@nithin apart from access to large capital what are the main advantages which prop trading firms have which makes them profitable year after year,is it manipulation like jane street which is under sebi investigation ?
1 Like
While we wait for Nithin to share the inside scoop,
few of the aspects that are apparent from the outside are -
-
Selection bias - Only consistent/proven traders have an opportunity to participate in a prop trading firm. With under-performers periodically being let go, what one is measuring as a prop trading firm’s performance is a sample biased towards successful trades.
-
Risk Management - Additional rules enforced by the trading firm helps improve discipline.
-
Custom tools - To simplify/speed-up analysis and enable reliably deploying complicated strategies.
Here are some of the global stats surrounding prop trading
(take it with a pinch of salt, as it is a second-hand source)
The percentage of traders who graduate from training programs and become funded traders in prop firms is approximately 22%, highlighting the competitive entry process
The average success rate for traders reaching their profit goals in the evaluation phase is approximately 35%, indicating the difficulty of passing initial assessments
Less than 15% of traders in prop firms consistently generate profits over a year
i.e. a tiny fraction of the top traders (by recent performance) are involved in prop trading firms.
85% of prop firms have strict risk management protocols, including daily loss limits
Approximately 80% of prop firms offer some form of online training or mentorship for their traders
i.e. better discipline and risk-management. More predictable performance.
The average time a trader remains active in a prop firm is approximately 18 months
i.e. unsuccessful or mediocre traders are weaned out sooner than successful ones.
The average duration of a successful trader’s career in a prop firm is around 3.5 years, indicating relatively high turnover
i.e. even the more successful traders eventually get phased out of prop trading firms as markets change and they fail to adapt.
Source: Prop Firm Statistics Statistics: Market Data Report 2025 (a 2nd-hand source).
1 Like
Key thing is quant trading firms have extremely successful strategies for every market and they hide them and very secretive about it even millennium and jane street go to court for a strategy allegedly stolen by employees who switch and when court asked them about what strategy they opt for our of court settlement rather than disclosing it even in a secured way
Since, we began this topic-thread discussing prop trading, and are now focusing on quant trading, IIUC, Proprietary trading and Quantitative trading are distinct. Not all prop trading is quant trading.
Sounds logical behavior specifically for Quant trading firms, who by definition rely on quantitative analysis, i.e. they believe that their competitive advantage is in their mathematical analysis/models.
If they expect a long tail of returns by subsequently tweaking their existing model slowly over time, they would likely see value in not disclosing their existing model, and continuing to use it (or its tweaked versions).
Considering the plausible explanation,
it feels too soon to jump to the conclusion that there’s something illegal,
that is not being disclosed by such firms.
Note: Not claiming that there is nothing illegal in such Quant trading firms. Just that the observed reluctance of Quant trading firms in disclosing their models/strategies is not proof of anything illegal like market manipulation.
1 Like
Check latest sebi probe in jane street for last year trade ,they are digging deeper to find the manipulation
The real edge is usually their speed, advanced algorithms, better data access, and super low transaction costs. Plus, they can test and tweak strategies constantly without the same limits retail traders face. Firms like Jane Street have entire teams focused just on small inefficiencies in the market - that adds up fast.
There are probably 100’s of prop trading firms. Anyone who has capital and sets up a brokerage firm to trade it is a prop trading firm.
So you could basically have people who just invest, trade positional strategies, or use the advantage of speed by co-locating on the exchanges. The kind of firms you are referring to is the third type, and typically, foreign firms have a technological advantage in terms of speed.
When it comes to taking advantage in terms of speed, I think it is a grey area. If you’d ask me, I think no one should have that advantage, given that exchanges are meant to be a place where everyone gets equal access to everything. Btw, when I say advantage, it is in milliseconds and microseconds. But these firms (HFT or high frequency trading) do contribute almost 40% of the exchange volumes, and you have to question if they will be there if there is no advantage in terms of speed. So yeah, tricky as hell.
I don’t know what the allegations are in terms of manipulation. But as long as someone has a speed advantage, I guess everything they do can potentially be called manipulation.
4 Likes
I have in derivatives for a long time ,earlier large spike in a minute is a rare incident but after weekly expiry it becomes so regular but again it becoming normal ,so I think we are back to older times or this can change ?
1 Like
hmmm… One constant in the market is change. In this context, what worked as a trading strategy for an HFT firm also has to constantly change. But you can expect the markets to be volatile on expiry days.
1 Like
To add to that , prop(here hft) are restricted by the amount of capital they can really deploy to garner the advantage, after certain level the capital deployed doesn’t yield satisfactory. I know quite many firms disguised as HFT but what there traders really do with 90%of trading capital is just low to medium latency trades. Scalability is always the issue and now increased competition from foreign firms and their competing amongst each other - I am not very optimistic on the business of these firms going forward.
1 Like
@nithin any new thoughts on how this would end and the second order effects of this ban on jane street.
Does 500 cr exposure or 15% of OI doesn’t apply to FPI/HFT? or since they are squaring off intraday, this doesn’t apply to them
Yeah, not applicable for intraday
If that is the case, and it is legal, why no other guys are doing it… is it in grey area.? Anyone can create so called injections in options right?
@nithin are more restriction on fno around the corner by sebi after this issue or buisness as usual?
1 Like
As of now, it doesn’t seem like there will be any more restrictions.
4 Likes
@nithin any thing you know about removing weekly expiry ,please share with us got confused by conflicting news every now and then🙃