prop shop desk fees?!

[SanMiguel]

Why do prop shops charge desk fees? Isn;t this some form of con?
Shouldn;t a prop shop simply put up some capital for you to trade with, accept that that is their risk and then they take 50% or agreed amount of any profits?

 

[arabianights]

if you're a good enough trader anything is possible... there is no legal requirement to take desk fees

 

[SanMiguel]

if you're a good enough trader anything is possible... there is no legal requirement to take desk fees

It just seems a strange setup to have...agreed they pay for high quality bandwidth links and systems but if they're running a company, shouldn't that be their investment?

 

[arabianights]

Not really because the general model ends up with people either on very low splits or entirely self backed... as why would one have it any other way? A 80 or 90% split (in the trader's favour) is far more usual than 50%.

The prop shop's investment is almost just a way to get you started rather than a serious investment, in most cases.

That arrangement works out better for the self employed folk who trade at prop firms; the desk fee basically covers fixed costs, while commission fees and split cover variable costs. You could build the desk fee into the variable costs but then you'd have the more successful subsidising the less successful, and why would they want to do that?

The other option, of course, is to work in a hedge fund or similar and take a salary and bonus.

 

[SanMiguel]

Not really because the general model ends up with people either on very low splits or entirely self backed... as why would one have it any other way? A 80 or 90% split (in the trader's favour) is far more usual than 50%.

The prop shop's investment is almost just a way to get you started rather than a serious investment, in most cases.

That arrangement works out better for the self employed folk who trade at prop firms; the desk fee basically covers fixed costs, while commission fees and split cover variable costs. You could build the desk fee into the variable costs but then you'd have the more successful subsidising the less successful, and why would they want to do that?

The other option, of course, is to work in a hedge fund or similar and take a salary and bonus.

Main point seems to be lower commissions, top end equipment, and trading with someone else's cash (plus benefit of some mentoring in some places) but if you have to cover any losses yourself, why not just trade your own account...or is prop shopping a hark back to the last 10 years and pre where most of the links/equipment weren't available to the retail user? I guess some people get bored at home too

http://www.trade2win.com/boards/trading-firm/22939-trainee-trader-prop-shop-trading-arcade.html

 

[SanMiguel]

Given that desk fees seem to be in the £1k to £2k range, what sort of sixe would you have to be trading to make that negligible per month. Say desk fees 5% of monthly profits?

 

[tar]

y your thread is in this section ?

 

[arabianights]

Main point seems to be lower commissions, top end equipment, and trading with someone else's cash (plus benefit of some mentoring in some places) but if you have to cover any losses yourself, why not just trade your own account...or is prop shopping a hark back to the last 10 years and pre where most of the links/equipment weren't available to the retail user? I guess some people get bored at home too

http://www.trade2win.com/boards/trading-firm/22939-trainee-trader-prop-shop-trading-arcade.html

You'd only have to cover losses yourself it was your own account

 

[arabianights]

Given that desk fees seem to be in the £1k to £2k range, what sort of sixe would you have to be trading to make that negligible per month. Say desk fees 5% of monthly profits?

Something around that sounds right

 

[SanMiguel]

Something around that sounds right

That would work out to be something like a minimum trade size of say 10 contracts on the ES expectancy 3 pts per day (av). or something like 5 contracts on the bunds (20-20bps per day).

 

[arabianights]

probably... I think you'd need to do more than that tbh....

 

[SanMiguel]

probably... I think you'd need to do more than that tbh....

due to expectancy or just to make it worthwhile for the desk fees?

 

[arabianights]

nature of high frequency strategies is you will take the occasional large hit

 

[j b]

Given that desk fees seem to be in the £1k to £2k range, what sort of sixe would you have to be trading to make that negligible per month. Say desk fees 5% of monthly profits?

I wouldn't say desk costs being negligible is really the issue - the big decider on whether it makes financial sense for most people will be whether they save enough on trades to cover it. £2000 might be a big hit to your monthly pnl, but if going prop saves you £3000 in commissions, it's well worthwhile.

Also, people aren't paying £2000 just to sit down - the figure includes costs like trading software, some of which you'd have to pay anyway.

 

[SanMiguel]

I wouldn't say desk costs being negligible is really the issue - the big decider on whether it makes financial sense for most people will be whether they save enough on trades to cover it. £2000 might be a big hit to your monthly pnl, but if going prop saves you £3000 in commissions, it's well worthwhile.

Also, people aren't paying £2000 just to sit down - the figure includes costs like trading software, some of which you'd have to pay anyway.

Pretty expensive software and bandwidth at 2k a month
Agreed, you get a cheaper commission structure but then effective it won;t that much cheaper because of the desk fees.

 

[arabianights]

Of course it will, you'll save that in a day or two if I understand what retail comission rates are

 

[Parky]

Ok first things first, Desk fees are a crude way of recharging fixed costs, such as the actual cost of the office space, the electricity, service costs etc that the "arcade" has on a daily basis.
However there are plenty of ways that arcades differ in their treatment of these cost, you would be amazed at just how gullible some traders are and how sneaky some trading arcades are.
Some, for example, will blind you with brilliant splits, such as 75/25, 80/20 or even 90/10 but they then hit you with 100 the desk costs and some even inflate these (classic example of charging TT or Bloomberg in sterling the same rate as the actual charge in Dollars) where other houses will split at a lower rate but wear their percentage of the fixed costs.