Monday, September 28, 2009

Evaluating Proprietary Trading Firms

I hear from many traders who wish to affiliate with proprietary trading firms. It is difficult to know how to evaluate such firms if you've never worked for one. Here are a few of the criteria that I would look for:

1) How long has the firm been in existence? How long have the top traders been working with the firm? Has the firm grown large, successful traders? If you see highly successful traders sticking with a firm, you know that the firm is generating loyalty and offering value;

2) Is there sound management and risk management? What is the management philosophy about growing traders? How do the traders view the management?

3) How does the firm make their money? Do they require high fees? High commissions? How do they split profits? Are traders required to put up money before trading?

4) Does the firm offer structured training and mentorship? Is the firm invested in its developing traders?

5) What is the atmosphere within the firm? Do traders collaborate and share ideas? Are they happy with the firm? Is it a fun place to work?

6) What are the firm's resources? Do they have superior trading platforms, IT support, and decision-support tools for traders? Does the firm offer a good working environment?

7) Does the firm trade a variety of products and strategies? Are there different things you can learn at the firm?

No single firm will offer all you want across all of these criteria, but if you keep score, you'll quickly separate the best from the rest. Find a firm that makes the bulk of its money from your success and that invests in good support for traders. Beware firms that charge high fees and then offer very small amounts of capital to trade.

Most of all, find a firm that trades the way you want to be trading. Ultimately, there has to be a fit between the firm's strategy and the skills and interests of traders.