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  • Writer's pictureMatt DeLong

What are some major differences between a hedge fund and a trade desk?

Hedge Funds (Traditional)

  • Only allow accredited investors & institutional investments, typically older investors looking for passive investments to grow their wealth.

  • Investors are LP’s (limited partners) and ONLY provide investment capital and don’t make investment decisions.

  • Investors are passive as all LP’s pool their money which becomes the firm’s investment capital.

  • Hedge funds make investment decisions on behalf of their LP’s following their existing strategy / methodology. Hedge fund managers often have decades of experience.

  • Gains/losses are shared across all LP’s and the fund manager collects quarterly/annual fees based on performance.

  • Hedge funds charge 1.5 - 2% of capital under management + 20% incentive fees annually. (varies by firm)

  • Typically invest longer term than trade desks and invest in anything from futures, forex, stocks, commodities, bonds, etc.

Trade Desks (Prop Firm)

  • Trade desks provide up-and-coming traders with trading capital (often/not always) based on capital they bring to the firm (a trader bring $10k to a trade desk, but working with a trade desk, has $100k buying power). NOTE: $10k is well below the PDT minimum of $25k, but allows a trader to power boost their capital.

  • Not all trade desks require up front capital, however, if the desk fronts it all, they will take a larger portion of profits and charge monthly desk fees.

  • Gains are shared with the firm, negotiated in advance, but something like a 70/30 split. (you keep 30% of gains) but losses all belong to you and reduce your original capital.

  • You pay monthly fees for the desk and are required to pay for some software / data tools that are expected to be paid from your split.

  • Trade desks typically interview potential traders and are accepted like applying for a job — reviewing your previous trade history & interview you — if accepted, you join a small team/pod of 3–6 people at the firm’s office.

  • Investments are active — as in it is 100% up to you to grow your capital.

  • Trade desks typically offer training / education programs for their traders. Risk parameters of max daily/weekly loss is set to control loss of capital.

  • Typically more of “traders” than “investors” — shorter term holding periods of minutes and hours (think day trading), rarely allowed to hold trades overnight.

  • Desk traders have some older traders, but it’s mostly the younger traders that have very high turnover, desk traders are sometimes given a small salary if they survive after the 1st year — most don’t survive even a year, 90% failure rate.

  • These profit splits and monthly fee requirements are slanted in the favor of the trade desk and make it tough to survive long term—even with superior gains.

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