Hi, I have been trading for about 5 years now and have been completely automate for 2 and I am thinking about starting up a sub llc under one of more well known prop firms. But instead of running your traditional subs I was thinking of going a different direction. Instead of of having any trader come in and put money up, I would hire traders. They would be paid a small salary (2k a month) and 50% of their profits or 75% of their profits (which ever is greater). But we wouldn't be focusing on manual trading, everything would be automated. They would have access to in-house programmers, back-testing software, and other infrastructure to develop trading strategies. I would be looking to hire college grads without any trading background. Teach them the basic of the markets and electronic trading and them let them at it. Each trader would have 1 year from their hire date to develop 1 trading strategy. Once they have developed on, their day would consist of research and monitoring their models. The reason why I feel this is a good business model is because most new traders fail because of three things, they are under capitalized, don't have trading plan (a stick to it) and they have poor risk management. This new model would address all three of this issues. This is the basic overview of what I would like to do. What to you guys think, is it worth the time and effort? Any suggestions and comments would be great.
If you could really afford to pay a base salary like that, it sounds like a good opportunity for all. To really compete you need access to high quality data & tools ... not easy to come by. When I was just starting out I would have jumped at the chance.
I would only have at the most 3 traders that are on salary at a time. Once a trader has took home 75% of their profits in a month for 3 months in a row then I would look to hire a new trader. Like you I feel that it is a good opportunity for all. Those who are hired get the opportunity to learn how to trade without any money out of their pocket and with the odds more in their favor. And I obviously will get to enjoy some of the financial success but also the interchange of ideas will also benefit both parties.
I think you would bleed to death. How much capital are you willing to invest in this operation? I highly doubt these guys could develop a working automated strategy in 12 months. Try 5 years. Also, most prop firms that run automated systems are not trading technical systems but rather structural inefficiencies in the market. That cost a lot of money and requires a lot of capital. My guess is you would need 5 to 10 million in capital and you would be better off going with more traders not less. You need to find a superstar in your group to have a chance to survive. And that cost money and time to find and develop those guys. Even firms who have unlimited capital, the best technology and the pick of the PHD litter, even they are struggling to stay above water.
If you're only going to have 3-4 traders at a time, are you going to let go of 'winning' traders too? If so, after what amount of time? After you let them go, who owns the winning trader's strategy? Are they signing some non-compete?
Yeah, and when a 'superstar' comes up, he'll think he owns the place, demands all kinds of xxxtras or just takes off leaving you empty-handed except the others you keep paying. That's why there are more security concerns at some of these shops than guarding Fort Knox.
Thanks for that Mav. I appreciate the insights especially coming from someone who runs an office. I can see where you are coming from, but I don't totally agree with you. I have in the low 6 figure range that I am willing to use in this operation from the get go. To pay out 6k in salary plus other expenses a month is not going to kill me. I have done it and personally seen 5 other traders with the proper guidance develop strategies in under a year that didn't focus on market inefficiencies. I am sure others have done it too. The year is not a hard fasten rule, its more of a general guide line. You can tell if some gets it from someone who doesn't it. Capital is not that much of an issue either, its not unlimited but it should be enough to run the type of operation I am trying to do. I am not trying to compete with the HFT firms per say, so the technology doesn't hinder me or others that I might hire from achieving profitability. Firms such as swift trade for example hire anyone and everyone and they seem to do well, perhaps its due to the fact that they hire a lot of people and one superstar out of 50 duds makes it. That might work for them. But I prefer to take the approach of FNYS, hire a few quality people and work with them. I won't be allowing the traders to come in, come up with an idea, back test it over a few weeks of data and have the programmer code it up and then take it live. It will be much more intense then that. Proper back testing methods, then forward testing it, then it would go live with the min. amount of shares possible. In no way shape or form would I allow them free reign to do what they please when it comes to live trading. As for PHDs, I would take a smart, hungry undergrad over a PHD any day, that is just me. Perhaps I am just foolish. Thanks for your comments though, gives me somethings to think about.
I am only planning on keeping 3-4 traders on salary at a time. If a trader is making 10k a month, they its better for them to take the 75% payout. So once a trader reaches that level for 3 months in a row then I would hire another trader. As the group grows then I will be able to have more traders on salary at one time. Winning traders would never be let go. As for the IP that is something that still has to be thought about and worked out. And yes they are going to be signing a non-compete. Its not going to enslave them, but it will also protect myself, from investing the time and money into them only to have them leave and go out on their own. But having access to free programming, low commissions, free data and other benefits I am not sure if that will be a huge problem for me later on
Thanks for that Mav. I appreciate the insights especially coming from someone who runs an office. I can see where you are coming from, but I don't totally agree with you. I have in the low 6 figure range that I am willing to use in this operation from the get go. To pay out 6k in salary plus other expenses a month is not going to kill me. I have done it and personally seen 5 other traders with the proper guidance develop strategies in under a year that didn't focus on market inefficiencies. I am sure others have done it too. The year is not a hard fasten rule, its more of a general guide line. You can tell if some gets it from someone who doesn't it. Capital is not that much of an issue either, its not unlimited but it should be enough to run the type of operation I am trying to do. I am not trying to compete with the HFT firms per say, so the technology doesn't hinder me or others that I might hire from achieving profitability. Firms such as swift trade for example hire anyone and everyone and they seem to do well, perhaps its due to the fact that they hire a lot of people and one superstar out of 50 duds makes it. That might work for them. But I prefer to take the approach of FNYS, hire a few quality people and work with them. I won't be allowing the traders to come in, come up with an idea, back test it over a few weeks of data and have the programmer code it up and then take it live. It will be much more intense then that. Proper back testing methods, then forward testing it, then it would go live with the min. amount of shares possible. In no way shape or form would I allow them free reign to do what they please when it comes to live trading. As for PHDs, I would take a smart, hungry undergrad over a PHD any day, that is just me. Perhaps I am just foolish. Thanks for your comments though, gives me somethings to think about.