Chapter 1:
Welcome to the World of Prop Trading!
Becoming a prop trader is an exciting process filled with lots of opportunities and challenges.
Our goal is to help you make the best decisions at every step of the way and make your dreams come true as a member of our community.
Check out our seven-part series of posts and become a successful funded trader!
The world of online trading offers a wide variety of opportunities for anyone who wants to achieve financial independence and success. Prop trading is an opportunity that can offer many benefits for both experienced and absolute beginner traders. In this article, we introduce the pros and cons of prop trading.
What is Prop Trading?
Prop trading (short for “proprietary trading”) is where a company provides a trading account to traders in exchange for a share of the returns generated. For successful traders, this is a huge opportunity, as they get the benefit of high capital without having to take it out from their own pockets.
What are the advantages of prop trading?
You are able to trade with larger amounts
Prop firms provide capital for trading. The difference between your own capital and prop virtual capital can be up to 100 times. This allows traders to take larger positions than their own capital would allow, thereby increasing potential of their profits.
You can trade with less risk
When trading with your own capital, the trader can lose a much larger amount, compared to prop trading where the biggest risk is losing the challenge’s registration fee.
No need to keep your capital at a brokerage firm
If somebody has capital to trade on the stock market, but doesn’t want to keep a large sum of money at a brokerage firm, prop trading is an excellent way to use your capital for other things (such as building a long-term portfolio).
You can try multiple times
Mastering to trade on the stock market is a process where success does not always come immediately. When trading with your own capital, it is much more difficult to start trading again after the total loss of a trading account than in the world of prop trading.
You can practise live
Traders have the opportunity to practice with less psychological stress than in a demo account, but with less pressure than the potential loss of their own money. For long-term success, this is extremely important.
You can be part of a community
Previously, forex traders have only come together to trade certain strategies or products, but being part of a good prop provider, sharing achieved results and insights makes it much easier to navigate in the world of trading.
Tutorials to help you improve
Tutorials and training courses allow beginners to develop more effectively and quickly, and are therefore more likely to achieve long-term success in the market.
What Are the Disadvantages of Prop Trading?
Strict risk management requirements
The maximum drawdown must also be kept within strict limits.
Profit target in the evaluation phase
Reaching the profit target set in the challenge can cause psychological pressure.
Profit-sharing
Prop firms keep 10-20% of the profits made by successful traders in the funded phase.
Who will become a prop prader?
Prop companies are looking for talented traders. In order to find out who is a suitable trader, you have to go through an evaluation process. Think of it as an exam where you need to prove yourself.
There are both single-stage and multi-stage assessments. Each has different criteria. Which one you should choose may depend on how long you have been trading, your experience, or even how important the price of the challenge is to you.
What Is the Next step?
If you have weighed the pros and cons of prop trading and decide that this form of trading could be right for you, it’s worth looking around to see which companies offer the best conditions for you and which you consider to be reliable.
In our next post, we’ll introduce you to our founding members, so you can get to know more about what makes us unique in the world of prop trading.
