QuoteOriginally posted by: bouncerNorthern John, thanks for your enlightening feedback on the art of flow trading. A clarification of my last sentence:A prop shop trades their own money not that of their clients - perhaps I am mistaken, but I don't believe so. I deduce therefore that a prop trader works at a prop shop. Hedge funds play with clients' money. In that sense I am a bit confused of the notion that prop traders trade at hedge funds. Is the P/L of the hedge fund trader (the P/L from which his pay is determined) the real return that the trader makes to the fund ( (P/L - costs)*management fee ; the rest goes to the client, I guess) or the total return he makes on the portfolio he manages ( P/L - costs)I would also call hedge fund traders prop traders. I think of it this way:a) prop trading - your P\L is generated from your own trading ideas. e.g. hedge funds, IB prop desks.b) flow trading - your P\L is generated from earning the spread. e.g. market making.c) brokerage - you're P\L comes from executing customer trades. e.g. customer execution.I can give you one data point for the hedge fund payout (2% mgmt fee, 20% incentive fee in my case):Lets say managing a $100MM fund XYZ I make a 10% return.The hedge fund (my employer) gets 20% x 10% x $100MM = $2MM and the remaining $8MM goes to the client.The portfolio management team typically gets around 50% of the incentive fee income which in this example would be $1MM.Some firms will also pay the PM a percentage of the mgmt fee (25% from my experience), and in such instances, would also allocate costs to the PM for services such as IT\Ops\legal provided by other members of the firm. ST

StatTrader, I appreciate your detailed feedback. Thank you.

QuoteOriginally posted by: bouncerNorthern John, thanks for your enlightening feedback on the art of flow trading. A clarification of my last sentence:A prop shop trades their own money not that of their clients - perhaps I am mistaken, but I don't believe so. I deduce therefore that a prop trader works at a prop shop. Yes, you already posted that. Your deduction is wrong. Prop just means that they take positions, principally, as opposed to principally trading flow.I apologise for giving you a correct simple answer, and will not bother you any further.

QuoteI think of it this way:a) prop trading - your P\L is generated from your own trading ideas. e.g. hedge funds, IB prop desks.b) flow trading - your P\L is generated from earning the spread. e.g. market making.c) brokerage - you're P\L comes from executing customer trades. e.g. customer execution.STWhat I heard is a bit different. b) is maket maker. c) is flow trader.

You are absolutely correct, BlackSwan2. At least that's the way I understand it.I sent you a message.

flow trading = market makingif you are executing trades for a clients book (ie brokerage) you are an execution trader