Do you have trading skills and looking for a remote profitable job? There is a good offer for you we’re going to discuss in this blog.
It’s a kind of trading in which the trader won’t have to invest a significant amount of money, just a few bucks for the membership. The substantial capital comes from the prop firm.
Anyway, in this blog, we’ll answer the question: what is prop trading? And in addition to that, we’ll cover all the necessary aspects.
Let’s start with the main question. What exactly is this prop trading about?
Introduction: What is Prop Trading in Simple Terms?
You’re probably already familiar with the concept of trading. For those who may not know, trading is the act of buying and selling various assets to generate profit!
Each trader can invest in different kinds of assets, including cryptocurrencies, pair currencies, stocks, ETFs, futures contracts, etc.
Bearing that in mind, we’ll move forward and examine prop trading and its meaning.
By its nature, it is the same as the traditional trading definition. Some people are going to buy and sell assets to make money. But there are some distinctive differences.
Firstly, you must know that the term ‘Prop Trading’ is short for proprietary trading.
It’s the best option for those traders who are in shortage of funds and need some money to trade with.
In simple terms, prop trading occurs when a company funds a trader to trade on their behalf.
We’re talking about a win-win situation. From the trader’s perspective, they get the needed capital to start trading and use their skills to make money. So it’s likely a beneficial deal for them.
Prop firms can generate yield, without even trying, just by hiring capable traders and providing them with capital and needed tools. Leave the hard work to them and wait for them to make a profit. It’s evident that the firms also benefit from engaging in prop trading and making partnerships with traders.
That’s why both parties are happy with this kind of trading, and we’re witnessing a rise in prop firms and traders who are eager to participate in such programs.
Compared to the traditional way of trading, there are some significant differences. For example, in the traditional approach, companies and firms trade on behalf of the clients. Each individual can give the corporation some money, and they will conduct transactions with that capital—needless to say that each side gets their own share of the gain.
It’s entirely vice versa when it comes to prop trading. As we said earlier, the prop firm will fund capable traders and receive a predetermined split of generated yield. Instead of the firm getting involved in the process of buying and selling, they hire traders to do the job on their behalf.
Now let’s dig in and see how prop trading exactly works.
Narrowing Down: How Prop Trading Works?
Until now, you’ve understood prop trading and what a prop trader does. But how exactly a proprietary trading program works?
As you already know, there are two sides to every prop trading program:
- Prop firm
- Prop trader
Some companies are willing to offer capital to traders. AKA, prop firms. These companies look for capable traders to fund and allow them to trade on their behalf. The final goal, as mentioned earlier, is to make a profit.
The second side is the trader—any individual who knows how to trade and has the required skills for generating yield.
In prop trading, these two parties partner up and share both in losses and accomplishments. The first side (prop firm) invests money, and the second (prop trader) trades on their behalf.
Is it that simple? Meaning everyone can opt for a prop trading program and get funded? Actually, no!
Since prop firms are risking their money by giving it to traders, it’s predictable that there is a qualification process for traders that they must pass.
This process has a predetermined period, and after that, if the prospective trader shows success in making a profit, they will gain access to real money and can start trading shortly after.
The duration of the qualification process varies from one trading firm to another.
For instance, in Propiy, there is a two-phase challenge each trader must pass. The first phase is 30 days, and the second one is 60 days. Whenever traders achieve the determined goals of each phase, the challenge is over. Meaning it’s not necessary to wait for 30 days or 60 days.
There are rules and restrictions that traders must obey during the process. Additionally, the trader must achieve prefixed goals to prove their capability during this time.
After three months, when both phases are completed, we’ll asses traders’ records to decide whether they fit our needs.
This is how the qualification process works in Propiy, but it’s often the same across all prop firms.
Note: For experienced traders who already have a profitable approach, we offer an opportunity to start trading on our behalf immediately without passing the two-phase challenge. It’s called JetJump, and it is a perfect choice for traders who are confident about their skills. For more information, visit the Jetjump page on our website.
How does the Generated Profit Get Split?
What will happen to the generated profit? Well, both involved parties get their share.
What is the percentage each side gets into their bank account? It varied based on the predetermined rules of the prop firm.
As you know by this far, the prop firm provides capital in prop trading, and the trader conducts transactions in various markets. Naturally, both sides must benefit from the profit.
While the most usual procedure is 50% of the profit for each party, some firms offer 75% of the earnings to the trader. At Propiy, offer 90% of the generated profit to the trader! Amazing, right?
Also, if the trader fails to accomplish determined goals in the qualification process and can’t follow the preset rules, they won’t proceed and can’t have access to a real account with real money for trading.
Always remember that, in all kinds of partnerships, all sides must respect the contract and fully obey the rules. As for prop trading, both parties must do their required tasks in order to make a beneficial partnership.
We assume that by now, you have a comprehensive understanding of how prop trading works! Now, let’s move on to the next part. We’re going to talk about the upsides and downsides of prop trading.
Is Prop Trading Good or Bad? Pros and Cons of This Kind of Trading
Not dark as hell, not bright as heaven. Just like anything else, prop trading has both advantages and disadvantages.
Knowing the pros and cons helps you make a more informed decision. Is this kind of trading suits you or not? It’s up to you and your capabilities.
Let’s start with bad characteristics. We’ll cover the upsides further in the blog post too.
Straight to the point. These are the most significant disadvantages of prop trading:
- The fees for using prop firms’ services are usually high. However, it makes sense as the firm is providing capital, so, predictably, they charge the traders high fees.
- If you have a profitable, exclusive strategy that you don’t want to reveal, the chances are the prop firm will decode your method. So if you prefer to avoid your strategy being overused by lots of traders and losing its profitability, prop trading may hurt your feelings.
- There is high competition in the prop trading environment. Every capable trader likes to trade with a considerable amount of capital, so the desire to opt into kinds of programs is rising. As a result, convincing the prop trading firm to hire you can be a challenging task.
- Prop trading and almost all kinds of trading are highly stressful careers. If someone can’t deal with stress and anxiety, looking for a different job is advised.
These four are the most important drawbacks of prop trading. As promised, we’ll examine all the benefits too.
- Some believe the benefits of prop trading outweigh the downsides. We’ll provide you with information and leave the decision-making to you:
- Both the firm and the trader can enjoy a notable profit increase. As for the firm, it is much more beneficial than being a broker and only gaining commission. From the trader’s view, receiving substantial capital for trading is fulfilling.
- The trader can benefit from the professionals’ support working in the firm. Usually, prop firms have experienced traders in place intending to help prop traders maintain a profitable approach.
- As a trader, you can choose your preferred platform within a diverse pool of tools. Most prop firms offer various platforms to their trading partners, aiming to help them be as profitable as possible.
- Not all, but some prop firms provide educational programs for the hired traders. To be successful, it’s important to note that learning is a no-ending path. Be eager to learn more.
Compare the advantages and disadvantages of prop trading. Does it suit you? Can you handle the stress? Remember to research well before entering the game.
Wondering how to become a prop trader? Then stay tuned.
Who Can Be a Prop Trader? Does it Fit All Traders?
Good news, we’ve already written a complete guide on becoming a prop trader. You can find it by the name of How to Get Into Prop Trading on our blog.
But to exhaustive this blog, we’ve dedicated a section to this matter.
Let us clarify one thing first: Prop trading is not suitable for all traders!
We told you about the high competition in the prop trading environment. As a result, only skilled traders with proven strategies can stand out. Therefore, if you’re a beginner trader, we suggest you forget prop trading for now. Practice, learn more, fail, rise again, practice, learn, and repeat this cycle until you become a master at what you do, which is trading. Then, you can opt for prop trading programs and hope to get funded by prop firms.
Those who are already capable, with a proven record of successful trades, can plan to become a prop trader and trade on behalf of a prop firm.
It’s vital to consider everything before becoming a prop trader. For example, choosing a lousy firm can lead to repetitive losses, even when you’re winning! Because the chosen firm charges you above standards for the fees.
While researching different firms, look for the profit percentage they’ll give traders. The higher the number, the better for the trader.
After finding the right firm, you must submit a request to get funded after passing the qualification phase. Let us remind you about JetJump.
With this fast route approach, capable traders with a profitable strategy will have access to a real account shortly after signing up on Propiy.
After submitting your request, you must fill out a form informing the firm about your background, education, experience in trading, and such details.
If everything goes well, you’ll get accepted, and if you prove your worth during the qualification process, you’ll receive capital to start trading. But that’s not the end.
Don’t assume once you get in, you’ll be there forever! If you can’t fulfill determined goals by the firm, they’ll stop working with you, and you won’t get funded anymore. All your efforts will be for nothing, just as easy as we said.
Most of the time, you should pay a monthly fee to continue working with the firm and have access to their services. Although the amount is low, it must be considered when you’re going to enter the field.
Now it’s time for a conclusion.
Prop Trading, A Good Solution For Pro Traders
Don’t worry about insufficient capital if you’re a skilled, confident trader. Prop trading is what you should opt for.
In this blog, we’ve learned what prop trading is and what kind of traders should become prop traders.
In such programs, a prop firm provides capital for capable traders to trade assets on behalf of them.
The approach has its downsides and upsides, which we examined above.
Propiy is one of the best prop firms, offering various solutions and plans to traders with profitable strategies.
Here, we make an announcement at the end of this blog post. We have a new domain name, which is propridge.com. But everything else about Propiy is the same as before, including plans, terms&conditions, qualification process, etc.
Thanks for your time.