A trading office, also known as a trading floor, is a place where a group of traders do their research and trade financial assets like stocks, commodities, and other assets like cryptocurrencies and bonds.
An office can be owned by a single individual or institutions like hedge funds and investment banks. In this article, we will explain the steps of establishing a trading office. The one explained here refers to a situation where you:
- employ people
- train them on how to make trades
- pay them a certain fee.
You too, in your small way, can be a successful manager by starting your own trading office!
Table of Contents
What is a Trading Office?
A trading office, also known as a floor, refers to a place where buying and selling of financial assets like stocks, commodities, and currencies happen. As stated above, the floor can be owned by a large institution like an investment bank and hedge fund. It can also be owned by an individual.
In the past, before the internet and the latest technologies, hedge funds and traders used to gather in an exchange to buy and sell stocks. In these pits, they used to shout and use banners to conduct the transactions.
Today, most of the traditional exchanges have been closed and instead, money managers are using computers to buy and sell financial assets. Large investment banks, hedge funds like Citadel, and other money managers have large rooms filled with the fastest computers to research and execute trades.
Related » Prop Trading vs Hedge Funds
Essentially, a good trading office should have three things:
- knowledgeable people who are passionate about the market
- the fastest internet connection
- the fastest computers
And finally, it needs quality data sources.
In the past, all these components were highly expensive and unaffordable to many people. For example, a Bloomberg Terminal, which is used for data usually costs more than $20k a month. The most advanced computers used in these transactions cost more than $10k.
However, these days, things have changed.
Cheap computers have become fast enough. In fact, to run our Training Platform and Trading Software, you need:
- Third-Generation Intel Core i5 or i7 series processor, with 3 GB RAM and 60 GB hard drive
- Operating System: Windows 7 (SP1), Windows 8, or Windows 10
- Wired LAN (not wifi) Internet connection with minimum 4MBps bandwidth (business service)
- One (or more) network switch for sufficient ports to connect all your workstations
Why start a trading floor?
Traders have numerous choices. Most of them opt to be retail traders, where they trade in their private accounts through platforms like Robinhood and WeBull.
Alternatively, they can become independent prop traders, where they trade using company funds and take a share of profits. The other alternative is where they create a trading floor, hire traders, and run it as a business. Some of the best benefits of starting a trading floor are:
- Longer trading hours – A trading office can have people trade in shifts and take advantage of all market sessions.
- Low starting cost vs other companies – Starting a trading office is less expensive than other companies like real estate or e-commerce stores.
- Instant profitability – A trading office can start making profits on day 1. In contrast, many companies take a long time to break even.
- It is fun – When done well, day trading can be a fun thing to do since the market changes all the time.
- Make money in all conditions – Day traders make money in all market conditions. When stocks are rising, traders make money by buying and holding. They can also make money when they are falling short.
- Tax advantages – Traders benefit from relatively friendly tax treatment than other businesses in some countries.
Requirements to Start a Trading Office
1 – An Interest in Trading
You first need to have a lot of interest in the financial market. As you are aware, trillions of dollars change hands every day. These funds are traded by the sharpest financial professionals in the world.
This volatility means that you can make or lose a lot of money within minutes. Unless you have unparalleled interest in this field, chances are that you will give up after losing money.
Therefore, it will help you a great deal if you have interest in this field. You should follow your passion and find an area where you have a lot of interest.
2 – Time to learn
You need to take time to learn more about the market. Today, there are so many free resources that can teach you about the market.
Ideally, you should learn the following:
- How the financial market works
- The different types of assets you can trade in the market. These include stocks, indices, commodities, cryptocurrencies, and currencies
- The many terminologies used in the financial market
- Why financial assets move up and down
- Risk management
- Market psychology
You can learn by yourself or by following our certified Training Program for Day Traders.
3 – Find an Office Partner
The next step for starting a trading office is to find a partner. This is a company that provides day trading solutions to traders. While it is possible to start without a partner, having a reliable one will help you a great deal! Some people do this by taking venture capital while others take funds from friends or family members.
The ideal partner should have years of proven experience in the business. They should also have a unique approach to trading. You can still get started with passionate people like you. Our specialized training program will help you achieve enough to cope in the markets.
The benefit of having your own team is that it can help you identify multiple market opportunities. You can also trade for 24 hours a day if you decide to use shifts.
4 – Recruit and Train Team
You should now recruit a team to join your office. The team should be made of young people with unique qualities:
- Interested in the trading business
- Be committed to working as a team. The benefit of this is that it will help you collaborate and make sound trading decisions.
- Be committed to your trading office.
- Ready to undergo through the training process
- Quick learners with the ability to grasp complex trading terminologies.
- Good Worker under pressure
After recruiting the team, you should take time to train them on the trading process. This training process is twofold.
One, you should train them on office relations and the work ethic they should expect. This includes the time of arrival and the time to leave.
Second, you should train them on the actual trading. This should take a longer period to ensure that they understand what they are expected to do.
In this case, you should introduce it to your trading style and the rules you follow. At Real Trading, our trading coaches and mentors can help you in this training.
5 – Managing your team
Hiring a team is just the first part of running a trading floor. The next most important part that will make it highly profitable is managing it. There are several strategies that will make your team better.
First, you should set rules about basic things such as order creation, office time, and the markets that one should trade.
Second, you should establish the order of authority. A good trading office has a team manager, who is responsible for directing the entire team. In most cases at Real Trading, the owner of the trading floor is usually the office manager.
You should also delegate some of the duties, such as the deputy floor manager. As you grow, you should also have someone to deal with human resources and other administrative duties.
Third, you should ensure that you have a friendly team environment. Some of the things you could do include having communication standards, team building activities, and other team activities.
In general, having a good team environment will play an important role in making your floor highly profitable.
6 – The Trading Office itself
After recruiting the team, you should now set up the trading office. This means that you should find an office space, set up the desks and computers, the network, configure the computers and the Training Platform and the Trading Software in your office.
To save on the initial cost, you should avoid renting a very big office space. If you have a garage or an extra space in your house, you can use the space instead.
Avoiding the cost will help you analyze the performance of the team and the business as a whole.
7 – Start and Grow!
After doing this, you should now start. As the office manager, your work should be to trade and also supervise the other partners. You should do your best to ensure that the team members are comfortable with the process. At the end of every day, you should look at what the traders did throughout the day.
Remember that you should not be afraid of firing non-performing traders.
After a few months of successful trading, you can now grow your team. This involves hiring new traders and training them. Since trading happens on a 24-hour basis, you can even recruit traders to work at night.
Doing this in a calculated manner will help you grow your trading office to a large and successful floor.
Related » Dream Big, Start Small: The Art of Taking Action in Trading
8 – Risk Management
Meanwhile, risk management will play an important role in ensuring that your trading office is highly profitable. The goal of this management is to ensure that you make as much money as possible while minimizing risks. There are several things that will help your trading office reduce risks. They include:
- Diversifying – Diversifying is the process of having several trades or investments at once. The idea is that betting on a single trend is often riskier than having one trade open.
- Stops – Another way to reduce your risks is implementing stops. A stop-loss will automatically stop your trade when it reaches a certain loss level while a take-profit stops a trade when it reaches a certain profit level.
- Capital allocation – You should allocate more money to your highly profitable trades. This will reduce the risk of providing more money to traders who don’t perform well.
- Timely reviews – Another way of reducing risks is timely reviews where the manager looks at the performance of his traders and takes actions.
- Backtesting strategies – You should always ensure that you backtest your strategies before you implement them on your floor.
Final Thoughts
Unlike the traditional large trading offices that required millions of dollars to trade, you can start your trading office with less than $10k and start the training with just $500.
Real Trading, we have the best technology that powers trades of more than 3,500 traders from around the world.
We are a different type of company. Unlike brokers and other trading companies, our revenue model does not depend on commissions. This model allows us to make a profit only when our partners make a profit.
Start Trading Floor – Useful Links
- Read more about what a trading office is on Investopedia
