You must have heard the term “prop trading” or “prop shop” often – mostly in movies about finance. Prop trading is a shorter term for “proprietary trading”. The word “proprietary” means:
– relating to an owner or ownership.
Example: “the company has a proprietary right to the property”
– (of a product) marketed under and protected by a registered trade name.
Example: “proprietary brands of insecticide”
Proprietary Trading or Prop Trading means trading under the banner of another company utilizing their capital, sometimes under a salaried but almost always under a commission-based structure depending on the profit gains you make. You are not risking your own capital when you are prop trading.
WHAT IS A PROP TRADER
A prop trader is someone who trades for a proprietary trading firm.
If you’ve seen the famous TV show Billions, then as an example, all the traders working for Axe Capital such as Dollar Bill, Mafee, Taylor, and so on, are all prop traders. Prop traders might be provided a flat salary, but in most often the case, their real compensation comes from commissions or profit sharing on the gains they make on their trades. If a trader uses a prop firm’s capital of $2,000,000 to make $500,000, then that prop trader might be receiving $250,000, which is 50% of the gains as compensation for his performance.
A prop trader’s capital is not at risk, as he is using the prop firm’s capital. However, it is likely that if he loses a large amount of the capital, like 20-40%, the prop firm will fire him or stop them from trading.
HOW MUCH MONEY DOES PROP TRADING MAKE
Much like asking, “How much money do traders make”, the
answer to this question has a lot of variance. Prop traders do often have a
fixed salary unlike traders, but their main compensation comes from their bonus
which is dependent on their trading gains. A prop trader usually has a fixed
salary of $30,000 to $50,000 depending on their resume, however, their bonus
can vary from $1,000,000 to even over $10,000,000 depending on their annual
trading results.
Mostly larger prop trading firms that hire traders and pay
them a fixed salary offer them a smaller percentage of their gains. Offering
the prop trader around 10-20% of the 3-5% of the profits the firm keeps is a
pretty common practice. Of course, the firm usually provides tens of millions
of dollars to the trader to trade with as well, so you can expect even these
small percentages to turn into a big amount when dealing with numbers that big.
For a more detailed analysis of trader earnings on the wider spectrum, please
see our article: “Is Forex Trading Profitable?”
TRADER VS PROP TRADER
Of course, anyone can become a regular trader – you just need to have some money. In fact, there are several brokerages that allow you to open accounts and trade with amounts as low as $100, upon which they offer you leverage. However, becoming a consistent and successful trader is another story. Odds are you will require a larger amount of capital to start with (advisably $5000 or more), and you would need to have knowledge of the markets you would trade along with having emotional discipline.
Emotions have a huge impact on traders – Even when you might think you wouldn’t be affected by them while trading, your decisions are impacted drastically when you have to cut losses, facing FOMO (Fear Of Missing Out) on something that you could’ve been in, or even taking profits at the right time instead of holding and hoping for more. A big reason for this is that you’re trading your own money and each tick on the chart is translating to the emotions tied with it. There are even some traders who hide the Profit & Loss column so the numbers don’t affect them psychologically.
Becoming a prop trader is relatively harder. You need someone else to give you their capital for you to trade with, and normally that’s a difficult process. Prop traders on Wall Street apply to jobs, prove their trading results with demo or actual accounts, and usually have a lot of experience in financial analysis of larger companies and markets.
However, now there are opportunities to become a funded trader with certain firms that use data analysis in finding the traders with statistically good odds of success. We’ll discuss more on that in our next section: “How to Become a Prop Trader”.
For now, let’s look at the comparison between Traders and Prop Traders:
| Traders | Prop Traders |
|---|---|
| Trade their own capital | Trade capital provided by someone else such as a prop trading firm. |
| Keep 100% of the profits they make | Keep a percentage (usually between 50-80%) of the profits they make |
| Responsible for 100% of their losses and account balance. | Does not have to deal with losses personally since they trade someone else’s money. |
| Higher emotional bias in trades as they’re trading their own money | Lower emotional bias in traders as they’re not personally responsible to cover losses. |
| Have no trading guidelines and trade whatever they want | Have some trading guidelines provided by their prop firm on managing risk |
| Must pay for screeners and trading tools, and wire fees in funding their accounts | Must initially pay a monthly or one-time evaluation fee to qualify |
| Can trade from anywhere | Can trade from anywhere but are offered the option of an office by the prop firm once they're successful. |
HOW TO BECOME A PROP TRADER
Normally, becoming a Prop Trader used to be quite challenging. You would ideally have to be situated close to Wall Street or any other global financial capital. You would also have had to have a degree in finance, accounting, or all kinds of certifications that would complement an outstanding resume built over years for most prop trading firms to give you a chance to prove yourself.
The faster route would be to have an undeniable track record of successful trading so that a firm would risk their capital on you. An example would be from the famous “The Big Short” movie in which Dr. Michael Burry is shown to be running the Scion Capital hedge fund after being provided capital by proving himself as a successful trader who traded for himself while he was a medical doctor in the past – The movie was based on true events and Dr. Burry is an actual person.
However, we have some good news! Now, thanks to technological advancement and new data analysis tools, there are a few select firms that offer people the chance to become prop traders after passing a brief test which varies from a trial trading period of 2 weeks to 2 months depending on their performance.
We are currently partnered with and recommend Blu Live for Forex Prop Trading and Earn2Trade for Futures Prop Trading.
BLU LIVE REVIEW 2021
Blu Live is a prop trading firm that offers 3 types of accounts:
– $25,000 Lite Account (for $100)
– $20,000 Zero-Spread Account (for $140)
– $50,000 Pro Account (for $250)
There are no complicated terms, and the prices are the lowest among any prop firms. They offer:
– 5x Leverage
– No trading time restrictions
– 5% profit target (e.g. you make $2500 profit on the $50,000 account)
– 10% maximum drawdown (e.g. you can drop your account to a maximum of $45,000 balance if you’re trading a $50,000 account. Then you must pay a $50 refinance fee to reset the balance back to $50,000)
– 60% profit share upon completion of the 5% profit target
Let’s say you pay a fee of $250 and get the $50,000 Pro Account. You will have a buying power of 5x leverage which equals $250,000 which is more than any other prop firm is offering. The REAL advantage here is that other CHALLENGE model prop firms such as FTMO and Fidelcrest offer demo accounts and design their “challenges” in such a way so as to ensure most if not all traders fail. There’s even an interview out there by the CEO of FTMO himself claiming 97% of their traders fail, while we assume that’s still a generous pass rate they’re claiming for marketing purposes.
Blu Live is unlike these firms and does not pay out successful traders from the fees they collect. They have an AI and Algorithm which analyzes all traders and hedges risk. Successful traders also go on to grow their account size up to $1 million and become professional investment bank traders by hitting a 10% profit target on their accounts.
Blu Live is by far the best prop firm in the market for forex traders and is trusted. They have support representatives and helplines across many different regions, including Pakistan! Their support number for Pakistan is 0330-9277387. We recommend you tell them Pak Crypto Investor referred you.
To sign up with Fidelcrest, follow the link: Pak Crypto Investor – Blu Live
EARN2TRADE REVIEW 2021
Earn2Trade gives you the opportunity to become a Futures Prop Trader if you can prove yourself on a trial demo account. With a lot of learning resources as well, they offer either the Gauntlet Mini Challenge or the Gauntlet Standard Challenge for potential prop traders.
The Gauntlet Mini challenge starts from an account size of $25,000 and goes up till $150,000. The cost starts from $150 / month (for $25k account) and goes till $350 / month (for $150k account). They allow you to lose up to a maximum of $1500 (for $25k account) to $4500 (for $150k account). The profit goal similarly ranges from $1750 to $9000.
The Gauntlet Mini Challenge is great because it also allows you to get funded in a minimum of 15 days. Of course, there’s no time limit, so even if you attain your profit goal in 3 months or more, you will still receive funding as long as you’ve followed their rules – the most important of which being not to hit their maximum loss limit. The Gauntlet Mini Challenge has a few more rules than the Gauntlet Standard Challenge, but this is to aid beginner traders and teach them along the way. Upon successful completion, the trader receives whichever account size they won the challenge for, and they continue to receive 80% of the profit share.
The Gauntlet Standard Challenge is for relatively more seasoned traders who have their own trading style. It costs a one-time fee of $429 for a 60-day period examination. The profit target is 10% of the $25,000 account and the maximum drawdown (loss on account total) allowed is also 10%. However, the Gauntlet Standard does not allow you to complete the challenge before a 60-day calendar period even if you have attained the profit target. The goal is to see the trader perform over an extended period of time.
To sign up with Earn2Trade using our 20% discount partner link, follow here: Earn2Trade – Pak Crypto Investor
In summary, Prop Trading is an extremely lucrative field and a large sub-field in its own of being a trader. Gone are the days that people had to be born in a first world country with a bustling financial capital, and then do everything right by following a certain trajectory in their formal education and careers to have a chance at becoming a prop trader.
In 2020, if you educate yourself, or are an adept trader, there are select reliable firms such as our partners that are offering people the chance of a lifetime at success and freedom through prop trading.
