Newcomer want to become a Prop Trader? What do you need to prepare?

If you are new to trading and have heard the term Prop Trading, it’s no surprise. Because this is a working approach that attracts many traders to try signing up. This article will help you understand how to prepare yourself before entering the Prop Trading industry.

Prop Trading (Proprietary Trading) You Should Know

Prop Trading is a business model where companies provide capital to individual traders to trade various assets, including stocks, futures, derivatives, and forex. Unlike typical trading firms that start beginners with demo accounts, Prop Trading companies require you to “sign a contract” with the firm, demonstrating your skills first before gaining access to large funds.

Once you generate profits, the company will take a share according to the signed agreement, which could be a 50/50 split, a 60/40 split, or only 25-30% for you, depending on each person’s skills and experience. Besides profits, the company also charges additional fees such as trading software fees and utilities, which vary by company.

Differences Between Traditional Forex Prop Trade and Online

Traditional Forex Prop Trade involves being employed full-time by a company, with a salary, bonuses, and stable support. Online Forex Prop Trade allows anyone to register by paying a fee during sign-up. Afterward, you must pass an evaluation from the company to access funds.

In the past 3-4 years, online forex companies have appeared more frequently, especially after the 2020 crisis. The key point is that Prop Trade online no longer acts as an intermediary between you and the market but is a gateway for direct access to the market and capital. This means traders are responsible for their own trading and must have a deep understanding of risk management, trading psychology, and their own strategies.

Steps to Apply for a Prop Trade Company

If you want to become a trader with Prop Trading, here’s what you need to do:

1. Study the company thoroughly: Not all companies are suitable for you. Check their reputation, trading platform, and profit-sharing structure.

2. Confirm qualifications and requirements: Most companies require a minimum age, prior experience, and certain education levels.

3. Fill out the application form: Submit an online application and share your experience and background.

4. Pass the interview: If shortlisted, you will speak with a company representative about your skills, goals, and strategies.

5. Start the evaluation phase: If you pass the initial screening, the company will allocate funds, and you will enter a testing phase lasting 30-60 days. During this period, you must demonstrate profitability and adhere to the conditions.

Advantages of Prop Trading You Should Know

Independence: You can set your own schedule, make decisions, and choose markets freely.

Potential for high profits: If successful, profits are unlimited. Even paying the registration fee is worthwhile.

Minimal risk: The company bears most of the risk; your only risk is the registration fee.

Access to large capital: No need to raise your own funds; Prop Trading companies provide access to huge capital.

Community and support: Traders within the community offer feedback, and companies have multiple channels for support.

Disadvantages to Be Aware Of

Discipline is essential: You must analyze charts meticulously, establish strict routines, and be patient for opportunities.

Trading psychology is a major issue: Avoid trading out of anger, revenge, hesitation, or greed, as these will ruin your plan.

High interview fees: If your income is limited, you may not be able to test with high capital.

Unstable income: No fixed salary, no sick pay, no social security benefits. Monthly income depends on your trading performance.

Prop Trade vs. Hedge Fund Are Not the Same

Hedge Fund is a fund that pools money from multiple investors and employs various financial strategies to generate returns. Prop Trade is a company trading with its own money in the market.

Who Should Be a Trader?

Anyone can apply, but you need to fill out a form indicating your experience, education, and background. Some companies may conduct interviews to assess your seriousness. Once accepted, you will enter a 30-60 day evaluation phase, during which you must prove your ability to generate profits and follow rules.

5 Trading Strategies to Pass the Prop Firm Test

1. Maintain strict risk control

Remember: risk must be kept low. Proper lot sizing and stop-loss management will protect your account over the long term.

2. Prioritize your mental state

Markets fluctuate daily. Your emotions must be stable. Avoid revenge trading, hesitation, or greed, as these will destroy your plan.

3. Trade what you know

Trying new strategies is okay, but if your current strategy works, don’t change it. Capitalize on what makes you successful.

4. Use support and resistance levels

At resistance, demand will create pressure; consider selling. At support, demand is strong; consider buying. This strategy is excellent for beginners.

5. Watch the RSI (Relative Strength Index)

RSI measures the speed and magnitude of price changes. Ranges from 0-100. If RSI crosses above 70, it indicates overbought conditions; below 30 suggests a good buying opportunity.

How to Manage Risk in Prop Trading

Always learn about the forex market: Understand different trading methods, associated risks, and trading tools.

Create and stick to a plan: Write down your strategy, risk management rules, and exit methods. Stick to your plan whether you win or lose.

Test on a demo account first: Use backtesting with historical data to understand your risk before trading real money.

Risk only what you can afford to lose: Don’t risk your entire life savings; only risk what you are willing to lose completely.

Summary: Is Prop Trading Worth It?

Prop Trading offers excellent investment opportunities for traders, with huge, flexible, and independent capital, and unlimited profit potential. However, it requires dedication, strict discipline, risk management skills, and a strong mindset.

Before signing, thoroughly research Prop Trading companies. Choose one that aligns with your goals and style. Becoming a successful trader is challenging, but with perseverance, proper strategies, and thorough preparation, it can be an exciting and rewarding journey.