Job Security at Prop Trading (Chicago Based)
I have traded for almost two decades in a bank. All those years have been successful. However a lot of the time there is a small income (20 percent of profit) derived from the franchise. Note that I have always made much more money than my franchise.
I have now been offered a job at a medium tier Chicago prop house. So I would expect that there is no franchise value.
The new job offer allows me $3m of margin and $1.5m stop loss
How stable is this job? If I make zero money then am I automatically out in the first year? What about if I make 500k, 1m etc am I out also?
Any ideas what job security measured in raw first year P&L i am expected to make is?
(I think my seat will cost 200k to the firm and I won't contribute capital or any other costs)
Certain things are better not discussed with your employer. If you think questions are naive, better not ask the partners at the firm.
In terms of your second question, I guess you'll know better when you're ready. But If you've been taking a break for awhile, I'd say take your time. IMO I don't think partners generally like the guys who are so eager to make money fast, because they are the ones who are the most risky. It would be better to show them your discreet side first before diving in so fast. This is because prop firm that doesn't require traders to put up risk capital has asymmetric risk-reward for traders: when traders make it big, they get rewarded big, but if they lose big time, they simply get fired. For this reason, partners will view you as one of those 'make big or go home' mentality guy if you jump in and be too eager.
The one piece of advice I would give it truly understand WHERE you derive your PnL from. Working at one of these shops I think the failure rate I have personally seen from bank guys crossing over is high around 80%+ with an N of around 20. A lot of guys have some easy money coming from internal edges that they could risk on other trades, there is no free lunch in prop. No more sales desk flow, no more intel/ internal research, different fees, margin and software systems. As someone else stated you might have $1.5MM down draw but know and try to minimize the variance of your PnL even if it's sub optimal but if you drop $300-$500k people will be asking questions and eventually your risk limits will be cut back so getting back to break even is much harder. Due to the profit structure try to get your bread and butter trading going and put some runs on the board even if it means not going for the highest EV+ trades in the meantime.
If you can last the first year and put up a decent amount (even under budget) you will find success in the future much easier and once you have credibility with the firm the risk tolerance does change. Will you be canned if you make $0 the first year? Hard to say, is that $0 after fees? Did you drop $400k first 6 months then finished flat? Was there a barrier early on that stopped you being successful that is changing? I think it would depend on how your business looks going forward from a fees, PnL variance/ capital intensity/ firm strategy point of view. My guess with your back ground is that you get another 6 months to show those changes.