Why Canadians Should Use Proprietary Firms For Day Trading

Jun 29, 2010
Daniel Peters

Proprietary Trading Firms Allow Daytrading Stocks - Beao

Day trading is one way to make money in the stock market. Canadians have a distinct advantage if they utilize proprietary trading firms. The reason why...

Day trading carries various stipulations and challenges. For instance, a day trader will need:

25,000 dollars in margin equity
Have the challenge of finding low brokerage fees
Try to get leveraged buying power
Get fast data feeds and quick software platforms

The largest hurdle is likely getting the 25,000 dollars to be tied up in a trading account. What if an investor merely wants to try out day trading with a few thousand dollars? Under the current regulations this would be impossible.

Furthermore, the fees charged by discount brokers are excessive when trading dozens or even hundreds of times per day. As well, the brokerage may not pas on the rebates that exchanges provide. If a trader adds liquidity to the market (buying at the bid and selling at the ask), small rebates are given back.

What is a proprietary trading firm or ‘prop shop’, and how can this help Canadian day traders?

Canadian Proprietary Trading Benefits

To professionally buy and sell stock market shares in the United States, a Series 7 ticket is required. This means that before a USA citizen can day trade for a firm they need to pass a securities course. Not so for Canadians. Rules are slacker in Canada allowing anyone to professionally day trade with only a drivers license.

What is a proprietary trading firm? A proprietary trading firm allows traders to use company capital to buy and sell stocks. The profits made are shared between the firm and the trader.

What are the benefits of trading for a firm as opposed to retail which means trading exclusively for oneself?

Low Transaction Fees. While an investor may have to pay up to twenty dollars per transaction, a trader working for a ‘prop shop’ might only pay twenty cents for the same trade pending on his profit share.
Rebates. Most retail discount brokerages do not provide liquidity rebates. At a proprietary trading firm typically passes along the exchange credits. Many traders can buy and sell stock at the same price while racking up large profits with rebate trading.
Buying Power. The day trader will have access to the company’s capital. While the company may want a security deposit of a few thousand dollars, they will give 10 or 20 to 1 buying power. A deposit of five thousand dollars will provide 100,000 dollars of leverage.
Day Trading Rules May Not Apply. While retail day traders need 25,000 dollars in margin, the proprietary trader does not.
Platforms and Data Feeds. Proprietary firms will use certain platforms or software for trading. The data feeds are generally lightning quick whereas discount brokerages could be delayed. Most proprietary firms trade directly in the market through Electronic Communication Networks (ECNs) while most retail brokerages require trading through a market maker.

Picking a Proprietary Firm in Canada

Proprietary firms exist all around the world. Many of them reside in the United States. This article will highlight examples for Canada although each trader is welcome to examine the options.

What should a good firm offer?

Transaction fees depend on your style of trading. If you trade for rebate credits or scalp small profits dozens of times a day you'll need dirt cheap prices. If you ride bigger moves in the market you can afford to pay a bit more per share in exchange for retaining more of the profit you make.
Remote trading is a perk. If a trader can casually trade from his home this allows for freedom to live virtually anywhere and day trade.
Buying power is somewhat touchy. The better the trader the more buying power he will get. 10 to 1 is good to start with.
Full rebates should be passed onto the trader.
What about profit sharing? If you are an experienced scalper with low fees you will want at least a 70/30 split. If you only trade 5,000 - 10,000 shares a day consider getting 90 - 99% of the profit while paying a little more per trade.
The minimum deposit should only be a few thousand dollars. Be on the watch for monthly fees for software and data feeds that run over $250 a month.

Reviewing a Montreal Based Prop Shop

Golden Market Trading is one such firm that allows for remote trading for experienced professionals.

Payout Structure (monthly basis)

0-9999$ : 70%
10k+ : 75%

Fees and Commissions

Commissions are 0.20 per 1000 shares (0.0002 / share).
Monthly fees for Sterling platform and all quotes and data: 200$
ECNs are 100% passed through.
Markets available: NYSE - NASDAQ - AMEX

Deposit / Buying power / Stop limit

The minimum deposit is 2000$ USD.
Buying power according to a trader's experience and needs.
Daily stop limit at 10-20% of deposit amount (adjusted going forward).

Day Trading For a Living

Whether or not one chooses to day trade for a living is completely up to them. They should know that the risks and stress of such a job can be quite high. Only very disciplined people that have quick video game reflexes and enjoy puzzles should engage in such a venture. If such a job appeals to a someone, many options are available in the form of proprietary trading firms in the United States and Canada.