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Lumifer comments on AALWA: Ask any LessWronger anything - Less Wrong
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No, it is not.
Prop trading -- understood as extracting money out of financial markets -- is very diverse. Some people care about milliseconds and build their own microwave links between New York (actually, New Jersey :-D) and Chicago. They make millions of trades per day and make a tiny fraction of a cent on each trade. Some people care about long-term value, trade a few times a year and hold their positions for years. Some people do arbitrage. Some people do distressed investing. Some people do convertibles, or M&A, or IPOs. Some people make macro bets. Some people do something else in the markets. All of them are "real professionals".
The type of prop firms you are describing are really just back office pools or trading arcades. Say I am a broker-dealer and I have a business that attracts chumps to deposit money with me, and I will allow them to trade through me, and all the traders can share expenses like office space and other services. The burn out rate is really high. Notice that this supposed "prop firm" is making most of its money on commissions from their own traders! and not actually realizing gains from their trading employees. Contrast this to a division in an investment bank that hires actual employees as programmers and quants, and their profits are determined by trading. I'm not saying all prop firms are just back office pools, but I know for a fact that a lot of them are. So maybe we just have different meanings for what is a prop trader and prop firm.
http://traderfeed.blogspot.com/2008/07/proprietary-trading-firms-arcades-and.html
Since this is an AMA, let's just ask jobe. Do you trade your own capital or 100% firm capital? Jobe can very well be working at a prop shop like I described and I'm not putting him down if he is. It's just a known fact that most prop shop in Chicago or New York are of the scam-ish type.
Contrast Bright trading, the most well known and probably the biggest "prop firm" in Chicago to Jane Street. The former is nothing more than a glorified back office under the banner of proprietary trading where traders put up their own money, the latter is my definition of REAL prop firm.
http://www.elitetrader.com/vb/showthread.php?t=276210
Again no offense to jobe if he works for the former type of prop firm.
Actually, no, the type of prop firms I am describing are typically small (in terms of personnel, not in terms of AUM) hedge funds which run some manager's own money and some outside money.
Facilities for day traders are a different thing entirely and I don't talk about them here.
I guess we are talking about two different things then, I have never heard of any one talk about the term prop firm in your sense. Doesn't make it wrong though.
Edit: If you are describing a small hedge fund that manages the managers money and outside money, then its just a hedge fund any way you cut it. Proprietary means only the firms capital is used, and for no clients.
And how does that matter for the original point under discussion -- whether someone outside of an investment bank or a big hedge fund family (e.g. Blackrock) can successfully extract money out of financial markets?
If someone actually has a working strategy, he typically doesn't just trade it, he starts a small hedge fund.
Because the original point under discussion was contrasting prop trading in the context of a real prop firm vs an outsider engaging in prop trading, and the advantages afforded to the former.
Anyway, I already know your position regarding whether an outsider can successfully extract money out of the financial markets and you know mine.
Curious, what do you do if you don't mind me asking? I'm asking because you do know a lot about this topic, even though we disagree on somethings.
An "average joe" in the US has the IQ a bit below 100 and does not have a decent chance at great many things in life.
Now, whether a high-IQ guy has a decent chance is a different question, and an interesting one, too.
Sorry I was in the middle of editing what I wanted to say and you responded too quickly.
So what you responded to may have changed.
I trade 100% firm capital, not my own. I've heard of bright and places like that but there are lots of real prop trading firms, that actually make their money from trading. Here are some I can think of off the top of my head:
etc.