If you’re pursuing a career in stock trading, you may have contemplated the possibility of becoming a proprietary trader. Proprietary trading is a great option if you want to have a high earning potential early in your career. Find out how you can make money by becoming a proprietary trader.
What Is Proprietary Trading?
Proprietary trading, or prop trading, refers to the practice of using a trading firm’s money to trade financial instruments such as stocks, bonds, options, and derivatives. As a prop trader, you’ll work for a brokerage firm as a contractor or employee, helping them generate profits through active trading. In return, you’ll receive a portion of the profits you make.
Prop trading is an attractive venture because it gives you access to a larger capital base, proper training, and advanced technologies. However, you have to be prepared to comply with your broker’s rules, which can restrict your trading activities.
How to Become a Proprietary Trader
To become a prop trader, you need to have a certain amount of capital, a level of risk tolerance, and a profound understanding of trading strategies. Besides that, you’ll need to take the following steps to pursue this career:
- Start by earning a bachelor’s degree in finance or a related field.
- Next, undergo an internship with a trading company for at least one year.
- After that, take FINRA’s Series 57 exam to obtain a prop trading license.
- Finally, you can start applying to brokerage firms that have openings for prop traders.
Types of Prop Trader Careers
Depending on their strategies, brokers may require a wide range of skills to generate profits through prop trading. As such, people from many different academic and professional backgrounds can join a prop trading company, including economics, mathematics, statistics, and computer science. The following are the main types of jobs available at prop brokerage firms:
- Trader: A trader buys and sells securities on behalf of a trading firm using a trading model, software, or intuition.
- Quantitative researcher: The main responsibility of a quantitative researcher is to develop mathematical models for trading strategies and algorithms.
- Developer: A developer uses the researchers’ models and writes codes to enable traders to do their jobs.
What’s the Risk?
Prop trading is generally less risky than retail trading because you’ll be trading with your broker’s money. However, many brokerage firms don’t pay a fixed salary to their traders, meaning your income may not be as stable as you’d like it to be.
What’s the Payoff?
According to PayScale, prop traders earn a median annual salary of about $81,000. Most of these professionals have salaries in the range of $50,000 to $151,000.
As a prop trader, you may work in a variety of settings, including a brokerage firm, trading floor, or online. Joining an online broker is the best option if you want more flexibility, but you still have to work during trading hours. In addition to normal working hours, you also have to spend time staying up to date with the latest market news and developments.
To decide whether proprietary trading is a good career move for you, make sure you consider the pros and cons of this position.