Choosing the right proprietary trading firm can make or break your trading career. Choosing a firm that matches your trading style and goals is key. It gives you the capital, technology and support to grow.
As a trader you should do your due diligence on the firms you are considering. You should look at capital availability, technology infrastructure and profit sharing terms.
The prop trading industry is vast with each firm offering different structures, strategies and levels of support. It’s a complex landscape so you need a strategy. You should consider the firm’s reputation for compliance and ethical business practices. You should also look at the flexibility and resources they offer.
Before you commit to a prop trading firm ask them questions about their track record, regulatory history and risk management practices. Knowing these will ensure that your trading is supported by a firm that has a solid platform and shares your vision for success.
Compensation Structures
When comparing prop trading firms you need to pay attention to how compensation structures are set up as they can impact your profits. Profit sharing and fee structures are two things to look at.
Profit Sharing
Profit sharing in prop trading means a percentage of the profits are allocated to you the trader. Typically this can be 50% to 80% of the firm. Let’s break this down:
- 50% Profit Sharing
- You make $10,000 profit: You get $5,000.
- You make $100,000 profit: You get $50,000.
- 80% Profit Sharing
- You make $10,000 profit: You get $8,000.
- You make $100,000 profit: You get $80,000.
Check the firm’s track record and stability to see if a higher profit sharing percentage is really worth it in the long run.
Fee Structures
Along with profit sharing look at fee structures which can include:
- Software Fees: Monthly fees for the trading platform.
- Desk Fees: Cost for physical space or resources used.
- Transaction Fees: Fees per trade made which can hit high volume traders the most.
You need to work out how these fees will impact your bottom line. For example a firm offering a higher profit sharing percentage may also charge higher fees which could offset the apparent benefit of the bigger share of profits. Always ask for a full breakdown of all fees before you decide.
Trading Resources
When choosing a prop trading firm you need to evaluate the resources available to you to ensure you can trade effectively. These resources can impact your trading and success.
Technology Platform
Your trading is dependent on the technology platform the firm offers. Look for platforms with robust functionality, high uptime and low latency. Real time charting and the ability to customise your trading space are also nice to have. Consider platforms that have:
- Direct market access (DMA)
- Advanced order types
- Full charting packages
Educational Resources
Prop trading firms should provide their traders with educational resources to keep learning. Look for firms that offer:
- Live webinars and seminars
- Interactive courses
- Historical trade data for back testing strategies
The extent and quality of these tools will give you an idea of the firm’s commitment to trader development.
Market Data
Market data is the lifeblood of trading. Make sure your firm provides real time data across all required markets. Check they offer:
- Real time quotes
- News streams
- Economic calendars
Access to these data points is key to making informed trading decisions.
Firm Policies
Before you choose a prop trading firm you need to fully understand their policies. These rules will impact your trading and success.
Risk Management Rules
Each firm has their own leverage limits which impact the size of the positions you can take. For example a firm may offer a 50:1 leverage ratio which means you can trade up to 50 times your capital.
Know the maximum you can lose in a day. This varies from firm to firm and if you exceed it your trading will be halted.
This is the maximum percentage your account can fall from its peak before penalties apply or your account is reset.
- Example: 10% maximum drawdown means you can’t lose more than 10% of your peak account value.
Firms will often dictate the maximum trade size to manage risk. This can be a specific number of contracts or a percentage of your account balance.
- Example: 5 contracts per trade or 2% of your account balance.
Trader Support
Look at the quality and breadth of trading tools the firm offers. Charting software, analytics platforms and real time data feeds.
Some firms offer educational resources, webinars, e-books and one on one coaching. These can speed up your learning curve and lead to more trading success.
Reliable customer support is key especially when technical or account issues arise. Check for 24/7 support and how quickly they respond to your queries.
Firm Reputation
When choosing a prop trading firm your understanding of their reputation through historical performance and direct feedback is crucial.
Prop Firm Location
If you want to trade in a prop firm’s office or space in your town you need to choose a prop firm that is located in an area that’s good for you. Most prop firms are located in cities like New York or Chicago but you’ll also find some in other cities around the world.
Historical Performance
Historical Performance is the firm’s record over the years. Look at the profits they’ve made and the consistency of their returns. Research:
- Performance metrics: Check publicised financial reports and performance stats.
- Regulatory compliance: Make sure they have a clean history with regulatory bodies.
Reviews and Testimonials
Reviews and Testimonials will give you an idea of other traders experiences. This can include:
- Professional interaction:
- How professional are they from the experiences of existing or past traders.
- Client satisfaction:
- What are the common praises or complaints to calculate an overall satisfaction level.