I’m very excited, after my self-imposed break of a week, and then being crazy swamped with work recently, I’m going to be able to finally paper trade again tomorrow and Friday after being away for two full weeks.

During this time off, I completed the paperwork, was accepted as a member, and funded my account with the proprietary trading firm, Cy Group. Much thanks to Yngvai at Welcome to the Gutter for answering my endless questions about his experience with them. My main reason with going this route was wanting to avoid the restrictions of the Pattern Day Trading rule. When I first started this blog, I thought I would swing trade and build up profits to get up to the $25K minimum necessary to open a day trading account. I’m now of the opinion that I don’t want to hold overnight positions in the current market environment. Then I thought I would take like $15K and spread it across five accounts so I could get15 trades a week; this was a cumbersome approach. For awhile, I thought I could get up to $25K through savings and scrimping but the taxman cometh, among other expenses.

So I wired Cy Group $5K to get started. To summarize, this is how it works with them: access to 100K trading capital, commissions of about .006 to .008 per share (depending on ECN fees), $59 a month data feed expense, position sizes of 2000 shares or less, no more than 5 open positions at a time, and a $500 limit on losses per day. There is no profit sharing if I don’t use more than 100K every day for trading – they make their money off me from commissions and the data fees. Of course, I bear all the losses out of my $5,000 and I am sure their risk management unit would liquidate all my positions if any of their money comes close to loss exposure.

My main concern is that they are not insured like a bank or broker by being a member of FINRA /SIPC. They are a legitimate company and I haven’t been able to find many complaints about them. But if like we sink into a major super depression very quickly (like 2 to 3 times as bad as it is now) or there is some kind of corruption that causes them to go bankrupt, I could lose my $5K. However, they don’t require that I have a Series 7 License and I get access to a decent amount of capital to trade with. Since this is not all my trading money and though it would be VERY painful to lose this amount, I can live with it under a worse case scenario.

My plan is to continue mostly paper trading between now and April 1st. During that time, I’m going to learn their platform (Laser) and get myself all set up. I am going to trade NASDAQ stocks occasionally in very small micro-lots of like 10-50 shares to test drive things with real money. With them, NYSE stocks have to be at a minimum of 100 shares per trade but there isn’t a restriction like that with NASDAQ stocks. After April 1st, if I’m in the green with my paper trading, I’m going to go live with Cy Group trading at first in lots of 100 shares, with like 5-10 trades a day depending on how much time I have and the opportunities.

Here’s a post on Trader Lab that is a good for someone considering becoming a prop trader. The article suggests trading at the 100 share level for six months, and I think that is what I’m going to do. Technically, my membership with Cy Group is considered quasi or non-institutional or retail proprietary trading. It’s not quite with the big boys yet, but I think it’s a decent deal (commissions not quite as good as Interactive Brokers but way better than most other online brokers) with not too high of monthly fees ($59 for what I signed up for) with not too much risk.

I wanted to also alert everyone to a post from Michael at Goode Value Investing Blog entitled, “So You Want To Be A Stock Trader?” (Similarly titled to the post I link to above by the way). It’s a very thought provoking piece for anyone weighting the risks of day trading and the odds of succeeding. Very realistic and persuasive about what it takes. My big worry now is the time I’m going to have to invest. And talk about zero-sum, to me time is. Only 24 hours in a day. Every minute I spend on trading or learning about trading, that time has to come away from my consulting business, my family, sleep, social and recreation time, etc. It’s time well spent, but if I only had 30 hours a day – that would help out!