About Prop Trading
Proprietary trading firms, or prop firms, are companies which provide traders with access to capital, aka money or funding, in order to trade with in exchange for a percentage of the profits the trader earns through trading.
The idea is that these companies supply traders with large amounts of capital which they would be unable to acquire as a sole trader entrust them to trade with it and in return they receive a percentage of the profits, while paying the trader for their time and effort as well.
This is a great method of trading for those wanting to trade on a larger scale, but who as individuals do not have the money to engage in high-stake trades. It allows businesses to profit on a huge scale, while allowing traders to also make money by doing the work for them.
Prop trading firms often operate on behalf of large clients who invest their money into the firm, giving them the capital they need to pull off these huge trades, expecting big pay-outs back from their investments.
It is essentially a giant money mako machine, where everyone benefits including those at the bottom- the traders.
While prop trading can be risky, as you are handling very large amounts of money, it is a high-risk high reward method of trading which often sees incredible growth and profits which are not found in many other methods of trading.
This risk is low for the trader themselves though, as they are not using their own money to execute the trades.
This is one of the reasons it is such an attractive prospect for many traders as it gives them the ability to exercise their skills and expertise with no risk of losing their own funds in the process.
Due to the risk in high-value trading, prop firms will usually only hire the best of the best, and traders are often put through rigorous testing so the firm is able to assess their ability to trade effectively.
If a trader can show they are able to generate capital, they are allowed on the job, if they cant they are unfortunately not progressed further.
Many prop firms will also train their traders up, equipping them with specific skills which can help the specific clients the firm is working for. This can help them to generate the maximum profits possible, making them, their clients and their traders the most money.
While prop trading is similar to other forms of trading, the sheer scale on which it is done sets it apart and allows it to stand on its own. It is an extremely competitive industry, with traders constantly aiming to be the top earners for their firm.
In return, they earn commission and also a percentage of the profits and also get to spend time learning the tricks of the trade from those at the very top, which is more than enough compensation for many.
The Advantages For Traders
There are many advantages to working for prop trading firms which many traders seek out when looking for jobs as traders. They offer unique and exciting opportunities which cannot be found elsewhere giving traders the ability to experience things they never have before.
Many people enter the world of trading not knowing the true potential of the job, however, prop trading can show you a world of incredible tech, profit and technique compared to other types of trading.
Understanding the benefits of working for a prop trading firm may be the push you need to pursue a career in this field and begin to expand your trading portfolio.
The main advantage of working for a prop trading firm is that the traders gain access to significant sums of money. This trading capital opens the doors for much bigger opportunities, allowing them to generate much higher profits than they could if working solo.
This also means they can diversify their trading portfolio, as they have access to money which allows them to enter many different markets, classes and levels of trading which are not otherwise accessible.
Another advantage that makes prop trading firms an attractive option is that there is minimal personal risk when working with a firm. As you are using firm capital, none of your own personal funds are being put at risk.
This can often drive traders to take bigger risks which they may not previously have done, as they are not risking their own money. These often wind up turning a huge profit, and in the event of a loss, they do not personally lose any monetary assets.
This added peace of mind can make it much easier for traders to become fully invested in the market, allowing them to look at it from a business perspective, rather than a personal one, and make calculated decisions without the fear of loss looming overhead.
Working with a prop firm also gives traders access to tech which they may not have had the ability to work with had they stayed solo. Many prop firms have state-of the art trading platforms, tools and technology which is all at the traders disposal.
This allows them to experience the best of the best within the world of trading, making it more competitive and giving them the tools and data they need to make the most informed and educated decisions they can while trading.
These technologies are often high speed, high performance and have access to real-time data which allows the traders to keep a close eye on their investments, giving them a better chance of pulling out or paying in at the exact right time to generate the maximum profit form the trade.
Another advantage to working with a prop firm is that traders now have access to the experts of the trading world. They will be mentored and guided by people who have made their fortune through trading and will often learn new techniques, tips and tricks along the way.
This all aids their development as traders, giving them the resources and mentorship they need to thrive and blossom in the world of trading, becoming the best of the best themselves.
This continued development throughout their time within the firm not only helps them to progress, but also allows the company to tailor their traders to suit their specific needs. Traders are now armed and ready with all they need to get the job done exactly right.
When working with prop firms, there is also the potential to earn a significant amount of money. The deal is, the more you generate the more you earn.
This often encourages traders to do the best they can to generate massive profits, as they receive a percentage of the overall generated income.
The higher the profits, the higher the percentage they earn which means the higher their own personal profits are.
This works well for all involved and allows prop firms to comfortably invest in their traders knowing they are aiming to turn over as much capital as possible both for their own and the firm’s benefit.
Trading in a firm also opens the doors for networking and community. Trading can often be a lonely career, especially as a sole trader. You are essentially in competition with all of your peers which can make networking very difficult.
However working for a prop firm allows you to join a team of like minded individuals who are all working towards the same goal. While the competitive nature of trading is still present, it is more of a collective effort than a stand-alone job.
This fosters positive relationships between traders, allowing them to build a strong network of friends and colleagues who all have the same interests and goals.
Having access to such a wide network of other traders can also help you to progress as a trader yourself. Discussions can bring around new information, techniques and data which all help to boost your abilities.
It also opens the door for constructive feedback and assistance. Having the ability to ask for help and advice from your peers is invaluable and can often lead to better decisions being made.
Overall, the advantages of prop trading make for a very tempting offer. Traders can learn, earn and prosper when working under a firm and enter a world entirely new and exciting.
There are drawbacks, however the benefits are far greater which means this is something many traders strive to do.
To become a prop trader you must be at the top of your game and exhibit the necessary skills, expertise, knowledge and discipline and also be able to show this when asked.
By joining a prop firm, you can jumpstart your trading career and ladder up to being an incredible trader, surrounded by support and advice with the comfort of financial security, knowing there is no personal loss to be had while still handling large amounts of money.