3 years and a portfolio manager for a year and a half now and I am doing pretty good. I have very good knowledge for a university student and my portfolio has gained 71% in the last 15 months. But this is investing not trading and I am sure it is very different than what I am doing right now.
But you are right the firm that I am considering asks for 7500 capital contribution but they give you 20:1 leverage and you start by getting 75% of your profits and with seniority you can get up to 95% plus there will be a month of training which is both a good thing and a bad thing because I will have to survive in NYC with out pay for a month and then maybe make money in the next month and maybe not!!
You seem to be on the right track (and way more prepared than I was). 71% in 15 months is very impressive. Not sure what the rules with T3 are with regards to overnight positions. That might make a difference. If they don't care, then you're essentially just continuing with your ER/PM, but with a leveraged account, and (presumably) their platform. If leveraging up your performance can earn you a living, then you're at the right place.
why? Because if they don't think you can refill your account, you're nothing to them. This kind of place is only gonna show you how to be good if they know you'll be making them money for a while. You're not a hire (other than on your resume). You are business development for them. You'll see that the commissions are so big you can be red (negative) overall but before commissions, you could have made money on the day. Sometimes even the week or month.
The "training" at places like this is a joke. The computers are buggy and they hand you a piece of paper with terms they don't explain what they mean. Its also all technical analysis, but not even quant technical analysis. The real training occurs if and when they like you: know that you're willing to refill at least twice, you were an athlete, etc. and if you don't know something, do NOT ask questions (that's right). You will be humiliated and then not answered if you do. If they want you in a trade and you don't get in it, even tho you're really just their liquidity, your "prop career" will be short.
Places like T3 are boiler rooms. And how the higher-ups really trade, who knows? Most of the guys who make any money swing trade, and you can't overnight until you're experienced enough. I do hear that you can only overnight things there if you're experienced and only with a few shares.
Your portfolio management/equity research chops mean NOTHING in day-trading. Get that outta your head that it will help. You are day-trading. You are essentially gambling until they decide that you're not. You're going against algos and quants at REAL trading firms. And the market makers themselves. Level 3 CFA candidates, former analysts, and actual investors go in there and don't last. Some of the senior guys likely got their start in 2008 (any retard coulda made their money that year-SHORT FINANCIALS, LONG FAZ).
You're not making this a career. But since you did study finance and have some good background, and it is absolutely better than no job or one out of the field altogether. Even for as much as chop shop exit opps suck, they're better than retail or bartending exit ops.
I started day trading at the age of 19. Flipped 2 GS in 25k in 3 years. Still day trading today and will prob go to a prop shop after college. Its all about finding your style and perfecting it. If you walk into a prop shop straight out of college your gonna suck dick cause you haven't perfected you go to move.
its all about momentum trading and getting as big as possible.
dont go to t3, you shouldnt be honored by getting an offer from a trading arcade which is offering to suck up your capital -- plus they have an insanely high attrition rate. id look for other opportunities
Think of T3 as an extra internship BC you didn't have more than cold calling "private wealth 'management'" at Merrill in college. It still is trading, you still get a professional license, albeit a rather useless one other than on your resume, and its not cold calling or sales or operations (stuff you didn't need a college degree, let alone a finance one, to get only 20 yrs ago). If T3 is the best you have available, take it. But only if you can't go back for a second bachelors.
Congrats on the job offer, T3 is a reputable firm from what I have learned. great to see another fellow trader make it, I myself have been an avid trader across different asset classes for 4 years. I am profitable trader overall, and work in research where I am learning lots and honing my analytical skills.
now on to the strategy you are talking about, if you are focusing solely on North American equities and using the letting profit run and cutting losses strategy, you may be profitable, but it is difficult if you do not expand your holding period. This is because vol is currently low and with round trip commissions about 35 BPS on most trades, you are going to have a tough time catching good moves. on a daily basis, the return distributions bell curve has become more leptokurtic, not good for catching tail end moves.
expand your horizons, and if you are using technical, better use more than just text book support and resistance, which just about every retail trader knows... but technical do work, with enough screen time, you are going to be able to tell alot from the charts.
T3 is an arcade and about as far from a respectable firm as you can get.
Respectable: http://www.glassdoor.com/Salary/Jane-Street-Salaries-E255549.htm Not Respectable: http://www.glassdoor.com/Salary/T3-Trading-Group-Salaries-E489104.htm
Turns out not getting paid a salary isn't legit.
"The way I see it is that if you have a limit on your loss on every trade you make and no cap when the trade is going north even if you are not a very good trader you should be doing ok, no?"
I'm going to be a dick here and I apologize ahead of time. Based on this response, no reputable prop trading firm would hire you. Therefore, you should turn down the offer this firm gave you and reevaluate why you want to go into trading.
Any firm that asks you to put money into them and isn't willing to pay you a salary clearly doesn't care about teaching you anything at all
This topic should be moved to "trader's train." To the OP Mr. Roberts, where else have u been looking for work? At least what kind of other firms?
Mr. Roberts,
I am curious how things with T3 are going for you at the moment?... 3+ months passed by from your post and the discussion. I had recently communicated with T3 and decided to wait and learn more about their 20:1 leverage. To receive the leverage and 75% P&L payout trader is required to pass exam 7 or exam 56. 20:1 ratio is the same as CFDs margin ratio by Interactive Brokers.
CFDs are not legit in US, so Single Stock Futures is the way to go here which has margin requirement at 20%, i.e. 5:1. I am immersed in options trading, so for me CFD + options or SSF + options is a way to go: leverage + hedge. Yesterday tried IB TWS platform which is integrated and allows to have all different financial instruments in one place.
For all starting traders it is very important to do simulated trading. Backtest trading is even better cause you may get the feel for trading things fast, maybe in a couple of weeks. Think or Swim platform provides very nice backtest tool called thinkBack in Analyse section.
WSO should hold trading contests in simulated trading and backtest trading. Just see the excitement CME Group's Trading Challenge is generating. 100+ universities are going strong and it grows annually.
Roberts, let us know your progress. Warm regards! - Artu
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