Starting a Prop Desk

Hi Mike,

I have a couple of questions that I would like to ask you.

First, what is the success rate of new traders once they go through the SMB program? And second, in your opinion what would be the ideal number to start a trading floor with? I realize you might refer to how much capital is available but I’d like to know your thoughts. For example, is it better to start with five new traders or ten? Maybe more? I’m only looking for your words of wisdom.

Trade well and thank you for your time.

@mikebellafiore

We get asked to help start or consult on starting prop desks globally. We have responded to inquiries from Brazil, Russia, South Africa, India, Singapore, Hong Kong, Canada, parts of the US, Poland, Germany, Dubai, Nigeria, Australia…..  Okay, I’m going to stop here as you get the point. It’s amazing to me the reach of the Internet and our work. What a wonderful example of how much opportunity there is for all US businesses with a global niche and the potential for exporting US trading education.

The success rate varies depending on the subset of your trainees. SMB has written extensively about the right path for new traders, including the right educational and trading path. We created our College Training Program to give new traders the best chance to succeed and to make sure our educational and capital resources were being allocated well. For those who follow the correct path we see a success rate of 30-40 percent. We’re not really interested in working with anyone at our prop desk or SMBU if they’re not committed to following the right career path. For those who do not we hear the success rate is very low. You will commonly hear that the success rate is five percent for all who try. In The PlayBook, I dedicate an entire chapter to this subject while following the path of one new trader.

One of the issues I’ve seen in the past is the undervaluing of experienced, profitable traders and an educational infrastructure to help build a desk. Some entrepreneurial types love the idea of banking a desk but miscalculate the challenge to create a solid desk. I’ve written in the past about new traders approaching me and asking for intel on starting a desk. My advice for them is to first become profitable themselves. I like the idea of creating a multiple for each profitable trader. Perhaps you decide to add four traders for every profitable trader. It’s up to you to develop and decide upon that multiple.

Research shows that groups of 19 work best. Above that number and the dynamic of the group changes substantially. For some reason we can get to know 19 people well, work with them productively, and learn from them. Above this number and new challenges and human limitations abound. So perhaps if you’re really ambitious you might view your larger desk in pods of 19.

I would start very slowly. It takes time to develop solid traders. Again, that is why we have most new traders go through our college training program first. Most are not willing to be patient and do the work that’s necessary to enhance the skills of new traders. Do you know how many talks, e-mails, trade reviews, sessions observing their trading, tips while trading live, and hours thinking of how to make a trader better goes into the development of just one trader? Most entrepreneurs in this field would rather sell the dream, fill seats, and run an arcade model. I have never enjoyed that model and would rather work with fewer traders who were committed, fit our culture, who I enjoy being around, and who have the potential for a real upside.

You can be better tomorrow than you are today.

Please sign up for The PlayBook series Webinar this Thursday at 4:15 EST here.

Mike Bellafiore

The PlayBook

One Good Trade

no relevant positions

 

 

 

 

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