What is prop trading?
Answer:
Prop (proprietary) trading referes to a brokerage firm trading its own capital for its own gain. Prop desks are often used to facilitate an order for a customer. Say you have 100k shares for sale and you call broker x. He will go to his prop desk and tell him what order he has, and ask his prop desk to buy 25k so the broker can then work the balance of 75k in the market. The problem with this of course is the inherent conflict of interest that arises. The prop desk is trying to maximize the gain for his firm, and not the customer with the order. He is now privy to how much is for sale, at what price and knows wether or not the order is likely to grow. He can then 'shoot against' the customer order and maximize his own profit at the expense of the customers exectution. It also harms the customer in that he has now created a second seller in the market place (the prop desk) They are not likely to sit on that 25k they just bot while the customer runs him over with 100's of thousands of shares for sale.
Outside the presence of a customer order the prop desk will take positions and try to make $ by simply trading the firms capital. Its very profitable, and marginally ethical as far as I'm concerned.
I do this for a living. I have worked for a major brokerage firm for 10+ years in sales, trading and market making - I know what I'm talking about.
A prop shop is a bunch of day traders that push stock around all day - they are mostly pro's who got tired of working for a brokerage house.
Prop trading when used in ref. to a big brokerage house (like Bear, Morgan Stanley etc.) is described above.
Prop trading is not an available option.
g_tastyfish is referring to a trading desk, not a prop shop.
Prop shops do not trade for outside customers.
It is true that all prop shops are not reputable.
Prop shops are companies that hire professional traders.
Most of them require the traders to put up some money to join.
In return, they may provide training and a trading platform.
They will provide administrative support, and additional leverage to the trader.
Prop shops pay the trader in various ways. Most give them a share of the profits generated.
A trader will be fired if they cannot make profits, or if their loses exceed the amount of capital they paid in.
This link has a list of prop firms
http://www.traderdaily.com/news/item/108.
This link is a message board used by traders. You can find a lot of info on prop firms here, and posts from prop traders.
http://www.elitetrader.com/
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