How To Become A Prop Trader – Guide For Beginners (2024)

A Prop Trader is someone who’s funded with other people’s money (OPM), usually a company that provides its capital to trade ‎in the financial markets. This is what makes it accessible to retail traders, in other words, everyone ‎such as you, me and Joe down the pub. Hence the rapid growth it has experienced from people ‎looking to make money by joining a prop trading firm. (You can also use this Coupon Code).‎

The prop trader could make extensive profits by leveraging their skill and having access to more capital. Some have even become full-time forex prop traders when demonstrating consistency and profitability to the prop trading firm.

The good news is you do not need any special qualifications to succeed as a prop trader. All you need is a profitable trading system, a good mastery of your psychology and emotions, and good risk management skills.

So, each prop firm would have a different program with different rules that the prop trader must follow to meet specific requirements and qualify to access the Company’s capital. Some firms make these rules more complex, while others make them easier.

Still, each prop firm’s main objective is to ensure that the prop trader who gets funded is skilled enough to obtain funding and trade with a larger amount of capital.

You could go old school, which requires you to locate a prop trading firm physically. However, many of these old-school firms will require you to pay a desk fee. The Fees can go up depending on your requirements, such as additional screens and access to a Bloomberg Terminal. In this case, the prop trader would not even be able to cover the desk fee if they can’t make enough monthly profits.

However, these days the way prop trading works has completely changed. You don’t need to be lucky enough to live close to a prop trading firm in a big city. All you need is to knowhow to trade, a nice computer, a comfortable desk to help you stay focused (check discount deals here) and internet access.

With today’s proprietary trading firms, the fees are considerably cheaper because you are not physically travelling to a prop trading firm nor having to pay monthly fees to rent a desk.

Evaluation
In this case, the prop traders would pay an initial fee which is usually equivalent to the max loss allowed on the account. Then, the prop trader would go through a one-time evaluation for a specific period to qualify and become fully funded. The evaluation max time could be up to 1 year. The profit share is usually between 50% – 70%, with great scaling plansthat are not available in the challenge funding models.

Direct Funding
Suppose the prop trader wants to save the hassle of going through an evaluation. In that case, this option of “Direct Funding” comes in handy as the prop trader would get fully funded straight away. The fees for this option are generally higher. Still, you pay for saving months of your time so you can start earning big bucks straight away and without having all the rules that you would have to abide by when choosing the evaluation option. This option is generally suitable for more experienced prop traders who know what they are doing.

Challenge
This is probably the most popular option so far but also the one that attracts gamblers because of its very short time window given by the prop firms to the prop trader to pass the Challenge, which is usually only 30 calendar days to make an unrealistic 10% target. However, statistically speaking, the pass rate is a lot lower than the previous two. It’s most likely that it would turn out more expensive, given that even with the lower fee, you end up paying more because of trying to buy multiple Challenges until you get lucky and pass the Challenge once.

Monthly
This is the 100% No-Go to funding option because you would be charged a monthly fee to access the account. So technically, you need to pay the prop firm to trade. But what happens when you want to take a break? Or when you don’t have a profitable month? Depending on the funded account size, the fees could be anywhere between £50 to £250 per month.

One piece of advice, stay away from prop firms that offer this option because having a high monthly expense just to get access to a funded account will only harm your trading psychology and hinder your performance as a prop trader.

Prop Traders get paid by Profit Split between the prop from and the prop trader. The profit share given to the profit trader could be anything from 50% up to 90% depending on which prop firm they join.

However, a higher profit share % doesn’t always mean more profits because there are also other factors to take into consideration in regards to how much a prop trader makes.

This will depend greatly on which path of the above the prop trader chooses. But firstly, and most importantly, the prop traders who make money are the ones that follow their rules and stick to their trading plans. But in monetary value, it will vary.

For the purpose of this article, we will make a comparison between the two most popular funding options. The 1-Step Evaluation (as provided by City Traders Imperium) and the 2-Step Challenge and trading a personal account.

To provide an accurate and unbiased comparison, we will compare the funding options in the same price range and similar starting balance.

Also, we are taking the best-case scenario for each option to see the upside potential for how much a prop trader could make with a hypothetical progression of making the same 97% net profit in 10% increments for each option.

Access to Capital: $10,000 Personal Capital.

Risk: The trader would have to deposit at least $10,000 of their hard-earned money to start making a decent profit. If you lose, you would be risking losing all the $10,000.

Profit: The trader gets to keep 100% of the profits made. But If the prop trader were to make 97% throughout a time period, they would end up with exactly $33,391.47 net profits. All theirs.

Access to Capital: $10,000 Prop firm’s Capital.

Risk: The fee the prop trader will pay is around $500 would be the only downside risk the prop trader would be risking. If you lose, you are only risking the $500 one-time fee. So, essentially, you are saving $9,500.

Profit:You get to keep 60% of the profits made. But If you were to make 97% throughout a time period, you would end up with exactly$329,950 net profits.

That’s 988% more profit than if you were to trade your personal account.

Access to Capital: $10,000 Prop firm’s Capital.

Risk: The fee the prop trader will pay is around $600 would be the only downside risk you would be risking. If you lose, you are only risking the $600 one-time fee. So, essentially, you are saving $9,400.

Profit:The 1st 15% the prop trader makes don’t get paid for because the challenge is done on a Demo account.

Then, the prop trader gets to keep 80% of the profits made for the 1st 10% net profit and 90% afterwards.

So, If the prop trader were to make 97% in total throughout a time period, the prop trader would end up with exactly$71,000 net profits only.

That’s still 213% more profit than if you were to trade your personal account, but -465% less profits than if you were to join the Evaluation / Direct Funding Model.

Traditional old style prop trading will not consider funding you until you can prove you unless you have excellent math computer programming skills at least 1-year of consistently profitable track record with your own capital. This can take you years before you can get funded with large capital.

Suppose you were to go for private investors. In that case, the general notion is if you have a track record of at least a year, which is the minimum requirement for any investor to give you their money to trade for them.
However, we know that raising that sort of capital and trading profitably with it consistently takes time.

But the New and Modern Prop Firms are different. They provide many opportunities that each prop trader wouldn’t have had 8 years ago.

Not to say that all prop trading firms’ rules are good. Many of them have unrealistic rules that will only push you to overtrade, and gamble.

The rules must be simple and straightforward. The rules must be there to help the prop trader adhere to certain risk management rules so that they become more consistent with their trading and profitable in the long term rather than looking for a quick buck and end up losing their funded account the next month.

and this is exactly what we have been preaching for at City Traders Imperium (CTI), our rules are realistic and very achievable given the prop trader has the right trade plan.

Well, here is what you should do first….

Educate yourself and learn all you can: Whether you want to do this with free resources. Books or through a prop firm is up to you, but being educated is key as you need to understand how the market works and what are the rules for the prop trading firm that you want to join are key.

Develop a trading plan with a set of rules: Retail traders cannot escape this; you need to have a plan with a clear set of rules on how you will follow things. It cannot just be a vague set of rules. A prop trader needs an easy-to-follow set of rules to follow that they will 100% adhere to.

Create the strategy, backtest it, and make sure that it is profitable on Demo first: Once you have a good set of rules, create a trading strategy you can work with. Backtest it by checking it against old price patterns to see if it would work in the markets you plan to trade.

Make sure that you have solid risk management: Decide how much you are willing to risk and understand what the max consecutive losses your trading strategy has. This is detrimental to keeping you in the game and avoiding any negative emotional reactions when you face a losing streak. If you are going to trade for a prop firm, you must try to make sure your strategy can fit with the prop firm’s risk limits or scale your strategy down if required so that it can match the requirements.