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Many traders find themselves stuck in a cycle of losing money, making it, and returning it to the market. It’s an exhausting routine that can drain your account and your confidence. Proprietary or prop trading offers a way out of this cycle. If you’ve ever wondered how to become a prop trader, understanding the process and benefits is a crucial first step. But, is prop trading worth it? This article will answer that question and explain how prop trading can help you achieve your goals of higher income, professional-level trading experience, and long-term financial freedom, without risking your capital.
FX2 Funding is a leading prop trading firm that can help you reach your trading goals. FX2 Funding provides traders the capital they need to boost their trading career. Trading with firm capital reduces the stress of selling your own money and allows you to focus on developing your skills and maximizing your profit potential.
Trading isn’t what it used to be. Years ago, traders worked for a firm, executing trades on behalf of the company and earning a salary and bonuses based on their performance. Today, many independent traders operate as retail traders, executing trades for their accounts on trading platforms.
While retail traders don’t answer to anyone but themselves, they face numerous disadvantages compared to institutional traders, including limited:
Proprietary trading (prop trading) firms offer a new way to trade. Traders partner with a prop trading firm instead of working for an investment bank or firm. To excel at short-term trading, the firm provides the:
Prop trading firms develop unique technologies to give their traders a competitive edge. They also shoulder the risk of losses, allowing traders to focus on:
The proprietary part of the name comes from the trading hardware and software the company offers its traders. Many trading platforms are available to the public, which has fueled massive growth in the retail trading category, which we’ll cover in the next section. Prop trading firms develop unique hardware and software solutions to give their traders a competitive edge.
This is especially important in areas such as:
Although the fundamentals of the trading tools on offer will be similar, not all prop firms are created equal. Another defining characteristic of a prop firm is the capital or buying power it provides to each trader. This can sometimes be as much as USD 50,000-400,000, depending on a trader’s:
This fund represents the money that a trader can use to execute trades. It is not a bank account they can draw from or borrow against. It’s not the same as leveraged trading, although prop firms may facilitate leveraged trades for qualified traders. In exchange for using the firm’s money to make trades, traders agree to share the profits.
The profit split is between 50% and 80%, with some firms going as high as 90% for certain assets. The best prop firms shoulder 100% of the losses and use safeguards to prevent individual traders from losing everything. They do this to allow traders to focus on making smart trades with acceptable risk levels.
If you’re stressing about every dollar you lose, you won’t risk enough to make a significant profit. Prop trading firms vet and train new traders to ensure the highest chance of success. They offer:
People who partner with prop trading firms are often called prop traders or short-term traders. Because of the support of the prop firm, prop traders are better positioned than retail traders to use advanced trading strategies such as:
This is a small sample of the many trading strategies used by prop traders. There isn’t a perfect trading strategy. The best traders explore many strategies, discover the ones they prefer, and master them.
Institutional investors are the “old guard” of the trading world. They work at investment banks or firms, executing trades on behalf of a group or institution. They have the agency to execute trades as they see fit, but they are highly accountable for the returns they generate.
Prop traders have far more freedom, independence, and earning potential than institutional traders. Here are some of the major benefits of partnering with a prop firm:
Because prop firms are looking to recruit and train highly talented or skilled traders, they don’t require a large upfront deposit from would-be traders. They require traders to complete a training program or prove their abilities in a trading simulator. Once proven that you can execute profitable trades, the firm will provide a funded trading account to begin live trading.
Few people can access tens of thousands of dollars to begin their trading career. At Real Trading, we start most traders with a USD 50,000 trading account and may provide as much as USD 400,000 for Forex (foreign exchange) trading. Prop firms can also provide leverage trades via their broker.
When traders use leverage, they borrow money from the broker to execute the trade. This magnifies traders' buying power but creates the risk of losing more money.
Some trading platforms and retail brokers build their systems with a deliberate price action delay. This means that the price you see may not match the actual cost. The broker or platform provider can use that delay to their advantage and your loss. Regular brokers like Robinhood, Fidelity, and Schwab do not provide DMA.
The best prop firms offer DMA and allow you to select your own market maker. This firm provides liquidity to the market, giving you even more control over your trades.
Trading can feel lonely if you’re not commuting to an office daily. This can lead to burnout and poor trading performance. It’s better to trade with a team. As part of a prop firm, you can access a community of like-minded traders working with the same:
Many traders are incredibly competitive, but prop traders aren’t in a zero-sum game for bonuses or promotions, so there tends to be a more unrestricted exchange of tips and ideas.
Except for the shady ones, prop firms only make money when their traders succeed. They invest heavily in education and supporting skill acquisition for their traders. Prop firms will ask their top-performing traders to:
Prop traders learn from some of the most experienced traders in the world.
Prop trading is a meritocracy. If you learn the foundational skills and practice a disciplined trading strategy, you can turn short-term trading into a full-time career. There’s no office politics or bureaucracy to navigate. Make smart trades. Take home the profits. Wash, rinse, repeat.
The earnings of a prop trader can swing dramatically depending on several critical factors you’ll want to consider:
The kind of firm you work for and its compensation model play a significant role in earnings. In proprietary trading, profit-sharing is the norm. Firms might keep between 10% and 40% of the profits, depending on:
Some firms offer a base salary with performance bonuses, while others lean on commissions tied to your trading success.
Your experience level can influence your income. If you’re just getting started, expect a modest base salary, if any, and smaller commissions. Earnings typically land in the $50,000 to $80,000 range. But as you get better, your income can rise significantly. Skilled traders often make $150,000 to $250,000 annually, and top performers can rake in $500,000 or more.
Your ability to turn a profit is crucial. A losing year might mean little to no income, especially if your earnings are tied to commissions. Conversely, a strong year can lead to a hefty bonus.
Market conditions significantly affect trading opportunities. Volatile markets might offer more chances for profit due to more significant price swings, but they also come with higher risk.
Your trading style impacts your earnings. High-frequency traders (HFT) make many trades with smaller profit margins each time. On the other hand, swing traders hold positions longer and aim for more enormous profits per trade.
Effective risk management is critical to maintaining consistent profits. Successful traders who manage risk well tend to stabilize their income, while poor risk management can lead to bigger losses.
Access to cutting-edge technology, research tools, and training can give you a leg up in the trading world. These resources can positively impact your earnings by helping you make better trading decisions.
Retail trading is the most popular method of investing in:
Retail traders create accounts with brokers such as Robinhood, Charles Schwab, and FxPro and then conduct trades through the broker software platform. Retail trading usually has zero commission fees. There isn’t a base cost to submitting a trade order (Brokers earn commissions on individual trades).
You start trading with your own money and stop trading when you’re happy with the results or run out of money. Morgan Stanley says retail traders are responsible for 10% of all market transactions. Retail trading tools don’t offer DMA or many advanced tools and features that prop traders enjoy.
Most prop firms prefer their traders to use the firm’s account so the firm makes money. On the flip side, prop traders aren’t responsible for their losses.
Institutional traders work on behalf of a firm as employee. They usually take a salary and are paid additional bonuses for exceptional performance. Institutional traders manage money provided by people or organizations. There are six main categories of institutional investment firms:
These firms can trigger considerable swings in the market as they command trillions of dollars and are responsible for 90% of daily trading volume. While prop traders have much more buying power than the average retail investor, they can’t hold a candle to multi-trillion-dollar firms like Blackrock.
Institutional investment firms only accept highly qualified candidates and often use advanced trading techniques such as:
Prop trading firms may not command trillions of dollars in buying power, but they provide career opportunities to anyone who can prove they have the drive and skills to beat the market.
Before you jump into prop trading, understand what it’s all about. Proprietary trading lets you trade using a firm’s capital, which means they’re keeping a close eye on the risks. You’ll have access to various markets and the potential for significant profits, such as:
Anton Kreil, a former Goldman Sachs trader, points out that knowing your firm’s liquidity providers and understanding market dynamics is crucial. Trading with someone else’s money is different from selling your own.
Crafting a solid trading plan is essential. It should include your:
Mike Bellafiore of SMB Capital stresses the importance of discipline: “The most important part is sticking to that plan even when things aren’t going your way.” Being comfortable with losses is critical, but how you handle them sets you apart.
Testing your strategy is crucial. Whether using a demo account or backtesting, this step helps you:
Rayner Teo from TradingwithRayner advises only trading with real money after thoroughly testing your approach. This preparation is vital for navigating all possible market conditions.
Your risk-to-reward ratio is the amount you risk versus what you could gain. Aiming for a ratio of at least 1:2 is a good rule of thumb. This way, you stand to make at least twice as much as you risk on a winning trade. As hedge fund manager Paul Tudor Jones says, “If you risk $1, make sure you can earn $3 or more when you are right.”
Emotions like fear and greed can cloud your judgment. Learn to control these impulses to avoid making rash decisions. Brett Steenbarger, a trading psychologist, suggests using mindfulness and journaling to build emotional resilience. Successful traders know how to keep their emotions in check.
Most prop firms set drawdown limits to protect you. These limits prevent you from losing too much trading capital. Steven Spencer of SMB Capital advises respecting these limits. Breaching them can disqualify you from the program, leaving you entirely out of the game.
Trailing stops are helpful to safeguard your gains while letting your winners run. They move up or down with the market, locking in profits if the price moves in your favor. Professional trader Linda Raschke recommends using trailing stops to participate in the upside while limiting your downside.
FX2 Funding is a proprietary trading firm that supports traders with the capital they need to succeed. We’ve built our firm on:
At FX2 Funding, we understand that the trading industry can be incredibly stressful. Our goal is to alleviate that stress by creating a trustworthy and dependable environment for traders to thrive. Our fast payouts, clear rules, and responsive support from experienced trading professionals are designed to help traders focus on what matters most, and that’s trading.
The biggest advantage of prop trading is trading with someone else’s money. At FX2 Funding, we give traders access to large amounts of capital to execute their trading strategies without financial stress. When traders perform well, they deserve to be paid quickly. We deliver on that promise with fast payout times, allowing traders to get their money in as little as one day.
Our evaluation process is designed to identify skilled traders and provide them with significant capital without requiring:
Whether you're an aspiring trader looking to break into the industry or an experienced professional seeking reliable backing, FX2 Funding offers the trustworthy foundation you need to build a successful trading career.
At FX2 Funding, we aim to help you achieve your trading goals. That's why our rules are clear and easy to understand. We also avoid sudden policy changes that can create unnecessary stress for traders. The last thing you want to worry about while trading is whether your prop firm will change the rules halfway through. At FX2 Funding, we won't do that to you.
At FX2 Funding, we pride ourselves on having a team of knowledgeable professionals who understand the ins and outs of trading. Our staff has years of trading experience and can provide valuable insights to help you navigate your trading journey.
Our team is committed to helping you achieve your goals, not just the firm's objectives. You can count on us to provide personalized support throughout your time with FX2 Funding.
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