Trace Reed

An opening transaction would be the first order of a trade. For a long position, the “buy” is the opening transaction of a trade and for a short position, the “sell” is the opening transaction.

The closing transaction, simply takes the opposite side of the opening position. For a long position, the “sell” is the closing transaction and for a short position, the “buy” is the closing transaction.

A prop firm hires traders to trade ‘proprietary’ capital- ie the capital belongs to the owners of the firm. The traders are employees.

An arcade is a place that houses independent traders that trade their own capital. The owners make money from the commission dollars of the traders.

- Steve Dillinger
Cornerstone MTO | Cornerstone Trading Group

    One of the main benefits of proprietary trading firms is the leverage they afford their traders. Futures contracts are exchange traded derivatives to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

    Futures are different than stocks in that the futures contract is a contract between two parties and not actual ownership of a piece of a company as is the case with stocks. So when purchasing a futures contract, you only need to have an amount to cover the ‘performance bond’ , also known as margin for the contract you are purchasing or selling. The price of the performance bond will be a fraction of the actual underlying instrument’s price generating the leverage.

    Since futures are already highly leveraged instruments because they are purchased on margin, there is not much incentive for traders to work at a proprietary firm as instead of trading your own capital.

There are several avenues for self study materials. The most important aspect is finding materials or training courses that fit your style of learning.

You can purchase several books on the Series 7 from sites such as Amazon, or purchase materials that specialize in training materials, such as Kaplan or STC.

Here is the FINRA study guide that you should read before you start any course of study for the series 7.

Here are two recommended companies for Series 7 training materials.

Securities Training Corporation
Kaplan Financial

Search on Amazon for Series 7 for Series 7 materials.



    Persons registered and in good standing with the Financial Services Authority (FSA) in the United Kingdom, or one of the Canadian securities regulatory organizations can take a short version of the Series 7.

    For FSA Limited Registered Representatives, persons can take the Series 17, which has 100 multiple choice questions over a 2 hours testing time.

    For Canadians, you can take the Canada Module of the Series 7, which is the Series 37 or Series 38. The Series 37 which contains options questions, 90 multiple choice questions & 2 hours and 30 minutes testing time or the Series 38 which has no options questions which has 45 multiple choice questions and 1 hour and 15 minutes testing time.

In order to take the National Association of Securities Dealers (FINRA)
Series 7 exam you must be sponsored. A NASD-member brokerage firm, a self-regulatory organization (SRO), exchange or state regulator must sponsor the person taking the test.

So you could be sponsored by an exchange such as the CBOE. However, sponsorship by broker/dealers is the most common method of sponsorship.

Certain borrowers are exempt from Regulation-T, which means those borrowres can obtain a leverage higher that 50% ( 2 to 1 ).

For the purposes of Reg-T, an exempted borrower means a member of a national securities exchange or a registered broker or dealer, a substantial portion of whose business consists of transactions with persons other than brokers or dealers.

See 12 CFR § 220.2 for the details.

Reg-T is a US regulation from the Federal Reserve Board governs the amount of credit that brokerage firms and dealers may extend to customers subject to US laws for the purchase of securities.

It limits the amount of credit for the purchase of securities to 50% (2 to 1 ) for trades. There are two related regulations you have to examine to understand Reg-T, Reg-X and Reg-U

Reg-U concerns non broker dealers who loan money for the purchase of securities such as banks.

Reg-T concerns broker dealers who extend credit , including all members of national securities exchanges.

Reg-X concerns people who borrow money to purchase securities. It ‘applies’ Reg T and Reg U to those who are subject to US laws even if the credit is obtained outside the United States.

Regulation T is formally called 12 CFR 220 which is title 12 of the Code of Federal Regulation, part 220.