Prop Shop 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.
Thanks for the useful post and talking about your own experience. While many of us here know better, I hope some people see this and wise up.
On second thought, maybe I should let them go to SMB instead of a BB and leave the BB spot open for me...
But seriously, thanks for posting.
Interested to know how large of a deposit these firms ask for?
I had a banking colleague that had worked for a known prop shop like this, although he didn't frame it as a scam. He said the company put strict limits on your exposure and losses, so the only way to really make it work was to trade very frequently, which generated a lot of commissions for the firm. When he'd have a good month and stop trading as the end of the month (paycheck) drew near, he'd be pressured to stay active. He left after a year or two because he didn't enjoy trying to scrape out $0.05 per share returns, pay $0.01 in commissions/fees, and net the rest before taxes.
I'd find it hard to believe that a shop like you mention churns through enough people and their deposits in order to really make money though. The firm would need significant infrastructure in terms of people and technology, so a strategy of "let's churn and burn college kids for $1,000 each" probably doesn't work.
It's more than 1k. I put up 5k, but it can go up to 10k. I also knew people that refilled their account 2 or 3 times before finally quitting. Remember that they also take a significant cut of your trading profits (30%-40%) too. When I left, my P&L without commissions being deducted was positive, but about 4/5 of my account had been drained through shit fees and high commissions.
This is not true prop trading but rather the arcade model. It's not a job but rather you're opening a leveraged brokerage account.
Real prop firms don't ask for a deposit and some provide small salaries/draws.
Were you at T3?
Real prop shops are very hard to get in, because they're willing to take some risks with you by providing you with a salary (even small)... Unlikely you get in when you graduate!
(not to be confused with HF, which are a lot more serious)
i had a similar gig after undergrad, but there was no deposits and came with a small salary.
I was always surprised Prop shops get as much love as they do here. I would NEVER even think about going to one unless it was one of about 3 or so.
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