I'm receiving a number of emailed questions regarding joining proprietary trading firms. These are professional trading firms in which traders trade the firm's capital and share profits with the firm. I will post some updated advice to the blog shortly. In the interim, please check out the following posts and their links:
Not every trader needs to consider this option. A prop firm is only worth considering if:
1) You need access to trading capital;
2) It will provide you with favorable commissions and trading technology;
3) It will provide you with training and/or collegial interaction that would aid your trading;
4) It has a demonstrated track record of fostering successful traders who trade for a living.
In my opinion, the ideal prop firm candidate is one who has traded successfully on his/her own across a variety of market conditions and wishes to take his/her trading to the next level of size and success. Such a candidate will demonstrate excellent risk management and can articulate a distinctive approach to markets that captures a scalable edge.
I do not recommend new traders for proprietary trading firms. Just as a pro sports team needs to see evidence of success at the collegiate level before drafting a player, a prop firm should see evidence of success before investing in a trader. If you encounter a prop firm that takes all comers, beware; they probably make their money from fees and commissions, not from sharing in your trading success.
Beware also prop firms that cannot give traders significant access to capital. If you don't see large, successful traders at a firm you're considering, don't assume you'll be the first one.
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4 comments:
Totally agree. I am from Argentina and now I am considering join to a prop trading firm. I trade on my own capital since 2006. What make me think about joining is that the firm hire people without experience in trading.....
I *would* recommend new traders to join prop firms - *exactly* because they have no clue what they up against and the prop world will be the best intro and "hands-on" experience they can probably get. Education isn't cheap in this business, it is much cheaper lesson to trade someone else' capital than trade your own especially, when you have no idea of what you are doing.
At a prop firm, new traders can develop the proper instincts the proper money management rules while they are exposed to risk-controlled environment and they "climb-the-ladder" each prop firm establishes accordingly (e.g make 20 bucks 3 days in row now your stop loss increases, now make 40 bucks 3 days in row etc etc).
Commissions being cheap, you can enter-exit much more than in retail-world without being killed by your own broker!
In addition, you are meeting other traders, most of which, more experienced than you are, that you could learn from and/or take example from.
Surely the argument for the experienced trader on whether he should join a prop firm is clear..however for the inexperienced trader it is even clearer! Do join a prop firm, in a month time you will be pretty clear if trading is for you, and if it isn't, you wouldn't have lost your money on the lesson!
There are some prop firms that are more suitable for new traders than others. Firms such as First New York, Jane Street, and Chimera all offer base salaries and extensive training programs. Although they are very competitive (need to be from a top school), the learning experience is great.
"Just as a pro sports team needs to see evidence of success at the collegiate level before drafting a player, a prop firm should see evidence of success before investing in a trader."
What are the "college" level ways to show success? Trading on your own, trading assitant, etc.?
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