The SMB Foundation: Proof that Prop Trading is Not Dead

I’m glad I decided to write this now and not when I intended to a few weeks ago, as this particular post addresses Mr. Josh Brown’s debate of whether or not Prop Trading is officially dead – it turns out that, on occasion, procrastination and an overall busy schedule is helpful.

I remember speaking with @dynamichedge regarding this particular topic in May after the StockTwits Symposium event and I remember him saying that having to read order flow as a discretionary trader does not give these particular traders an edge anymore, as the tape is not only too quick but is too algorithm-ridden and can change on a dime. Although I disagreed, I understood where he was coming from – sometimes, the prints move quickly and when you’re attempting to wait for an offer to lift and in the next second, the 10k NYSE order decremented and the price moved up 10c and you have no position, it can be frustrating. You knew it had the potential to lift, but that offer could have held like earlier in the session and could have kicked you down a 15c flight of steps again when the bid disappeared (sounds like you’re trading NFLX, a stock that is on my ban list – yikes).

After catching up on my reading from this week when I woke up this morning, I got to reading his post entitled “Letters to a Young Trader” and I can attest to experiencing all of the topics he touched upon: seed capital, losses, education (which is at the forefront of my life right now), mentors, systems, chasing the rainbow (haven’t found that pot of gold yet), and making it. The topic that I need to differ with him on, however, is proprietary trading. I may be biased, or perhaps blinded by my lack of experience in any professional subfield of finance due to my age, but in five weeks I learned more about the financial markets and how they operate than I ever did in my three years of teaching myself. In those three years, I was able to skim the surface of what I needed to be learning; without the cast at SMB Capital guiding me to push myself out of my comfort zone, learn the nuances of the equity markets, and to get better every single day I sit down at my desk, I would still be at the level I was last winter – a struggling, frustrated, angry trader.

After reading the post from @dynamichedge, I read Bella’s post on the SMBU blog entitled “The Opportunity for a Prop Trader” and thought that the most powerful piece of the post was two very simple sentences embedded in the middle of it: “Think of a college basketball squad – does every college basketball player have the same experience as matriculating at Duke and being coached by Coach K?” The answer is obvious and should be written in bold, capital letters – NO. There is nothing like learning from the best of any industry, whether it be a very talented architect who has built buildings that all professionals aspire to build or possibly a very skilled Air Force pilot who has done thousands of sorties and has the utmost respect from his military brothers and sisters. The same goes for trading, and this is what makes SMB Capital’s Training Foundation special. I only had the opportunity to participate in the remote training this summer, and although this worked much better with everything else going on in my life regarding other work opportunities, I was able to visit the office at the end of Week 3 of my training. Being in that atmosphere alone can give you an egregious amount of learning experiences and opportunities, and if you add on learning about Stock’s In-Play, SMB’s specific trading plays, the Playbook and the various One Good Trade setups that occur every single trading day, the lectures and readings on trading psychology, becoming better, building up what works for you, and teaching you the intricate details of the financial markets, you have all of the materials to succeed. If there is one thing that SMB Capital equips you with, it is all of the technical skills you need to perfect and master trading. From that point forward, it is up to you to actually excel and become a consistently profitable trader.

Many people feel as though they have put the nail in the coffin with regard to saying that proprietary trading is dead and that prop firms will be few and far between come my graduation from Bentley University in 2014. That may be true, as financial innovation has moved things tenfold to quantitative analysis and quantitative trading. Without human capital continuing to be immersed in the financial markets, however, there are fewer opportunities for those system methods to capitalize on the human errors they look for day in and day out. When push comes to shove, it takes someone who has been on that discretionary end to create strategies for the quant guys to code – without the former, the markets don’t work for anyone, quant or not. The SMB Capital Foundation prepares you to succeed on all ends with a sound education about the financial markets, and if you’re looking for a program that is 100x the bang for the buck, I suggest you make the investment and begin your professional training with the crew on State Street.