Sorry if this belongs in the trading thread, but I think the subject matter is different.

So I have been offered a job with a prop trading firm. Does anyone know what the standard is in terms of compensation for this? Just wondering if anything is a red flag and I should run.

I trade with their capital and don't put up any $ of my own, I keep 42.5% of my profits monthly. It is high frequency trading and I don't think I get paid anything until I go live and start trading and apparently training is about 2 months depending how quickly I learn.

I am supposed to go in and get a contract to sign tomorrow, I will take it home and go over it on my own before returning with it.

I have never worked with a prop group (brokerage experience and starting with a hedge fund in a couple months), but from what I have heard if you don't have to put up any of your own capital that is a good sign.

I was in that particular industry for a while and the split is pretty good. Especially for just starting out. There are a lot of other factors though. Are you getting a draw, what kind of risk can you take before they fire you, and what are your desk fees? Being on the same page for risk limits is, by far, the most important factor when negotiating a deal.

Who is it, SMB?

No, a much smaller new that doesn't have a website yet

Unpaid training seems like a bad sign no? You could in theory get a $100 risk limit and they have no skin in the game. There are some other prop/HFT traders on the board you could try contacting directly.

Unless he gets a trading job at SIG, DRW or equivalent, you generally don't get a true salary. Most "good" prop firms will offer a draw around 35-60K when they start depending on a variety of factors. If he has to go through 2 months of training to manage less than $500 a day risk, then it is a bad deal. It'll be impossible to live off of that.

That's what I'm curious about. Are you going to be trading equities, futures, options? If he gets a 50k account or something with a 42.5% split and he is trading equities he is only going to be taking home like 25% of whatever he makes bc the government will pull the rest as well. He won't make enough to live off of unless he is one of the best traders in the world throw in there cost of living in Chi or New York and it looks even worse.

Good Luck Op. Lots of good opps out there just make sure it's an something you can run with.

bigt, you passed the 3 levels for the CFA exam. I thought you'd have a decent bank/ib job lined up with that.

You just don't have the related work experience to be a CFA, right? Hell, I'd probably work some bs portfolio management job for a financial planning firm just to satisfy the work requirement (and then abandon ship).

I have no idea whether this particular job is legit. But I'm amazed that it's still profitable for prop trading companies to exist. If the trader isn't putting up their own money, it's a major "head-I-win/tails-you-lose" setup.

Like, 1) why do these market inefficiencies exist that someone could learn to become a successful trader in 2 months? And 2), given that they exist, why isn't it easier just to write an algorithm to exploit them rather than train fallible humans and give them half the profits?

Algorithms are very hard things to write. Particularly around boundary cases. You can only catch a fraction of strategies with algorithms.

Yeah that's what I expected, I'd be really skeptical of this. Remember like 1-5% of traders succeed so it sounds like they are just throwing you in the meat grinder if they aren't paying you during training.

This being a new shop I think you should run in the opposite direction unless you dig really deep into their background, who will be training you and verify the credibility of their strategies (and it will be very hard for you to do this). If they are at all skittish about justifying themselves from you turn them down.

unequivocally calling it a bad deal because it's impossible to live off of the starter set is a bit naive. learning curves are different for everyone but fairly conservative to suggest he'll be managing quite a bit more 12 months later if he's any good.

it's better to state that when taking a job like this you need to have money saved to ride out a period of months where you are essentially grinding microstakes.

It sounds to me like there is no draw, how does that line up in your experience?

how i think a person should like a draw depends on how they handle essentially being in makeup. i dont think there's an end-all be all that says draws are inherently advantageous. they are obviously good if you need the rent money but if OP is coming from a successful poker background and would prefer not to be in makeup hell then it could be different.

i'm not suggesting OP has a sweet deal. if OP has a resume he should shop around just for the sake of seeing what other offers are out there. i was just taking exception to the idea that the suggested structure was a bad deal. i would guess most trading firms have to frame their deals in this ballpark due to the low success rate, otherwise they would be punting as a backer.

I think I remember it being 500k capital to work with, but that might (probably not) have been split among the 4 new people they were hiring.
I was told it was highly liquid equities.

Basically my question is that if I'm not putting up my own $ then will it be really hard for me to be screwed by taking this job? I think even if I'm not fairly compensated I should at least get good experience for other positions in the future?

At face value, the split is generous. But lots of questions you should be asking (about fees, infra, market access, background of the team, strats), especially since you said this is equities HFT.

OP I'd say go for it so long as the contract doesn't commit you for a timeframe you are uncomfortable with. If you are comfortable with the commitment it will be good experience.

Most of the points in this thread are only relevant if you have other offers.

If you are trading equities you are leaving value on the table if you don't look at, understand and analyze the options market.

Also, algorithmic trading doesn't have to be HFT. If you, for whatever reason, have to hold for an HFT time frame much of your success will depend on the infrastructure you are provided with:

-how close (physically) are you to the exchange you will be trading on?
-are you in dark pools, are you guys spoofing and quote stuffing, etc?

The HFT market is super competitive and saturated by the people that know they are extracting "rent" from the market for providing "liquidity" (lol).

I'd rather get the experience and look to move on to work for / as an options market maker, work for an exchange, or (start out) as an assistant on a trading floor for a strong institution.

my guess would be that they just want to take advantage of the new trader programs on a lot of exchanges and get you to churn round trips.

god knows how they expect to make money with HFT strategies and noobies

I was mistaken it isn't HFT, it's HFT software, but more standard day trading

Is it too much to ask to post a copy of the offer here with all the personal / company details blacked out?

It seems there would have to be something in the fine print you haven't mentioned.

As described even if you do get past the training and are capped at some ridiculously low number it's not like you can't ditch them after free rolling for a month. A non compete clause means almost nothing when you have no attachment to the industry.

Yeah as someone not in the prop trading industry I would be concerned about anyone hiring me who doesn't have skin in the game. 2 months of free labor considering your opportunity cost is worth about $10k-$15k, I don't think this is a small decision. I think the comparable situation would be someone hiring a bunch of sales people and seeing who succeeds. You don't take a sales job that doesn't have a draw because the incentives mean they aren't invested in you.

A small firm will be hard to generate a good opinion on, do you trust yourself to spot intelligent / trustworthy people?

I was going to say the same thing. As someone who has come up the chain from those types of turn and burn sales jobs, I think this is pretty equivalent.

I think sometimes though if you want to get an opportunity in the industry, there is nothing better that you can do than see it from the ground floor. At least in terms of understanding the business model of the company and how it is they succeed with hiring people with no experience.

If you don't have other options, getting your feet wet in a new industry can teach you a ton in a short amount of time.

Prop trading firms make a lot of money through commissions, so a losing trader will usually still be making money for them (of course there is a breakeven point).

I'm a prop trader and I'm split 50/50 manual/automated trading, and I don't see anything wrong with it. Two months of trading is pretty good amount and likely that training will just equip you to be able to learn on your own or from other traders. My guess is this isn't real HFT. It's more likely lower frequency, higher profit margin stuff.

That type of trading, with some training, imo has a very high success rate compared to manual trading. It's very very labor intensive but allows you to sidestep a majority of problems that handicap manual traders.

If I had to handicap the odds of a college hire going into manual/automated prop trading, having any amount of success. Say producing more than $100k in pnl vs. quitting before that. In 2016, I'd say 25% success rate for automated traders vs. probably closer to 5% for manual.