Understanding Prop Trader: A New Choice for New Traders

What does Prop trader stand for? Why does it attract traders?

In the world of online trading, the term Proprietary trading or Prop trade has become a recurring buzzword, especially among traders seeking to turn it into a career. Although this concept is not new, the growth of online platforms has made it more accessible. Now, let’s delve into how Prop trading works and who can participate.

Basic Concept: What is Proprietary Trading?

Imagine a trading company acting as a financial supporter. They look for skilled traders to use the company’s capital to trade in various markets, whether currencies, securities, commodities, or futures. That’s the essence of Prop trading.

But the key difference is: these companies do not provide demo accounts. They are “hiring” traders by giving real funds. This measure depends on your skills and experience. When you generate profits, the company takes a share—some offer 50/50, others 25-30%, depending on various factors.

A point to watch out for: you may need to pay fees to join, such as office expenses, software, and licensing, which vary by company.

Forex Prop Trading: The Currency Market Version of Prop Trade

While Prop trading in general covers multiple markets, Forex Prop trading is specific to the currency market, divided into two different types:

Traditional (Offline): Traders are employed as company staff, earning a fixed salary, bonuses based on performance, and other benefits. This format still exists but is less common.

Online (Online): The modern form that has grown rapidly after 2020. Traders can register online, mostly paying evaluation fees, then access funds if they pass the tests. Interestingly, online Prop companies no longer act as intermediaries; they simply provide community and resources. You are fully responsible for yourself.

How It Works: What is the “Challenge” Evaluation System?

Before receiving funding, Prop companies often require you to pass an assessment called a “Challenge,” where you must achieve certain profit targets and follow company rules.

General steps:

1. Find a suitable Prop trading company, considering reputation, platform, and profit-sharing terms.
2. Check qualifications such as age and experience level.
3. Apply via an online form.
4. If successful, you may be invited for an interview.
5. Upon acceptance, you enter the Challenge phase lasting 30-60 days.
6. Afterward, you can trade with real capital.

Prop companies accept risk, so they need to ensure traders have genuine skills.

Prop Trading vs Hedge Fund: What’s the Difference?

There is often confusion between these two:

Hedge Fund is a fund that pools money from many investors (institutions, corporations, wealthy individuals), then uses complex strategies to generate returns. Fund managers charge management fees and performance fees.

Prop Trading is when a company uses its own money (not clients’ funds) to trade. It’s smaller, faster, and more individual-level.

In summary: Hedge Fund = pooled money, Prop Trade = company’s own money.

Pros and Cons: Why Do Some Like It and Others Avoid It?

Advantages:

• Freedom to work: Set your own schedule, work from anywhere.
• Unlimited profit potential: If skilled, you can earn a lot, even if you pay some evaluation fees upfront.
• Lower risk: The company bears most of the risk; you only risk the fee to join.
• Access to substantial capital: You don’t need large personal funds; the company provides significant trading capital.
• Community and support: Other traders are ready to help, and companies have support teams.

Disadvantages:

• Discipline required: No guaranteed salary, no sick days—trade like a professional.
• Mental pressure: Market volatility can play with your mind; emotional control is essential.
• Evaluation fees: Limited funds may make paying for tests a concern.
• Uncertain income: Unlike office jobs, no fixed salary—you work for yourself.

Winning Strategies: How Successful Prop Traders Do It

1. Risk Management is Fundamental

If you don’t manage risk, you’ll lose your account. It’s simple. Don’t gamble every time. Always use stop-loss orders.

2. Control Your Emotions

Markets are always moving, and your emotions follow. Don’t try to fight losing trades. Discipline and patience are key.

3. Support and Resistance

Identify resistance levels (points where price struggles to go higher) and support levels (points where buyers tend to step in). Trade around these zones. This strategy works well for beginners.

4. Stick to What Works

If your strategy makes money, stick with it. Don’t abandon it just because you see something “better.”

5. RSI: A Common Indicator

RSI (Relative Strength Index) measures the speed of price changes. The scale is 0-100:

• RSI > 70 = overbought (may decrease)
• RSI < 30 = oversold (may increase)

This info is useful for entry/exit points.

Risk Management: Staying Close to Prop Traders

1. Continuous Learning

Currencies change, strategies evolve. You must keep learning—that’s essential.

2. Have a Plan, Set Rules, Follow Them

Your trading plan should specify:

• Entry points
• Exit points
• Risk management methods
• Maximum acceptable fees

3. Test Before Betting Real Money

Use demo accounts or backtest with historical data. Identify issues before risking real funds.

4. Don’t Risk More Than You Can Afford to Lose

Simply put: only trade with money you can lose without stress.

Who Can Become a Prop Trader?

The advantage now is that Prop trading is open to anyone with basic education, some funds, paying evaluation fees, and willing to learn.

Most companies look for:

• Age at least 18-21 years old
• Willingness to learn
• Discipline and patience
• Some trading experience (not always necessary)

Some may require an interview to discuss your skills, target markets, and strategies.

Finally: The Value of Being a Prop Trader

Prop trading is not a magic bullet, nor an easy way to make quick money. It’s a career that demands dedication, learning, discipline, and a deep understanding of markets.

However, if you have self-discipline, a clear approach, and choose reputable Prop companies, it could be one of the most valuable aspects of your career. Understand the system, develop strategies, follow them, and someday you might become a successful Prop trader.