How to Become a Prop Trader?
To become a prop trader you need to: pursue this career, assess your capabilities, eliminate obstacles, choose a prop firm, and successfully complete the firm's challenge.
Table of Contents
1. What Do You Need to Know?
2. Where to Start Your Career?
3. How Can a Prop Trader Improve His Results?
4. Common Mistakes of Beginner Prop Traders
5. Prop Trading: Pros and Cons
What Do You Need to Know?
1. Decision to Become a Prop Trader:
The decision to become a prop trader is fundamental. Reflect on your motivations beyond just earning more money quickly.
Prop trading requires continuous learning, practice, skill development, overcoming challenges, and genuine passion.
2. Understanding Prop Trading:
Prop trading involves trading financial instruments using the firm's capital rather than personal funds.
A prop trader is someone who trades on behalf of the firm and shares a portion of the profits.
3. Preparation:
Close any knowledge gaps about the financial markets.
Essential topics to understand include:
- Types of financial assets and how to trade them.
- Understanding CFDs (Contracts for Difference).
- Price movements of assets.
- Technical and fundamental analysis.
- Using trading platforms for transactions.
- Adhering to a trading plan.
- Maintaining emotional discipline.
- Developing a trading strategy.
- The importance of risk management.
In one of the previous articles we described in detail:
- what is prop trading,
- who is a prop trader.
We recommend that you read it carefully if these concepts are not yet completely clear to you.
Filling gaps in knowledge and skills is the first task of a novice prop trader.
How to Start Your Career?
1. Gaining Knowledge:
- Educate yourself about the financial markets and trading strategies. This can be done through books, online courses, and practice accounts.
2. Practical Application:
- Start by working on a simulation account to gain practical experience.
- Choose a reputable prop firm and purchase a challenge or evaluation account to start trading.
3. Meeting Requirements:
- Comply with the firm's requirements for maximum drawdown (daily and total), the number of profitable days, and established profit goals.
- Successfully complete the firm's challenge to prove your trading skills and become a recognized prop trader.
How to Improve Your Results
1. Transition to Active Trading:
Once you have become a recognized prop trader you need to transit to active trading that involves taking on real challenges and working on a simulation account to demonstrate your skills.
Achieve profit targets while adhering to risk management and emotional discipline.
2. Risk Management:
Successful prop traders emphasize the importance of risk management, emotional discipline, and sticking to a trading plan.
Common Beginner Mistakes
To become a profound prop trader you need to comply with the following rules.
1. Do not Ignore the Trading Plan:
- Refusing to follow a trading plan can lead to inconsistent results and losses.
2. Emotional Trading:
- Making trading decisions based on emotions rather than logic and analysis can be detrimental.
3. Violating Risk Management Rules:
- Gross violations of risk management can result in significant losses and potential failure in prop trading evaluations.
If a trader learns from their mistakes, they benefit.
Prop Trading: Pros & Cons
Pros:
- No risk of losing personal funds.
- Free trading platform provided by the firm.
- Potential for high profit distribution (up to 90%).
- Free support, consultations, and training.
- Opportunities for capital scaling.
Cons:
- High level of responsibility required.
- Necessity to make independent trading decisions.
- No guarantee of permanent success.
- Strict requirements for drawdown and profit.
To become a successful prop trader you nee dedication, continuous learning, and the ability to manage both emotions and risk effectively.
Understanding both the benefits and challenges of this career path can help you make informed decisions and achieve long-term success.