In today’s world, which seems more uncertain economically each year, you are likely seeking to achieve financial independence. Should you have an interest in financial markets and do well when dealing with stressful situations, you may have what it takes to find success as a prop trader. If you’re curious whether this path will help you reach your financial goals, here are some things to remember about how these firms work.
Day Trading
While you may not have heard much about proprietary trading firms, you may have heard about day trading. Essentially, this is what you are when you become a prop trader. During a typical day, you may make hundreds of trades in various financial markets, hoping to make a quick profit. To succeed in this line of work and make large profits, you’ll need to pick a strategy that works best for you and your goals and be decisive while using risk-management techniques to avoid significant losses.
Stiff Competition
One thing you need to remember about prop trading is that when you work for a firm, you will face stiff competition from other traders daily. Remember that since these firms do not have actual clients for whom they are working, their main goal is to have their revenues be as high as possible. They need the very best prop traders working for them to accomplish this. In a typical firm, you can expect to have 100 or more traders like yourself all trying to outdo one another. This could be an excellent career if you are competitive and like the thrill of winning big.
You’re Under Contract
Almost all prop trading firms hire their traders as independent contractors rather than actual firm employees. In doing so, each firm can evaluate a trader’s performance and either keep or release them based on how much money they make. If you are brought into a trading firm, you will sign a contract that states how much money the firm will initially give you to invest, the length of time you’ll have to prove yourself to the firm as a trader, and how the profits will be split between you and the firm. Profit splits can vary dramatically, with some firms taking as much as 90 percent of your earnings and others agreeing to an even 50-50 split.
Choosing Your Strategy
To be a great prop trader, you’ll need to choose a strategy that you believe in and will work well no matter the world’s economic climate. Since you will be dealing with many different types of financial markets, such as stocks, foreign currency, and many others, selecting a strategy that can be easily applied to various markets simultaneously will be beneficial. Many traders decide to use what are known as trend strategies or news strategies. When deciding which trades to make and how much money will be on the line, traders using these strategies, base their decisions on recent trends in global financial markets and the data they believe will be contained in upcoming economic reports. Whether you’re trying to determine if interest rates will go higher or the stock market will dive in the days ahead, your strategy will ultimately determine your fate as a prop trader.
Higher Earnings Early in Your Career
One of the biggest benefits of prop trading is that it allows you to make a substantial amount of money very early in your career. Unlike a traditional career in banking or private equity, working for a prop firm may allow you to make millions of dollars for the firm. Even if the firm substantially cuts your profits, this will still leave you with hundreds of thousands of dollars.
If you’ve got what it takes to succeed as a prop trader, you could be well on your path to financial independence much sooner than anticipated.