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Individual Daytrader - Set up comany VS Prop Firm VS Inv Bnk

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Individual Daytrader - Set up comany VS Prop Firm VS Inv Bnk

Post by Jano » Sat, 19 Feb 2011 9:21 pm


I'm an individual investor / trader. I've been in contact with an agency and it has indicated that it is possible to set up a company, and then letting this company hire me. This way I will most likely get an EP.

I did not, however, get a clear answer on what the accounting costs will sum up to. Say that I make 500 trades / year. I can just imagine what an accountant would charge for going through all these trades...

Alternatively; are there prop trading firms that 1) will let me trade purely on my own capital and strategies AND 2) hire me. I've never been at a prop firm before, but I know 1) and 2) kinda contradicts. So, what's actually in it for a prop firm?

If I do get an EP through a prop firm, but still do a lot of trading on my personal account, then do I need to fill out a tax form? I'm just asking since capital gains are exempt for tax anyway.

Last question : How much does hedge funds / investment banks pay a recent graduate? I'm lucky enough to make a descent living on my own, but may change my mind for more than $15k / month.

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Post by BillyB » Sat, 19 Feb 2011 10:30 pm

Use an accountant initially to give you information on tax strategies. It will be worth its weight in gold in the long term. It might cost you a few hundred dollars but it will pay for itself. You can do the rest of the accounting yourself but obviously be careful as one screw up can throw your whole projection off course. Look for accountants with background in fund administration.

Why would you want to work for someone else? Firstly, you won't generate the volume to make it worthwhile and will lose all the alpha you generate on commissions payable to the firm, and all the infrastructure you need to trade is available for free or at low cost. Also, bear in mind the changes in the industry with regard to capital and risk requirements. The top tier prop desks are all shutting down in the U.S and these are proven traders and banks with huge capital capacity, but even they aren't willing to comply with the regulation changes. Secondly, one of the traits that all the traders I know have, whether working for banks or running a HF, is an unwaivering conviction in their own abilities. If you want to do this full-time, go and do it and don't take the safe option and work for a prop firm or bank to rely on a basic wage or use their infrastructure, or for the security. Have belief in your ability if you are already making a comfortable living.

As for the HF firms, as a fresh grad you'll struggle to be anything other than a glorified order filler and you won't get 15k to do that. The fund manager will look after the strategy; after all he is likely to be an ex prop trader and has his own capital invested, so will want complete control. Plus his broker is likely to formulate much of the strategy to get the volume through, so where would you fit into this chain and add value?

I'd stick to working for yourself. It gives you more control, less people to answer to and you get all the reward!!

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