The Proprietary Trading Firm Scam

A note to those seeking a junior trader position.

Though this is likely not news to most of you, it might be for those who will be graduating in the next few months or who are desperate for a job on Wall Street. Some (key word here) proprietary trading firms, namely those that ask for a deposit, are firms that will promise training, but in the end are only interested in your deposit. They will get to this by charging you high commissions for trades and charging bull shit fees (e.g., $100 if you don't trade a certain amount per month and $30 to take some regulatory review exam on their computers).

You might be saying, "if you were a good trader, you wouldn't be concerned with these small fees here and there because you'd be making tons of money." The problem is that the training will be awful and if you don't have your own trading strategy, you will hemorrhage money, which comes entirely out of your account.

I graduated college from a target school last year and after not making the final cut for an IB analyst and turning my nose up at back office positions took a job at a prop shop that most probably have heard of if they pay attention to Bloomberg, CNBC, and the WSJ. I was very skeptical at first given that there is no salary and you have to deposit cash, but I rationalized the situation by thinking that if they were being quoted in respected news sources and there were really smart people working there (the place is stocked with ivy grads) it can't be what it seems. I was wrong.

I personally had only two training sessions with senior traders(about 20 minutes each) in the 6 months i was there. Most of the training came from people who had only been doing it little over a year. If you interview with one of these places, you will be told stories of kids who made some money, but those are EXTREMELY atypical. The truth is that the vast, vast majority of those smart kids are pulling in less than an employee at McDonalds. I only knew one on a desk of thirty who made decent money...it should also be mentioned that he had his own strategy and didn't trade the way we are "taught" and he only made what I could make in a back office position. Not surprisingly, the turnover rate is extremely high and those who wise up to the situation are out within 6 months.

I left late last year, but still have friends there and many others who are graduating college this year asking me about it. What I say is that you should use your head.. If you're working for a firm that will make money from you even if you fail miserably, there is little incentive for them to invest the time and money into training you well.