Partnership Prop Stock Trading Account
Partnership prop stock trading accounts are becoming more common, signaling an increased sophistication among the investing public. Once reserved for life-long professional traders, the market surges of the late 1990's and early 21st century have opened proprietary trading opportunities to a much wider cross section of investors. With the Internet came day trading, and out of day trading came a new breed of disciplined trader with the knowledge and experience necessary to successfully trade an investment firm's capital in conjunction with his own. Partnership prop stock trading accounts are the accounts where these funds are combined and traded.
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Function
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Many investment firms not only execute stock trades for their customers, they themselves also trade stocks, bonds, and futures for a profit. While segregated from customer accounts, these "Prop Trading" (proprietary) accounts allow the firm to apply their in-house research and trading systems to profit from moves in the market. These accounts require traders to work them, and that is where a "Prop Trader" comes in. A Prop Trader trades the firm's own capital for a profit. The Prop Trader is usually compensated by receiving a set percentage of the trading profits he generates for the firm.
Types
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There are two basic types of partnership prop stock trading accounts. The first is an account owned one hundred percent by an investment firm, where the only trading capital in the account belongs to the firm. The Prop Trader trades this capital and is paid a percentage of the profits. The other type of account is an accounts where the Prop Trader trades his own capital as well as the firm's capital. In this case, he is still paid a percentage of the firm's profit, but he gets to keep all his own profit.
Time Frame
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Prop trading is typically very short term in nature. Dedicated "Prop Shops" (firms that only invest their own capital and handle no customer funds) rely almost completely on technical analysis and computerized trading systems. Prop traders very rarely hold a position overnight. Most of the time, prop traders look for small moves in the market several times per day, and they get in and get out as soon as a change in the trend is indicated.
Misconceptions
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Most investors believe that the majority of the revenues generated by major investment banks come in the form of commissions and fees. While this is true to a certain extent, most investors don't consider the profits that come from prop trading. This is because investment banks generally don't publicize the fact that they have sizable prop trading departments.
Warning
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Like many aspects of the market, prop trading is not immune to con artists and elaborate scams. It is not unheard of for a prop trading firm to just fold, sometimes owing their prop traders thousands of dollars. When considering working for a prop trading firm, prospective traders should focus on those firms with established reputations and regulatory oversight.
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