Prop trading, including Forex prop trading, is rising in popularity every year as an increasing number of people are becoming interested in Forex trading but most of them do not have a starting capital large enough for serious trading. It promises a chance of big profits with limited risk. But as more and more people are becoming aware of prop trading, the more often the question arises: is Forex prop trading a real job? Can be considered a viable career opportunity? How does it stack up against regular jobs? This guide will try to answer questions you might have about prop trading as a job.
What is prop trading and what are prop firms?
Proprietary trading (usually shortened to prop trading) is trading involving the money of a prop firm instead of your own. A proprietary firm (or prop firm) is a firm that provides access to its capital to traders in return for a share of profits the traders make. Therefore, the process of prop trading typically looks like this: a trader gets a trading account of a particular capital size (usually after a period of evaluation, during which a trader should prove to a prop firm that they are able to earn a profit), trades using funds on the firm's account, and the firm pays off a share of the profit to the trader (provided the trader managed to make a profit). What percentage of the profit and how often is paid differs from firm to firm and is one of the major considerations when choosing which prop firm to join.
Types of prop firms
There are two main types of prop firms: classic and online:
- Classic prop firms are traditional
brick-and-mortar firms with a physical trading floor. Such firms often employ traders as their staff, with a stable wage and bonuses and advancement depending on how successful they are trading. - Online prop firms provide access to capital to any trader who registered on the firm's site, paid the appropriate fees, and passed the firm's evaluation (unless it is one of those few firms that do not require an evaluation). Interactions between the firm and the trader are usually done only via the website. Legally, the traders are independent contractors, and as such do not have a flat wage and can earn money only by making a profit for the firm.
With the spread of the Internet and the rising popularity of online trading (especially after 2020 due to the pandemic), online prop firms increase in number and popularity. In contrast, classic prop firms are falling out of fashion. Therefore, the present article is concerned mostly with online prop firms.
As for classic prop firms, working for them is very similar to a regular job. In fact, if the firm pays wages, working for it can be considered a regular job as any other.
The following chapters discuss working with online prop firms. When a prop firm is mentioned, it should be read as an online prop firm. Similarly, prop trading means online prop trading.
Does a prop trader require a license?
No, prop traders do not require a license. Prop firms are not regulated as they technically are not providers of financial services and trade with their own money. The absence of regulations means that there is no need for a license. And prop firms themselves typically do not require any special education or prior experience. All they are interested in is your ability to earn a profit.
All this means that theoretically anyone can join a prop firm. In practice, though, few traders have the necessary skill to turn a profit on a consistent basis. Thus, it is very advisable to have at least some experience in trading and be certain that you can make a consistent profit before considering a career as a prop firm trader.
What about work hours?
Prop traders have almost no limitations to trade hours. While some prop firms forbid trading around major news events and demand to close positions overnight or before weekends, not all firms have those limitations, and traders otherwise are free to trade whenever they want. The freedom to spend as much or as little time as you want on work is one of the main draws of online trading.
That said, you will need to spend at least some time trading. And probably a large amount of time if you want to be successful. Some day traders complain that they are glued to a monitor up to 14 hours a day, if not more. Algorithmic trading can ease the burden somewhat. But you will need to learn first how to automate your trading. And then take time testing and tweaking your algorithms. All in all, being a prop trader does not mean you can earn money laying on a bed and doing nothing. You still need to work, and probably work hard.
As for holidays and vacations, it is largely up to you when and for how long you want to rest. Most markets (except for the cryptocurrency market) are closed on weekends, therefore you can usually take a rest on Saturdays and Sundays. Yet it is still wise to keep an eye on major news that may come out on a weekend, which may affect markets after a new trading week starts. Markets are usually closed on major holidays, such as Christmas. Yet the nature of the Forex market, which is traded globally around the clock, means that you will be able to trade even during holidays as at least in some regions of the world markets will be opened. But the lower volume of trading often makes trading less effective during such days, and you can probably rest from work and enjoy holidays without fear of missing out on potential profit. Vacations are also largely up to you, though some firms have a profit target requirement or a minimum of trading days per month. You should check the rules of your firm before deciding to stop trading for a while.
Another problem for prop traders, as well as anyone working from home without defined work hours, is finding the right work-life balance. For some people, it can be hard to force themselves to work when nobody outright tells them to. If that describes you, probably a regular job is more suited for you. But enthusiastic traders face the opposite issue — spending too much time on work. Traders tell horror stories about those who have lost families and friends after spending all their waking hours in front of a monitor, trying to catch amazing trading opportunities. Also, working from home can wreak havoc on your sleeping schedule as people often tend to stay awake till the morning when they do not need to wake up early and go to work. All that means that a successful prop trader should be extremely disciplined. It is better to have a strict schedule, which has time for work, rest, and socializing. And then stick to it. This way you will be able to achieve good results in trading while preserving your mental health and social relations.
How prop trading earns money?
Prop traders do not earn a flat wage. Instead, they get a share of the profits they earn. Usually, the split is in favor of traders, who can earn up to 80% of the profits they make and sometimes even more. The profit split ratio is one of the major considerations while choosing a prop firm. The firm pays a portion of profits after a set period of time, usually weekly, bi-weekly, or monthly.
On the positive side, there is, in theory, no upper limit to how much money you can earn. In practice, of course, profits are limited by your account size, not to mention by how many successful and unsuccessful trades you make. Still, there is always a chance to increase your earnings, especially if your firm offers a scaling plan, which increases the account size if a trader is successful.
On the negative side, there is no lower limit to your earnings as well. There is no guarantee that you will have money to buy food or to pay bills at the end of the month. And while you will not lose money if your prop trading is unsuccessful, you can lose access to funding and will have to start your prop trading career from scratch.
In conclusion, to be a prop trader, you need to either be certain that you will be successful with your trading or have savings in case you are not. Preferably both.
Is Forex prop trading a good career for you?
The answer depends only on you. There are several important characteristics a successful prop trader should have:
- Discipline — prop trading requires consistent results. That means you should develop a profitable strategy and stick to it. Deviations from a successful strategy can seriously hurt your results, not to mention some prop firms outright forbid big deviations from your usual strategy.
- Risk management — the risk of a loss is inevitable during trading, and you need to know how to manage it. You need to know how much you are going to risk and be certain that the potential profit makes the risk worth it. There is a danger of becoming too careless due to the fact you are not risking your own money. But without profits, you will sooner or later lose access to funding from your prop firm. Risk management is especially important considering that prop firms typically have a limit on how much you are allowed to lose before losing access to your account.
- Mental and psychological fortitude — prop trading (and trading in general) is not for the faint of heart. You need to be able to rein in your emotions and think with a cool head regardless of how well or poorly your trading goes. But that can be hard. Long hours staring at a monitor can be taxing on your mental health. A string of unsuccessful trades can be depressing, and you may start to make more and more bad decisions in desperation. But you need to be able to keep your cool and control your emotions and thoughts. Having or finding good ways to unwind and relax is advisable.
To sum up, if you are a disciplined and mentally tough person then prop trading can be a good career for you. If you do not think that you fit that description, then perhaps prop trading is not for you.
Whatever the case, you should learn trading before considering joining a prop firm. At the very least, you should train up your skills with a demo account, though trading with a live account and having consistent returns is preferable.
You should be warned that online Forex prop trading is not considered a "real job" by most people. That can make it hard for you to be employed at a regular job if you decide to drop trading or to find an additional source of income. It is very unlikely for companies to take into account your experience as a prop trader when deciding whether to hire you. Not to mention, that the traders' skill set is so specialized that it is hard to find a use for it outside of the trader's career.
Another thing to consider is the fact that the prop trader career has no vertical growth. There is no chance for promotion as there are no higher positions to be promoted to. Technically, a starting trader is in the same position as someone who was trading for a decade. If you are a successful prop trader, in ten years you will be doing the same thing you were doing when you were starting your career. You may be better at what you are doing and earn more money compared to when you were just starting your career but that is it. No advancement, no new career opportunities. And you should decide whether you are fine with this or not.
Conclusion
While classic prop firms offer regular jobs, online prop trading is very far from what is considered a "real job". Prop trading offers the potential of high profits, which depend only on you, and almost complete freedom of when and how you work. But on the other side, it does not offer guaranteed stable income, promotion opportunities, or a resume that you can use to be employed in a regular job. It is up to you to decide whether the positives outweigh the negatives.
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