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5 Things to Know Before You Try Prop Trading

Proprietary trading can come with big rewards, but it isn’t for everyone. Consider these points before you pursue prop trading.

Unlike a retail trader, who strictly trades their own capital and who takes all the risk and receives all the profit, a proprietary trader, or prop trader, trades on behalf of an institution, bank or proprietary trading firm. The prop trader utilizes the firm’s capital and resources to place trades and receives a percentage of the profits. In this structure, the more success that a given trader has, the more capital they will receive to manage. Proprietary trading and retail trading, despite both executing trades in the marketplace, are very different endeavors.

Prop trading comes with certain benefits, but it also yields several risks. Understanding more about your individual trading style can help you decide if prop trading is right for you.

You need to stand out to be hired

Trading using a standard retail brokerage account is relatively easy. If you have the minimum starting requirements, you can simply choose a brokerage platform with the features you need at the price you like, and you’re ready to go.

But to trade with a prop firm, you need to prove yourself to be hired. Before you can do that, you may need to develop your knowledge and expertise on your own. As you gain experience in the field, consider reviewing your trading journal, reflecting on your trading habits, and staying up to date on market trends. Speaking about the trading lessons you’ve learned can be the foundation of a hiring interview with a prop firm.

You won’t be your own boss

Many traders are attracted to the field because they love their independence. Retail traders don’t split their profits with anyone, they can set their own hours, and they usually trade from the comfort of their own home.

When prop firms hire traders, they are careful to invest in traders they can trust. While every firm has different operating standards, a new hire may go through an in-house training process, report to a supervisor, and/or come into an office.

Whether this can be considered an advantage or disadvantage is up to your work style. Some traders prefer the structure as they adhere to a prop firm’s expectations, while others prefer the freedom of trading by their own standards.

You’ll need to prepare your strategy

The trading plan that may work for you as an individual may not be the best solution for the prop firm. Prop traders need to adapt their strategies to whatever is the most compatible with the company and their house style, not themselves. This means a prop trader may need to trade in ways that conflict with their usual level of aggressiveness or patience.

There may be more capital at stake

When you trade with your own account, the amount that you can trade is limited to how much you can grow by yourself organically. However, at a prop firm you have a chance to access more capital. This can be the capital with which you start as well as progressively more leverage based on your results.

With more capital, of course, comes a higher risk. Refining your skills, developing your understanding of the markets, and adapting to new strategies are crucial to managing more money.

You can access the resources you need

Providing the resources for prop traders to succeed is in the prop firm’s best interest, so most firms will make those means available. These may include technological resources such as expensive hardware, software that is unique to their firm, and convenient connections to major exchanges. They also have in-house experts that can mentor traders or colleagues who can openly share market perspectives.

This kind of access isn’t necessarily exclusive to prop firms, but that does mean that individual traders will need to find other avenues for the tools they need. That means devoting your own energy to creating your home trading station as well as gathering the market information you need to make informed trades. For example, at Score Priority Club, you can join an online community of traders to exchange ideas and study market trends.

Pursuing proprietary trading can be a risky move, especially for those who attempt it without fully understanding it. Whether you aim for prop trading or develop your skills as an individual trader, the best choice is the one that fits your style the best.


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