Prop Trading or How to Trade on a Company's Capital

How proprietary trading works

Prop. firm is not a broker and is itself a corporate client of brokerage companies. The firm opens a large corporate account and provides its traders with sub-accounts, on which they conduct trading operations. Most often, the budget is distributed among employees, based on their efficiency. The more profitable the specialist, the more significant share of the total account he is given to manage. But the pro also gives significantly more in deductions.

And the owners of such businesses themselves are interested in maximum efficiency, so they create all the conditions so that their employees have maximum advantages in every aspect of trading: training, exchange of experience, professional platforms, risk managers, etc., which will be discussed below.

Advantages and disadvantages of working in a prop company

Some of the disadvantages listed below have advantages, so let’s look at them first:

The need to share income.

The so-called payout can be from a few percent to 50-60% of the monthly profit. If you do not go into this issue, the percentage may seem huge. But if you look at the situation from the position that prop. invests a lot of resources in its employee (colossally increasing his chances of earning) - the distribution of profits no longer seems unfair. It is better to have 50% of $100,000 that you managed to earn due to professional infrastructure than 100% of $0, as is the case with the vast majority of private players.

Strict discipline.

Professional market participants put discipline first. You will not be able to do anything crazy, even if it seems that such an action will allow you to “hit the jackpot”. You will not be allowed to “play roulette” and trading not according to strategy will be stopped very quickly by the risk manager.

Start-up capital.

Not all companies train newcomers for free. We can say from our 12 years of experience that growing a pro is a huge amount of work and resources. Individual work. And the more people want to get into the structure, the more resources have to be allocated. And people with serious goals, in our experience, are no more than 30%. And it is extremely difficult to tie a freely trained professional to the company. There are often cases when a person after training moves to a competitor company, where they offered slightly better conditions. Therefore, training can be paid. Also, you may be asked to leave a small amount to cover the risks.

Now let’s look at the advantages:

Capital is one of the main advantages.

Having hundreds of thousands of dollars at your disposal (and millions for TOPs), it is much easier to realize your potential. In active trading, there is rarely a stable predictable income. Most often, a prop trader earns 5-6-digit amounts in a relatively short period, when his strategies begin to work best. At such a moment, a person can earn an amount that will allow him not to work for several years. And a “home” trader in a similar situation will not be able to fully realize the opportunities that appeared for a short period of time and will be happy with a conditional $1000, since he did not earn anything before.

Training.

An important aspect of interaction with prop trading companies for a beginner will be high-quality training. Since the organizers are interested in the profitability of the project, the beginner receives serious training. And this knowledge will be from people who are earning “now”.

Exchange of experience.

This point intersects with the previous one, but not quite. The market changes very often. What worked yesterday may not work tomorrow, and a huge advantage of teamwork is the speed of adaptation. 50 people will notice market changes tens of times faster and find new strategies. More often than not, an individual will take so long to adapt to changes that by the time the situation becomes clear, the market changes again. Briefings, deal reviews, and exchange of experience are held regularly so that each participant understands what is working now.

Professional software.

The difference between a free or cheap trading platform and a professional one is colossal. Trading on good software, a pro will be faster than an amateur in all aspects. And will have a much more complete picture of the instrument. And in serious props, this is the software that is used, since efficiency is put at the forefront, not savings.

Risk manager.

Brokers also have a RM, but is there a difference? - Yes, a huge one. The broker only cares about the client not losing the broker’s money using “leverage”. Nothing more. In the case of proprietary trading, the risk manager’s task is to note in the statistics where the employee is losing, minimizing losses there and expanding risks where there is room for scaling. And where money is being made now, he sees not in the example of his own trading, but on the scale of tens/hundreds of traders.

Broker commission.

We put this advantage last, since this article is most likely read by beginners. For them, this is a secondary issue: will the commission be $1 or $0.30 - it does not matter. But if we take a prop trader, then his monthly traded volume is more than 500,000 shares. And will the commission be $1,500 or $5,000 - it is already very important, because this can be the difference between a good profit or a mediocre month. And it is here, as in the case of capital, that proprietary trading allows the trader to achieve maximum efficiency, because brokers are interested in large structures and give significant discounts on the commission.

If you are interested in prop trading with training - in SDG Trade you can take a training program conducted by prop. traders with over 10 years of successful trading experience. This program has no analogues in the CIS. Thanks to all the necessary infrastructure and daily presence in a professional environment, this course allows you to turn a hobby into a highly profitable profession.