Prop Trading is one of the fast-rising industries in the business market with a high prospect of enriching and financially equipping prospective traders around the globe. This post briefly reviews what prop trading is, and extensively examines how to become a prop trader, and a number of things required to become one.
Anyone who is aware of how commercial banks and other financial institutions operate would agree that one of the primary ways they generate revenue is through charges set on their customers’ trading activities, such as: transfers, withdrawals, e-transactions, loans, etc.
However, instead of profiting from customers’ activities, a bank or financial institution is said to engage in prop trading when they invest directly in the market for gain. Simply said, Proprietary Trading (also known as prop trading) entails the decision of a financial institution to invest and benefit directly from market activity rather than from the accumulation of commissions with low margins earned from clients’ trading activities.
If that is all there is to know about Prop Trading, then it neither leaves no space for you and me nor is it worthy of researching. isn’t that right? So, let’s try again.
Remember that in Prop Trading, financial institutions make direct market investments? Great! However, they do not directly manage or oversee their investments. Instead, they place their capital in the hands of market-savvy professionals who manage their trading on their behalf in exchange for a sizable cut of the profit.
Now, that is where you and I come into the fray. We can be the market-savvy professional, which is more amiably known as a prop trader, albeit we may not be one yet.
For a detailed explanation of what prop firms is all about, click the link below.
So, how do you become a prop trader? Good question.
Many people have labelled the prop sector “scam” and other terrible things simply because they did not follow a due process and hence ran into a waterloo. Becoming a professional profitable forex trader requires a number of things which are best examined in steps.
Becoming a professional forex trader is easy if you follow the following steps:
1. Take a forex trading education:
It is shocking that many people want to just become successful traders in a day without having a proper forex education yet forex isn’t a game of luck. You need to know your onions. It’s like wanting to earn an MBA without ever stepping into the four walls of school.
Hence, taking a forex trading education course is a good place to start. Several courses are available online, both free and paid ones. You can click here for free forex trading courses on Alison, Udemy, Babypips.
Alternatively, detailed PDFs and textbooks on forex trading are also available for download online.
2. Get a mentor:
Not only do we see farther when we sit on the shoulder of a giant, but also move faster when we walk behind a pathfinder. Hence, having a successful active trader or someone who has a vast knowledge of the market is invaluable. Being a successful forex trader in no time requires prompt guidance and drinking from the wealth of experience of established traders rather than learning frim your pitfalls that can be altogether avoided.
While you may not have anyone around, you can surf the internet and apply for forex mentorship classes to complement your trading courses. Some trading courses offer mentorship services too.
3. Take free demo account trials:
Regardless of the quality and quantity of the education and lessons you have taken, it is much more vital that you put them into practice to foster and further your learning. The trading knowledge acquired from your trading education can thus be put test in free demo trials which some prop firms like FTMO and Admiral offer on their website.
With a free demo account, you can test your trading knowledge at no cost and with no risk.
4. Develop a trading strategy:
You’ve probably heard this saying that “If you fail to plan, you plan to fail”. The same applies to trading as one of the quickest ways to incur losing losses is to trade without having a proper tested-and-proven strategy.
A trading strategy is a method of buying and selling in markets that is based on self-determined predefined rules that are used to make trading decisions. Having a strategy helps and prevents you from tactless trading.
5. Backtest your strategies:
Having a strategy is good, but it’s even better in prop trading as there is a measure through which you can test your strategies to affirm their potency and how they would most probably fare in the market. That measure is Backtesting.
For more about backtesting, the advantages, disadvantages, how often you should backtest and other FAQs, read my detailed post in the link below:
6. Apply for a funded account:
Having established a definite trading strategy that works, you can apply for a funded account with any trading firm. A trading firm? Yes. However, it is advisable that you know the necessary things you need to before making the decision of a prop firm to trade with.
I exclusively addressed this in a detailed post titled 10 Things to Consider Before Choosing a Prop Firm. You can read here
And that is a wrap about how to become a profitable forex trader. Carefully undergo each and you won’t have a sorry forex trading story to tell. But is that all there is to becoming a pro-forex trader? Not so fast.
Success in life is heavily reliant on set of proper psychological tools and mindset. Becoming a professional forex trader is no exception in this regard. Here are few psychological tools you would need:
Being abreast of current information is very key, as well as understanding the Pros and Cons of market trends. One of the ways to build this is by keeping tabs on current information and making adequate use of the information you gather.
Confidence in your skill and expertise in making trading decisions is non-negotiable as this will be a recurrent need in your trading career. This is why it is important for traders to trade on free demo accounts first and subject their strategies to proper backtesting before applying it to a real account.
- Risk control
Understanding risk control and how to skillfully and efficiently set Stop-losses to mitigate loss is another vital psychological tool. Profitable trading is not only all about making profits but also about the ability to smartly control risks.
Ability to stick to trading terms and conditions, maintain a stedfast trading mindset without slipping into laziness, procrastination, discouragement and other attitudinal defaults is also a key mindset equipment that a trader that hopes for success must possess.
Maintaining a positive stance always is king amidst the psychological kits for becoming a successful trader. This comes with understanding that nothing big happens suddenly, and that everything that is enduring came to being through series of processes. Trusting the process even in the face or risks and loses and believing strongly that even if things don’t work out today, tomorrow could be a better day is at the long run the best trading decision a trader can make.
Although it comes naturally to some, having this dogged attitude typically requires years of education and experience.
Here are few resources that would be of immense assistance to rookie traders intending to be professionals:
- News – Being abreast of information that affect the forex market will help traders in making smart decisions. To this end, you can subscribe to certain news or youtube channels or read up certain blogs for the current trends in the prop market
- Multi Demo account – Despite having a funded account already, some expert traders employ the privilege of free demo accounts offered by various prop firms to test-run their trading decisions. This they use as scapegoats for their trading choices before applying them to their funded accounts.
- Trading journals – Keeping a trading journal helps to record your trading success and keep a track of what worked, what didn’t, and document reasons for trading successes and failures to aid better future decisions. There is almost nothing as helpful as this.
Here is a question that is often asked.
The income earned by professional forex traders varies depending on the prop firm one trades with and the account size. However, speculatively, on the back of successful trading, a trader’s earnings in one month usually amounts to thousands of dollars.
For example, a 10% return on a $50,000 account pot will give you $5,000 in profit from which a trader might be entitled to 50% or more depending on the prop firm’s policy. To make an instance of a 50% profit split, it means a trader is entitled to $2,500 and the possibility of earning that for at least 5 times in a year could certainly be life-changing!
In addition, there are a number of prop firms who offer more than 50% up to as much as much as 90% profit split for traders. For a detailed examination of prop firms with high payouts, click the link below:
The prop industry is a really competitive market but here in no particular order are five leading firms you can trade with who have good reputations, amazing trader reviews and good offers with huge chances of massive profit splits and easy payouts. You can click on each firm to read more about their profiles and offers.