A confused newbie

[traderthe]

Hi All,

I am new to Trade2win.. have been looking at posts here for about 1 months now, but this is my first post. I greatly appreciate this forum for all the meaningful discussions which take place here.

I am writing this from India, where I have studied. I have graduated from a very prestigious institute here with an engineering degree. Among the options I had, I choose to join a new company here that trades in EURIBOR futures. For the few months this company has been around, our strategy (for all the few employees here) has been legging into butterflies using spreads, and spreads using other spreads. So we are essentially scalping. The typical size is from 20-40 lots.

Since all of us here are very new to this world, we dont know what is what.. So I would like to present to you a proposal that has been given by the company and ask you for advice on the deal. Also, I would like to ask a few questions which are relevent. A few numbers have been changed slightly by me, but perhaps insignificantly.

The Company has suggested the following method for working out bonus payments. The fixed salary is low for a prestigous Indian graduate. It is about 15 - 20 % less than the norm.

Say I make a profit of X this month (Gross profit).
I am to pay transaction charges of 0.53p = 0.78c per transaction. If the number of transactions (T) exceed 5,000, I get a substantial rebate. Similarly above 10,000 etc upto 20,000.

First around 15% of the profit is taken: 0.15*(X-0.78*T)
From this salary is deducted (no desk fees): -400
If a loss of Y in the net p&l has been made last month, it is CHARGED IN FULL to us this month: -Y

Total = 0.15*(X-0.78*T) -400 - Y

If this is positive, half of this is paid out this month and the other half after 6 months. If this is negetive the balance is carried over to be deducted from next months balance.

Other complex senarios have not been discussed. I am sure some will arrise.

I would like to mention now that till now most of us have been hovering around Euros +1k to -2k, with most on the negetive (net p&l). What we have been told is that we will get new strategies with a new mentor and also a size to match. Although I do not understand why the company is keen to pass on this proposal before we start making money with new strategies, I would like to ask the following questions:

A. Do you find the proposal reasonable? I am sure this is worse than most other parts of the world.. the question is by how much? As they have made us understand, it is significantly better than other companies in India. Is it reasonable to have a month with a loss fully charged on you, when you receive only a part of the profit?
B. How much money would the company have had to put down to give one person the size of 40 lots.
C. Does the transaction costs in particular look reasonable?
D. Assuming we are allowed outrights also in the same size, how hard is it to make the minimum 3000 euros net profit per month required to provide for the salary alone?
E. Is this what you call a prop shop?

A quick response will be greatly appreciated. Any more comments and suggestions are also welcome.
The Trader.

 

[Directional]

i dont know what other shops in india are offering, so cant comment on that.

For Euribor the fee's your being charged seem pretty steep compared to London, assuming you are talking cost per lot. As a comparision Marex only charge 0.48p per side including exchange fee's (of 28p, i think)

The sort of profit you're talking about I'd imagine would be difficult to acheive at 40lots size, you really want to be working slips five or ten times that big to start making respectable money, but obviously that depends on whether you have a positive expectancy or not. if you cant clear a + balance with 40 lot clip, it will be much more painful with more size.

The profit split deal looks extremely complicated and wierd. But again, I have idea of what shops over there typically do.

The sort of deal I am familiar with works where the trader might take 50% of profits, and the money is split when you withdraw the cash from your account. Withdrawals may only be permitted monthly or quarterly, but that depends on the deal & shop.

 

[tommog]

Hi,

Agree with everything Arb said, one thing i would add though is you've found yourself a good deal if the company pays you a small salary. If this is a salary and not a draw on your account in advance of you making money (that you will be expected to pay back) then i reckon take them up on this. You can always leave further down the line if you become successful.
To be paid whilst learning and most probably losing the company money at the same time in the early days is almost unheard of at a lot of prop firms

 

[traderthe]

Thanks a million Ard and Tommog...

@Arb.. I understand what you mean by postive expectancy.. and I am trying to acheive that (and hopefully just acheived that..).. I think the 50% deal you were describing makes much more sense.

@Tommog..We were recruited without an understanding of the salary (we never imagined it could be charged back to us), but as we found out now, they want it charged to us from now on.

I did my research on other prop shops in India. There is a popular one offering what appears to be a much better deal...the salary is the same and we are more or less paying it back as 'desk fees'.. but the big difference is desk fess/salary is charged out of profits and not the bonus we are entitled to. Given that the profit percentage is only 17%, and I am charged losses in full here, I would rather have that right now I guess. The percentages are lower (12.5% in the lowest bracket < 5000 Euros) but transaction cost is significantly lower (86p for a round trip in the outright.. compared with 106p in my company per lot). That seems cheaper than Marex So the other company appears to be a much better place to learn.. I think it will be a peace of cake to shift.

Since we have no obligation to pay up for losses, I could learn and leave... as Tommog says..
but expecting a salary raise now is a bit out of question

Thanks a lot again Arb and Tommog for all the help
Will post here any moves I make.

 

[Directional]

Tommog is spot on, most places over here to not give you the chance to earn while you learn, even tho the profit splits sound on the low side & a bit obfusticated in india.

I should also have qualified that the Marex rate was the bottom rate for <5000 lots per month, obviously they get much cheaper for bigger volume levels.

good luck anyway. keep us posted.

 

[ptiwari]

what's the name of this another firm u r talking about???

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I did my research on other prop shops in India. There is a popular one offering what appears to be a much better deal..

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