Examining Prop Desk Trading or Combines...
You might be one of those traders who is looking for capital. You might be thinking that a trading combine or prop desk is a good place to look. You might be tempted to get into the game using someone's else's capital to minimize the risk.
I want to clearly examine this issue to inform you whether I think this is worth it or not.
First of all these prop firms that offer free capital "if" you pass the stringent requirements of their firms requirements to give you capital are in all essence a scam.
Here is why.
First of all you are required to pay fees upfront before you begin. Then you are given a simulated account with brokerages and platforms that they partner with. Fees are distributed all around. Affiliate marketing monies are made.
So taking all that into account and all the fees you are paying the firm and the CME before you begin they have already removed the risk factor from their own books. You are well into it with capital invested before you take one live trade. After all these places are not into losing capital are they.
The next factor that you will see is that the rules of losses on capital are clearly set. Most systems will have at least a draw down factor that exceeds their daily loss limit. That is if you hope to make money at all. So right away you are handicapped in your ability to endure draw which means what?
It means that you have to use tight stops. The evidence is clear on this one. They don't work in the mid to long term. You will eventually give back all your capital and then some. Remember you are speculating on market noise most of the time and this is a no brainer for the firms providing you with the liquidity. They know you will lose. Like a casino they know that it is simply a matter of time.
That is why most of the people who are granted capital are no longer trading. They experience a bit of success and then....wham.....done. I assure you this happens because that is how the rules are set up. Not for your long term success but for the short term success of the firms providing your capital. Just another method of skinning a cat. A good one because you think that they are out for your success and will work hard with you.
Oh sure they will say all losers say this and other BS to baffle your brain but the reality is that you are set up to fail at the beginning.
I am not saying that it is impossible to do this but rather it is simply a gamble that you are more than likely to come up short on based on the trading conditions and rules you have to follow. Remember you won't always get 2-3 contract fills will you? You on the other hand will generally take 2-3 contract losses. More than likely a break even game at best if you are lucky.
Is it a good way to get capital. I suppose but your own is better.
With your own capital you can make rules that make sense for the market conditions you are encountering. You can hedge in certain ways. You can use multiple instruments. You can drop your leverage down. You can take longer term outlooks without using tight stops. Well, you get the point.
If there was a way to do this using this capital I would be the first to recommend it to you. However that is what experience is all about. I debunk this nonsense for you ahead of time. All these trade rooms partnered with these firms is also just more ways to get you to spend money you don't have on products you don't need looking for the holy grail that of course doesn't exist.
One rule that I do know is that the less leverage you use the better off you are in the long run. Sure I know it is boring and you are looking to turn that 5K account into 600K but reality states that for most this will never happen. You are more likely to lose it than to turn it into a fortune. There a many gurus out there to convince you otherwise but lets be realistic. They make most of their money from marketing that very concept to you. Once again like the jokers in this casino they are making most of their money from fees.
Just as a reference point. The few that actually make it in say a game like Texas Hold Em' I believe would be the first to tell you that they make a lot more endorsing the BS than they make from the actual games themselves. This is part and parcel of the rip off.
When we look at society at the moment there is a void that is quickly being filled with the notion that making money "any way that you can" whether ethical or not is alright as long as I get my share. While this is nothing new it is NOT alright. It is a form of stealing. From one person to another. The bigger problem is it impoverishes a society and does not make it any better thereby making income inequality that much more significant. We keep forgetting that what we do to one man affects us all.
Cheers!
I want to clearly examine this issue to inform you whether I think this is worth it or not.
First of all these prop firms that offer free capital "if" you pass the stringent requirements of their firms requirements to give you capital are in all essence a scam.
Here is why.
First of all you are required to pay fees upfront before you begin. Then you are given a simulated account with brokerages and platforms that they partner with. Fees are distributed all around. Affiliate marketing monies are made.
So taking all that into account and all the fees you are paying the firm and the CME before you begin they have already removed the risk factor from their own books. You are well into it with capital invested before you take one live trade. After all these places are not into losing capital are they.
The next factor that you will see is that the rules of losses on capital are clearly set. Most systems will have at least a draw down factor that exceeds their daily loss limit. That is if you hope to make money at all. So right away you are handicapped in your ability to endure draw which means what?
It means that you have to use tight stops. The evidence is clear on this one. They don't work in the mid to long term. You will eventually give back all your capital and then some. Remember you are speculating on market noise most of the time and this is a no brainer for the firms providing you with the liquidity. They know you will lose. Like a casino they know that it is simply a matter of time.
That is why most of the people who are granted capital are no longer trading. They experience a bit of success and then....wham.....done. I assure you this happens because that is how the rules are set up. Not for your long term success but for the short term success of the firms providing your capital. Just another method of skinning a cat. A good one because you think that they are out for your success and will work hard with you.
Oh sure they will say all losers say this and other BS to baffle your brain but the reality is that you are set up to fail at the beginning.
I am not saying that it is impossible to do this but rather it is simply a gamble that you are more than likely to come up short on based on the trading conditions and rules you have to follow. Remember you won't always get 2-3 contract fills will you? You on the other hand will generally take 2-3 contract losses. More than likely a break even game at best if you are lucky.
Is it a good way to get capital. I suppose but your own is better.
With your own capital you can make rules that make sense for the market conditions you are encountering. You can hedge in certain ways. You can use multiple instruments. You can drop your leverage down. You can take longer term outlooks without using tight stops. Well, you get the point.
If there was a way to do this using this capital I would be the first to recommend it to you. However that is what experience is all about. I debunk this nonsense for you ahead of time. All these trade rooms partnered with these firms is also just more ways to get you to spend money you don't have on products you don't need looking for the holy grail that of course doesn't exist.
One rule that I do know is that the less leverage you use the better off you are in the long run. Sure I know it is boring and you are looking to turn that 5K account into 600K but reality states that for most this will never happen. You are more likely to lose it than to turn it into a fortune. There a many gurus out there to convince you otherwise but lets be realistic. They make most of their money from marketing that very concept to you. Once again like the jokers in this casino they are making most of their money from fees.
Just as a reference point. The few that actually make it in say a game like Texas Hold Em' I believe would be the first to tell you that they make a lot more endorsing the BS than they make from the actual games themselves. This is part and parcel of the rip off.
When we look at society at the moment there is a void that is quickly being filled with the notion that making money "any way that you can" whether ethical or not is alright as long as I get my share. While this is nothing new it is NOT alright. It is a form of stealing. From one person to another. The bigger problem is it impoverishes a society and does not make it any better thereby making income inequality that much more significant. We keep forgetting that what we do to one man affects us all.
Cheers!
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