This isn't the pick-up basketball game at the local YMCA. This is where Shaq would teach Lebron James how to play the game if they were professional traders. This is where full-time traders bring their A-game to Wall Street - every day.

Proprietary traders are professional traders hired by a firm to trade that firm's money. From equities to futures and options trading, serious traders are finding their way into proprietary trading shops and into day-trading centers across the country. It would be inaccurate to call it a rising tidal wave of demand for equities, although there is a swell among futures trading shops.

The prolonged bear market in stocks has kept the lid on the trader mania that took hold and built a loose network of day-trading shops around the country in the 90's. Rather it's an evolution that's left a handful of proprietary equity trading firms such as Schonfeld Group in New York. Schonfeld has grown from about five traders in 1988 into a powerhouse proprietary trading operation with 450 proprietary traders and a separate division for 300 retail traders who trade for their own accounts. Combined, the firm trades about 130 million shares per day.

Right now, the timing may be just right for traders to make the leap from active to professional proprietary or even a pro day-trader. But many firms are looking for the next breed of proprietary trader.

" The interest level in equities trading today on a scale of one to ten is probably a one or a two, "says Steven Schonfeld, chief executive officer of Schonfeld Group. " Three, four or five years ago, it was a nine or a ten. Obviously, like retail customers who have bad timing for when they get in and out of the market, it s no different for employees who want to trade as a career. When it's a bear market, trading is thin, volatility is low, and there aren't the easy money-making opportunities, that's the best time to get in."

For Schonfeld - be it proprietary trader or professional day-trader - trading the tough markets will help mold the next class of top traders.

"When people got in during 1999 and 2000, it was the worst time, "Schonfeld said. "Why? Because it was such an easy market, you could take an amateur and make some money. But they'd learn the worst habits and think they didn't need to work on their trading. It was really the worst money they ever made because it ended up doing damage to their careers."

What has emerged in these darker days on Wall Street is a number of professionals from outside the trading world who are dedicated to making a career change. Many have little or no experience in trading stocks, futures or options and are looking for the right firm to lend them insight and a trading terminal. That suits proprietary trading firms just fine because the people knocking on their doors today usually are not part of the easy money markets of the 1990s.

Showing' Em the Ropes

Joining the ranks of true pros means becoming a licensed trader. Firms such as Bright Trading in Las Vegas require their traders to pass the Series 7 exam, which allows them to register with all self-regulatory organizations to trade directly onto the exchange. In other words, professional equity traders basically participate on the New York Stock Exchange in the same way a specialist does.

Even though there are millions of retail and on-line accounts, the estimate for the equity industry is that there are only about 6,000 licensed traders in the U.S. Bright, Schonberg and other proprietary trading and day-trading teachers say they look for smart, competitive and flexible students. Bright Trading has about 500 proprietary traders across the country and educates about 250 people each year that may or may not join the firm. Half of those students never trade, Bright says, once they see first hand how difficult trading can be.

There are two distinct profiles of applicants today - first, professionals from other industries that perhaps have found themselves in a jobless recovery and, second, the college student or recent graduate.

"Young people without bad habits will do much better, we're finding, than the stock broker or someone who lost his money,"says Don Bright, trader and director of education with Bright Trading. "Stock brokers tend to think they have an edge on the markets when they haven't even been on the trading floor."

One of the key elements of the Bright education program is learning how the market's gears work once an order is entered - such as how orders are really matched and terms like time priority and parity. "You learn so much more as a clerk on the trading floor as opposed to learning trading as if it were a video game, "Bright says. "There' s been so much of that over the last couple years where people call and say, " How fast are your computers, and what kind of platform do you have? "I say, " Our computers are as fast as anyone's, and all you can do on it is buy, sell or cancel. "I downplay it a little bit because I want people to understand what goes on after they push the button"

Like most proprietary trading firms, Bright says traders slowly earn their way to trading more money. The more they make, the more they are given to trade and are allowed to keep the profits.

Other firms offer a base salary and divide a percentage of the profits. Still others take a sales approach and offer a salary until the trader establishes a track record. From there, the compensation depends on trading success or failure. For some proprietary trading firms, it's not uncommon to pay a base salary of about $30,000 for the first six months with training on simulated markets, followed by a 50-percent take on real trading profits thereafter. Depending on the success of the firm, a trader's take can potentially rise to 70 percent.

But critics of the industry say prop shop percentage splits often are unfair because they encourage high-volume trading to run up commissions on their traders. They also claim that firms pull the plug on traders quickly if they do not show profits fast.

Schonfeld says his best prospects today are people who have mathematical minds. "The best candidates for prop trading have changed over time, "Schonfeld says. "Right now we're looking for people who are more statistically inclined, computer literate - those who could either develop their own black box strategies or use mathematical algorithms along side manual trading."

That's a big change for Schonfeld. Five years ago, 80 percent of his proprietary traders had no prior trading experience, nor were they necessarily computer or math wizards. Today, Schonfeld is building up his "Black Box "trading division with people who have mathematical, trading or programming backgrounds. Schonfeld's retail division also focuses heavily on training and trading tools for its day-traders. Those traders are provided a proprietary trading program that helps pick out stocks according to the trader> '> s methodology such as price moves, volatility and other variables. Those traders also receive monthly report cards that focus on strengths and weaknesses.

Cary Gruber, a day-trader who has been trading his own account at Schonfeld since August 2003, says he was able to make the leap from stock broker to day-trader with the help of Schonfeld's software and trading in a trading room with 90 other traders all aiming to win. Today, Gruber trades between 400,000 and 500,000 shares per day.

"Trading in a community, in an office, is something I'd recommend highly to anyone who is doing this,"Gruber says. "Trading on the Internet on E*Trade a couple trades a day is not day-trading, or professional trading. We're trading stocks all day long, and I' m surrounded by maybe 40 guys who are a close-knit group trading together. You have 80 eyes looking at the screens, focusing on different stocks in different sectors. So it helps to have some other eyes out there pointing out something I might have missed to get me back on track - so many people with different backgrounds and a lot of information that is so helpful to the trading environment. It's not people talking up stocks. It's really informational."

But Gruber is the exception for day-traders. Even with training and all the latest trading software, the vast majority of day-traders do not make it. David Norman, director of market technology at Illinois Institute of Technology, discourages his students from learning via the equity day-trading route.

"I kind of warn my students against that because it' s a different kind of fish and a different way of accessing the market, "Norman says. " They are not direct access markets, apart from the ECNs. And you have to go through a broker, whereas in the futures market you can have a direct line to the exchange and have the same opportunities as everybody else. You just have to be better."

Regarding proprietary trading firms, Norman added that Schonfeld's more math-minded selection process is becoming the norm. Over the past year, the IIT program placed only four or five students out of 200 with proprietary trading firms, all futures prop firms. Norman qualified that by saying many students don't pursue careers as prop traders, but adds only about 20 percent of those who would like to be work in a proprietary trading firm were placed. And once traders get there, there is no guarantee they will stay on. Bright estimates that about 15 or 20 traders out of 100 will still be trading two years later.

Firms are getting more sophisticated about who they bring on board. Some proprietary trading shops are using software that breaks down an individual's abilities across multiple trading, math, computer skills and psychology categories.

"The good companies are looking for trading ability, quantitative analysis ability and a modicum of programming ability,"Norman says. "What we're seeing then, is that trading firms no longer have a stranglehold on their traders. Instead, they treat them like autonomous entities within their organization. And with risk measures in place, firms let the traders do their own thing."

Leap into Futures

While the interest level in becoming a successful stock trader is rather muted, proprietary trading firms that focus on trading futures are popping up rapidly in Chicago. Some firms are continually recruiting traders to trade contracts such as Bond futures on Eurex, E-mini S&P 500 futures on the Chicago Mercantile Exchange or interest rate contracts on the Chicago Board of Trade. And like their equity trading counterparts, futures prop trading firms often choose applicants with little or no trading experience.

Jeff Quinto, managing member of Altea Trading in Chicago, says it is difficult to predict who will be a good trader. "We have a steady stream of people who arrive at our door, but the hard part is, which of these people are going to make it?"Quinto says. "We want them to have some experience in financial markets such as a clerk on the floor, or someone who has traded stocks and is competitive in nature. We've found that if they are overly analytical or may be the world's foremost expert on technical trading, they actually may or may not be such a great trader. You need people who will focus their entire energy on the price right at this second. That's a very special person."

Once inside, Quinto says the goal for traders is to make money on four out of five trading days. That said, Quinto emphasized that traders are encouraged to go with a style that works for them. "We want to provide an environment where they can be successful. Some people will more aggressive, some less aggressive, more consistent or less consistent and still be successful traders. We try to recognize that and put them in the context of the way risk should be handled and fit them within a risk profile we think makes sense."

John Herron, trading manager for Arcar Trading in Chicago, opened a prop trading firm in October with 12 traders. The company hopes to expand that number to about 30 over the next year. Arcar hired a mix of experienced traders with newcomers, but hopes to build its staff with novices who can be taught how to trade.

"My view is that you train traders to be traders, so you give them a wide general knowledge of the industry, "Herron says. "We go into technique, psychology, understanding the mathematics and functions of the financial markets. That process can take several months, but after one month they can start to trade lightly."

Herron> '> s group focuses its trading mostly on European markets, particularly Eurex, which aims to open a U.S.-based exchange in February if they receive approval in time. "The European markets move or trend quite well, with good volatility and great liquidity, " Herron says. "And they are cheaper to trade than the Chicago exchanges."

Meanwhile, Geneva Trading in Chicago is expanding its business strictly from a proprietary trading shop into a training facility for new traders sometime during the first quarter. Geneva will continue to run a dual proprietary trading operation in Chicago and Dublin, but found strong demand for an educational program. Mary McDonald, CEO of Geneva, says the class sizes will be no more than a dozen at a time and will last eight to 12 weeks. Fees were not yet decided for the courses, but will be taught by the same instructors used to teach its methodology to it proprietary traders.

Growing Up

While proprietary trading firms are nothing new to equity or futures markets, executives in both industries say they expect the size and number of operations to grow in the coming year. Schonfeld believes that jaded retail traders will return, especially if the market shows steady gains in the coming months. If that occurs, it means more opportunity for the pros.

"We're looking to grow our proprietary trading and retail side, "Schonfeld says. "you can blame it on decimalization, bear markets or lack of volatility. But if you look at a trader 's performance and variables, the number one variable that will make it better is retail volume coming back into the market. And they will absolutely be back in the market."

On the futures side, firms are convinced that proprietary trading will continue to grow along side the string of record volume years at the exchanges. "We really believe we are in an embryonic stage of financial markets and in the initial phase of this proprietary trading trend, "Herron says.

Norman echoes that sentiment, especially with the continued expansion of electronic trading across all markets. And proprietary firms in the coming months and years may be a virtual network of traders, trading from their homes around the country.

"The trend is definitely toward a distributed marketplace, "Norman says. "raders are becoming more professional and so is their support. And now you're getting a number of traders who are working from home or outside the central office, and that never used to be the case in Chicago. But now, because of the high quality of interaction between the trader, company, risk managers and the marketplace, they can trade from anywhere in the world."

Ultimately, the step from active trader to proprietary trader is a huge one. Some may shy away from the industry because of the numerous scams and fees that make proprietary trading undesirable, if not unprofitable for the trader. But others say good firms open doors for traders and enable them to maximize their true trading potential.