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Day Trading Stock Tip - Comparing Proprietary Trading Firms

Questions To Ask When Comparing Proprietary Trading Firms

Are you considering day trading stocks with a proprietary trading firm?  If so, you will have to run some figures during the period when you are evaluating the choices of proprietary firms.  Having these figures will help you make the most educated decision and what is the best overall choice for your particular situation.

Will you have to be licensed?  If so, which exams do you need?  Who will pay for the exam fees?  Who will pay for the annual regulatory agency fees?  Who will pay for continuing education fees?  Make sure you get the answers to these questions and factor in both the financial costs plus the costs of not trading due to studying, taking exams, and having to wait for all of the compliance paperwork to be completed.

Does the firm require that you meet daily, weekly, or monthly minimums?  These are minimums in terms of the number of shares (or contracts) traded or the number of tickets (completed transactions).

What is the percentage payout you will receive?  Does the percentage improve with your tenure with the proprietary trading firm or your performance?  Does the payout percentage include all commissions, ECN/Exchange fees, and software fees?

Do you have to pay for trading software fees?  If so, do you need to pay for just one software fee or are there additional software fees you must pay?  Do they provide you with a computer or must you purchase/lease one from the firm?  Are your software fees waived if you trade a minimum number of shares or transactions each month?

Do you have to pay commissions, ECN/exchange fees, and any borrowing cost fees such as a fee for shorting a particular stock?  Do you receive ECN rebates (if applicable)?  If so, when and how are they rebated to you?  Do you have to pay any extra fees for certain amounts of intraday leverage?  What about the ability to carry an open position overnight? What are your limits and restrictions, and do you have to pay any additional fees?

Once you have the answers from each firm you are considering, create a spreadsheet with various columns.  Be sure to include a column for each possible fee, even if you leave it blank during your analysis.  Then create some hypothetical scenarios about the number of trades you make each month, the average number of shares you trade per transaction, your average gross profit per day, and other such values.

Run the analysis and derive what would be your "most likely" scenario for take-home pay after all fees and percentage payouts are accounted.  Then factor in the "intangibles" such as a mentoring program, success rates of current traders at the firm, geographic proximity, and which clearing firm(s) the firm uses.  You might be surprised at which firms make the grade and which do not!  Again, choose those firms which best suit your particular overall situation.

 

 

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