Prop Shop Model

UncleKevin's picture
Rank: Gorilla | 672

We have all seen the movies with well dressed traders barking out buy and sell orders, slamming phones, and congratulating each other on being masters of the universe. Students are declaring finance majors in record numbers, all expecting to be a hot shot in NYC. The truth is, demand for these jobs far exceeds supply. The result is disgruntled back office workers and people working at second rate shops. One extra shitty second rate place to land, are the obscure prop shops I hear about.

It's my understanding that these firms hire a bunch of kids in their 20's, tell them to put at least 10k down. They get levered up 5x by the firm and off they go. The firm gives a little technical training but nothing special. Can someone shed some light on these firms?

What is the benefit to the firm of hiring these kids that don't know anything? How does the payout to the trader work? Just some percent of profits? Does the firm just raise some equity capital and then get a bunch of debt financing?

Comments (3)

May 17, 2010

I guess the hope is that once their PnL gets too close to - 10,000 they can them.

I'll be living with a prop trader this summer, so hopefully I'll have more insight by then.

Just like anything, keep in mind there is an array of Prop Shops, some that are more corporate-like than others. But there is also a ton of junk out there that people on this site often call "Sweat Shops" and rightfully so....there's no industry over sight from what I understand and the job security at some of them is nil.

May 17, 2010

They also charge them fees for connection, execution, etc.

May 17, 2010
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