There is an opinion that trading is a solo business of hermits who do not leave their furnished apartments with monitors for weeks. By all means, there are such traders but they are not a majority. One of the reasons for the emergence of prop trading is the psychology of man; his primitive desire to be a part of the pack, not to be separated from his fellow tribesmen.
WHAT IS PROP TRADING?
Prop trading is a principle of financial organization where the main profit of a company comes from trading on an exchange. Do not confuse prop trading with different types of trust management. In the case of trust management, the company manages the client’s assets and takes fees for that. In prop trading, the company itself provides funds to traders who become a part of the prop company and, along with the funds of the company, provides them with a trading strategy and traders have to act accordingly.
Moreover, people with no trading experience often join a prop company: the company takes care of their training. But there is not even a bit of charity here: sometimes it is easier to prepare a specialist from scratch than to deal with a «ready-to-go» trader who has his own vision of the market that diverges from the company’s trading system. If management looks at some asset in a bullish way, and the trader only looks for sales, then the work of the whole prop company will fail. Therefore, it will be easier to part with such an employee, or not to hire them at all.
In prop companies there is usually a large turnover in staff: few people can succeed in trading. And if the trader does not show results for a long time, he is fired. From the great amount of people who try their luck on the stock exchange, only a few will remain. But their success will cover all of the company’s costs. There are many prop companies at the moment: from huge trading rooms to modest offices. Remote collaboration has become possible with the development of the internet.
PROS AND CONS OF PROP COMPANIES
The first advantage: fast professional growth
If you are a complete beginner in trading, but eager to quickly learn this craft, a prop company can help you a lot. You will receive information about the markets and will start earning with them in the shortest time possible. By working among professionals, you will be able to hone your skills and learn from them.
The second advantage: risk free trading
You will risk nothing since a trade in a prop company is made with the company’s funds. Often the fear of losing money keeps people from investing, but here you can get rid of this fear and reach your goals.
In addition, almost all prop companies can block trading automatically when a number of unsuccessful trades are made. Thus, you will be insured against tilt and emotional over extension, and the company will be confident that its funds will not be spent by a careless newcomer.
The third advantage: support and cooperation
Trading has a huge impact on the emotional state of a person. They are happy when everything works out in the market, and they are disappointed when it does not. Co-workers and colleagues will help stabilize the negative effects of speculation; they will support and help with advice. People are social animals, and they have a need for understanding of others.
The first disadvantage: fraudulent schemes
Unfortunately, there are a huge number of fraudulent companies on the market today disguised as prop traders. They convince you to buy a «trading training program» and in return you will receive a guarantee of employment. Usually there is no happy ending with such stories.
The second disadvantage: unpredictable earnings
You can never be sure of your income in trading. One month you are literally bathing in money, in another — you have zero income or you can even lose money. Therefore this occupation does not suit many categories of people, especially concerning family people. A passive investment not interfering with their day job suits them more.
The third disadvantage: unstable career
Prop companies are extremely unstable and they fail much more often than companies operating in other sectors of the economy. Of course it does not apply to the giants of the market, but it’s much more difficult to work for them. A career of a trader resembles a chart of a very volatile asset: it can reach the sky, then it falls to the bottom of the sea. And no one can guarantee you anything.
Thus prop trading, like any other type of activity, has its own pros and cons. And it is a matter of personal responsibility to decide what is most important.