The popularity of prop trading in forex is increasing every year because more and more people are interested in investing and trading in forex. However, most of them don’t have enough initial capital to engage in forex trading and earn substantial income. Forex offers an opportunity for significant profits with limited risk.
But as more people become aware of the existence of prop firms over time, many questions arise about it. Is it a real job in forex? Can it be considered a suitable career opportunity? How does it compare to regular jobs? This guide from Brokerland aims to answer your important questions about prop trading.
What is Prop Trading?
Prop trading, short for proprietary trading, refers to a type of trading where a trader trades on the account of a proprietary trading firm instead of their personal account. These firms, commonly known as “prop firms,” typically have significantly larger capital in their accounts compared to individual traders and usually start with a minimum capital requirement, often around $50,000 or more.
The process of prop trading typically involves a trader requesting a trading account with a specific amount of capital from a prop firm. After an evaluation and a trial period, during which the trader must demonstrate an ability to generate profits while managing risk and minimizing losses, the trader is provided with the main trading account.
The trader then uses the funds in the firm’s account to make trades, and the firm shares a portion of the profits (usually between 70% to 80%) with the trader, provided that the trader is successful in earning a profit. The exact profit-sharing percentage and the frequency of payouts can vary from one firm to another, making it an essential consideration when choosing the right prop trading company to join.
Types of Prop Firms
There are generally two main types of prop trading firms: classic and online, which I’ll explain further below.
1. Classic Prop Firms:
Classic prop trading firms are traditional companies where traders physically work and trade. These firms often hire traders as employees, offering them fixed salaries, bonuses, and commissions based on their trading performance. Working for classic prop firms is quite similar to a regular job. Since these firms pay a salary, working for them is considered like any other ordinary employment.
2. Online Prop Firms:
On the other hand, online prop trading firms, also known as prop firms, provide access to capital for any trader who registers on their website, pays the required fees, and successfully passes the firm’s evaluation, although some firms don’t require an evaluation. Interaction between these firms and traders in such companies typically occurs solely through their website. Traders, legally considered independent contractors, do not receive fixed salaries but can earn income solely through profits generated while trading for the firm.
With the expansion of the internet and the increased popularity of online trading (especially after 2020 due to the COVID-19 pandemic), the number and popularity of online prop firms have been on the rise. In contrast, classic firms have become less common. Therefore, the following sections will focus mainly on working with online prop trading firms. So, when we refer to a prop trading firm, we are usually referring to an online firm.
The best Prop Firm
FTMO is a well-known prop trading firm that specializes in providing funding and support to forex and futures traders. The firm’s primary goal is to help talented traders succeed by providing them with access to capital and a structured trading environment.
It’s essential to visit FTMO’s official website for the most up-to-date information on their programs, terms, and any changes in their services. Before engaging with any proprietary trading firm, it’s crucial to thoroughly review their terms and conditions, fees, and evaluate whether their offerings align with your trading goals and risk tolerance.
The company FTMO offers a two-stage test for all traders. This test includes the FTMO Challenge and Identity Verification. These two stages help determine which individuals have the potential to participate in this challenge.
Once you successfully complete these stages, you’ll be given an account with up to $200,000, allowing you to engage in stock market trading. Well, we’ve illustrated these three stages in the image below:
- No Restrictions on Trading Strategy: Trade with your own strategies, and you can even use Forex experts if you prefer.
- Online Experts: FTMO’s online experts are readily available, and they typically respond promptly to messages.
- Multiple Platforms: FTMO supports MetaTrader 4, MetaTrader 5, and cTrader platforms.
- Leverage up to 1:100: Professional traders at FTMO can use significant leverage.
- Cryptocurrencies and Forex: Trade anything you want, from cryptocurrencies to energies and stocks.
- No Costs: The fee you pay to participate in the FTMO challenge is refunded to you after successfully completing the program.
Prop Trade Fund Website (PropTradeFund.com)
After extensive research and investigations with customers who have used the services of this company, it can confidently be considered that PropTradeFund.com is one of the best company for prop trading.
- The most important feature of this company is its user-friendly interface, which makes it easy for you to navigate to the user section and select the desired package for purchase.
- Another important feature is the 24-hour support available through Telegram and the website. If you encounter any issues with any aspect of Forex trading during the 5 trading days at any hour of the day or night, you can be sure they will respond to you as quickly as possible.
- Utilizing a capital ceiling of $200,000 provides you with the peace of mind for achieving dream-like profits from the most profitable trades you haven’t experienced before.
- Support services are easily accessible for all traders and users of this website.
Does Prop trading require a license?
Prop trading does not require a license. Proprietary trading firms do not need licenses, and they are not regulated because they are not technically financial service providers; they trade with their own funds. Therefore, the absence of regulations in this field means that no license is needed. Working for prop trading firms usually does not require specific training or prior experience. What these companies are primarily interested in is your ability to generate profits.
In theory, anyone can join a prop firm and work there. However, in practice, only a few traders will possess the necessary skills to consistently make a profit. It is advisable to have at least a few months of trading experience and gain some experience as a personal trader before entering the field of prop trading.
Prop Firms working hours
Prop firms typically have very few restrictions on working hours. Some may prohibit trading during major forex news releases, such as U.S. Non-Farm Payroll reports, or they may require traders to close positions overnight or before weekend holidays. However, not all firms have these restrictions, and many allow traders the freedom to trade whenever they choose. One of the main attractions of prop trading is the flexibility it offers in terms of trading hours; you can decide when it’s most convenient for you to trade.
It’s worth noting that to succeed in prop trading or forex trading in general, you will need to dedicate a certain amount of time. Some professional traders spend up to 14 hours or more per day in front of their monitors. Fortunately, algorithmic trading, as explained in the article on artificial intelligence in forex, has somewhat reduced the workload in forex trading. However, you should first learn the ropes of automated trading thoroughly and then spend time testing and refining your algorithms.
In conclusion, forex trading is not a means to make money without effort. In prop trading, as in other professions, you need to put in the time and effort to succeed, and in some cases, the workload may even be more intense than in other jobs.
How are holidays in prop trading?
Holidays and time off in prop trading largely depend on your personal preferences for rest and relaxation. Most financial markets, except for the crypto currency market, are closed during the weekends. So, you can take a break on Saturdays and Sundays.
However, you should still stay vigilant during weekends, especially regarding important news and fundamental events, as they can impact market conditions when trading resumes at the beginning of the week. International holidays such as Christmas or New Year’s Day typically lead to market closures as well.
Nevertheless, the nature of the forex market is such that it operates around the clock on a global scale. This means you can even trade during holidays or, if you have another job, engage in part-time forex trading. Forex is always open in some regions and global markets. However, trading volumes during such days are likely to be lower. Therefore, it’s advisable to take a break without worrying too much about potential missed profit opportunities and enjoy your weekend holidays.
Regarding time off, it largely depends on your specific prop trading firm. Some companies may have conditions like profit target levels or minimum trading days per month that you need to meet. So, before deciding to take a break from prop trading for a specific duration, it’s essential to review your company’s rules and regulations.
The Difference Between Prop Trading and Regular Jobs
One of the challenges faced by forex traders and individuals working from home without set working hours is finding the right balance between work and life. Some people may find it challenging to stay disciplined when no one is directly monitoring their activities. If you resonate with such concerns, a regular job might be more suitable for you. However, for those who are eager and energetic, working from home can be more accommodating because it provides more flexibility in terms of time.
Forex traders often share stories of individuals who lost their families and friends after spending excessive time in front of a computer screen. This happens because such individuals constantly strive not to miss out on exciting trading opportunities. However, working from home can also disrupt your sleep schedule because people tend to stay awake late into the night when they don’t have to wake up early and commute to work.
A successful trader needs to be highly disciplined, meaning your daily life should strike a balance between work, rest, and social interaction. This way, by maintaining your mental health and social relationships, you can achieve good results in prop trading as well.
Earning Income with Prop Trading
Prop traders don’t receive a fixed salary; instead, they earn a share of their trading profits. Profit-sharing arrangements are generally favorable for traders, as they can earn up to 80% or even more of their profits. When choosing a forex company, the profit-sharing ratio should be one of your primary considerations.
Typically, a company will pay your share of the profits after a specific period, such as weekly, bi-weekly, or monthly. The absence of a fixed salary has both positive and negative aspects, which we’ll discuss below.
One of the positive aspects of not having a fixed salary is that there’s no limit to your income potential. However, in practice, your earnings are tied to your account size and your success or failure in trades. Nevertheless, there’s always an opportunity to increase your income, especially if your company offers a capital growth program. This means that if a trader succeeds, the company can regularly increase their trading account size.
The lack of income stability is a downside, as there’s no guaranteed income to cover daily expenses like food, rent, or bills. If your prop trading isn’t successful, you won’t lose your money, but you’ll lose access to trading positions and financial resources, forcing you to start over in the profession. Ultimately, a prop trader must either succeed in their trades or have sufficient savings. Each time you experience losses, you can reapply and, after a short period, receive a new trading account from the company.
Is Prop Trading a Good Job?
The answer to this question depends entirely on your personal abilities. In general, a prop trader needs to possess several important qualities to succeed.
1. Discipline and Order:
Prop trading requires consistent results and profitability. This means you must create a profitable strategy and stick to it. Deviating from a successful strategy can have serious consequences on your overall results. Some forex companies explicitly forbid significant deviations from your strategy.
2. Risk Management:
Risk is inevitable in trading, but you need to be adept at managing it. Understanding your risk levels and ensuring that the potential profit of each trade justifies the risk is crucial. Since it’s not your own money, there’s a danger of not paying enough attention to risk management. Forex companies often set specific drawdown limits as a safeguard against traders losing access to their accounts. Hence, risk management in prop trading is of utmost importance.
3. Mental and Emotional Resilience:
Trading, especially as a prop trader, is not suitable for the emotionally weak. You need to be able to control your emotions and think rationally, regardless of whether a trade is successful or not. However, this can be exceptionally challenging. Long hours in front of a monitor can also affect your mental health. Sustained periods of unsuccessful trades can be demoralizing and may lead to making worse decisions. Therefore, maintaining emotional stability and managing stress is crucial in this profession.
In summary, if you are a disciplined individual with mental fortitude, prop trading can be a good job for you. However, if you don’t align with these descriptions, it might be better to explore other professions. Regardless, before joining a reputable forex company, you should learn how to trade.
At a minimum, you should increase your skills with a demo or practice account. Although trading with a real account and experiencing real returns is preferred, it’s essential to hone your skills before taking that step.
Decision-Making for Entering Forex Trading
It’s important to note that trading in the forex market is not a suitable job for most people. So, deciding to leave this profession to pursue another job may make your employment journey challenging. Companies are unlikely to consider a forex trader’s experience as a resume when hiring, as trading skills are highly specialized and not easily transferable to other professions.
Another point to consider is that the prop-trading profession does not offer vertical growth. There is no chance for advancement, and no higher positions are available. From a technical standpoint, a novice trader is in a similar position to a trader with 10 years of experience.
In other words, a successful trader in prop trading will still be doing the same job in a similar capacity ten years later. While you will undoubtedly improve over time and earn more income, your job title and position won’t change. Ultimately, you have to decide whether you are cut out for this or not.
Prop trading offers the potential for high profits and nearly complete freedom in terms of time and work style. However, on the flip side, it doesn’t provide stable and guaranteed income, advancement opportunities, or a resume that you can use for employment in a regular job. In the end, you must weigh the positives and negatives of pursuing a career as a forex trader and working with prop firms.