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9 reasons to trade at a proprietary trading firm


By Mike Bellafiore, co-founder of SMB Capital and SMB|U

On my blog as a Yahoo Finance Contributor, The Trading Coach, there is an Ask Anything option. One reader asked:

What are the advantages of trading prop?

We are a proprietary trading desk in New York City, trading stocks, options, futures, and automated trading strategies. The firm, powered by Kershner Trading Group, provides capital, training, coaching and mentoring, technology, and assumes all risk. The reader in question was a retail trader — trading his own account.

Here are some reasons to trade prop:

1. Capital

It is common for our better 20-something traders to trade a $10-$20 million account. Traders can make more when the best opportunities visit. A recent example was August 24, 2015. Products were severely mispriced on the open. One firm trader who made north of $15 million on that day elucidated, “How much of (X) would you buy if it was selling 30 percent below what it was worth?” Answer: you would want to buy as much as you could. More buying power, a bigger trading account, allows you to capture those best opportunities and make more.

2. Technology

Our firm uses proprietary technology. You cannot use our trading platform unless you are a firm trader. The platform allows traders to play more offense with their favorite setups. Our connectivity to markets is world class. Custom filtering technology allows traders to build alerts to their favorite setups. Also, we have world class execution routes to dark pools and the market that retail traders do not.

3. Training

On our desk, there are three parts to our training program: SMB Foundation, Trader Development and Team Trading. The training is intensive. Three daily mentoring sessions help new traders learn. Technical analysis, Reading the Tape, stock selection, trade review, morning prep, risk management, trades with edge, trader psychology, sizing, trade execution, building a PlayBook, the principles of One Good Trade are just some of what is taught during SMB Foundation.

In Trader Development, a daily routine for improvement, PlayBook best for trader, automated trading, best practices turned into habits, niche with edge emphasizing a trader’s talents are the focus.

Team trading is earned by the trainee through an interview with the top traders on the desk. Traders are matched with like-minded senior traders, who then become their daily coaches.

4. Automated trading

On our desk, traders have access to software that allows them to build models from their desktop. Traders can develop a trading idea, backtest, forward test and then run the strategy live from their desktop. A trader’s career path is not just solely as a discretionary trader, but also as a quant trader or a hybrid discretionary/quant. And all the infrastructure that goes into automated trading makes connectivity, alerting software, and trade execution better for discretionary trading.

5. Deeper pockets

Additional capital is only part of how traders can make more. A firm can withstand your draw-downs much better than you can as individual. One top senior trader lost 400k in one trade, on one day at the end of 2015. The firm absorbed that temporary loss and allowed the trader to use that hit as a learning opportunity. That trader has gone on to become a much better trader as a result of that trading loss/experience. To advance as a trader you must trade big. And when you trade big, large losses are inevitable. You can risk more and trade bigger with a firm behind you.

6. Coaching and mentoring

All of our traders work with Steve, our Floor Manager, and me. I have written two books on trading, so I hope I am a pretty good resource. But at our firm, there is more. Our top traders get to work with an outside coach, the best trading coach in the world. This helps them receive feedback on how to improve at the highest level. One of our traders just had his best month-to-date, while already achieving seven-figure status. That is impressive progress for someone at that skill level, but also partly the result of high level coaching.

7. Team trading

Junior traders join the teams of senior traders in-time. They get to learn the setups from Senior traders. They are coached by these top traders in real-time.

Things heard on the desk from Senior traders:

  • Why aren’t you bigger in that trade?
  • That is a bad trade!
  • Nice trade. That is how you do it.

Recently, a Senior trader asked his junior traders to build some filters for his trading. 3 months later that Senior trader excitedly shared he made 50k more because of those alerts built by his junior guys.
One of most memorable scenes on our desk of late was a team holding their weekly technology meeting. New models to build were discussed. Filters to be shared were highlighted. New filters to build and who would do that work was outlined. Together these traders were making more.

All of this makes you better.

8. Environment

One trade idea shared by a trader on the desk can make your week. Seeing others make six figures in a month gives new and developing traders the inspiration to do better. A senior trader at our firm recently noted a major benefit to trading at the firm is the new blood that arrives and pushes him to do better.

9. Access to more products

A prop firm can gain access to more products that you might as an individual retail trader. On our desk, we can trade options, stocks, futures, automated trading, international names, and more. Traders with edge can find more ways to express their edges with more products and make more.

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