Please explain prop trading deals to me...
I am used to hedge fund style payouts (2% and 20% etc), and am trying to understand a prop trading deal that I have been told is pretty typical.
The deal is you put up some Minimum Trader Equity (MTE), and the firm puts up 9x your capital. They then lever that up 6 times. The trader then gets 33% of PnL on the gross amount.
So for example, on a 100K MTE, the firm brings 900K and levers the 1M up to a 6M book. On a 1% pnl, the trader takes (or eats) 33%, so 20K. If a 1% loss is 20K, isn't the trader effectively levered 20x on their money? Why would anyone take this deal if a 5% drawdown will blow them up? Just hope that it doesn't happen? Or just no better hedge fund deals (1 and 10 etc) available?
thanks
Thanks for the information & knowledgeable post how can I be a part of your forums friends?
those are called bucket shops
good prop firms offer a base to start, albeit a small one and pay a % of the gains or whatever.
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