Becoming a prop trader can be a great choice for market enthusiasts looking to earn a living trading.
To become a proprietary trader, you must know what prop trading is, understand the advantages and disadvantages, get licensed, and fund your account. You must also have a passion for trading, research prop trading firms, and get started on the right foot.
Learn about all the details in our 11 steps to getting started as a professional prop trader:
1. Understand What Prop Trading Is
So what is prop trading?
Prop trading, or proprietary trading, occurs when a trader accesses a firm’s capital to make trades.
The trader makes a deposit with the firm. And in so doing, the firm makes additional capital available to the trader.
This allows traders to magnify their upside potential. As we’ll explain below, a prop trader can deposit $10,000 and trade $200,000 (or more) worth of securities at a time.
In exchange for the capital access, the firm charges the trader commissions and fees.
For profitable traders, the additional capital can prove to be highly lucrative since they are working with a larger amount of money.
Of course, downside risk is equally magnified.
2. Study Trading and the Markets
Many applicants ask: do you need a degree to become a proprietary trader?
You do not need a college degree to become a proprietary trader. A degree in finance, economics, or statistics may help you better understand markets, but you do not necessarily need a degree to succeed as a trader.
In fact, a reliance upon traditional financial and economic concepts can lead traders to believe the market “should” act a certain way given a certain sense of conditions.
That can hurt your results, because as John Maynard Keynes said “the stock market can remain irrational longer than you can remain solvent,”
The best traders tend to be very self-motivated in educating themselves through books, courses, daily market observation, and other methods.
3. Understand the Advantages and Disadvantages of Prop Trading
First things first: you should understand the advantages of proprietary trading.
The #1 reason to become a prop trader is access to firm capital.
A typical retail account gives you 2-4X leverage. So if you have $10,000 in your account, you can trade $20,000-$40,000 worth of securities at a time.
Prop traders can actually trade the firm’s capital, magnifying your buying power.
At T3 Trading Group, a new prop trader can typically get 20X leverage for intraday positions and 8X for overnight positions.
In a $10,000 account, that’s $200,000 for intraday trading and $80,000 for overnight positions.
Prop trading also offers direct market access, giving you total control over your executions.
Some retail trading firms offer direct market access. However, you will not be able to trade firm capital the way prop traders can.
Prop trading also gives you lifestyle flexibility. While you must abide by your firm’s rules and comply with regulatory requirements, your P&L is your boss. You set your own hours, and you work the way you want to work.
And of course, your paycheck is entirely determined by your ability to make trading profits.
To be fair, prop trading does have its disadvantages. An “eat what you kill” compensation model is not for everyone. Some traders love it, and some hate it. You must also become licensed and complete a background check.
Plus, you must make a capital deposit, at least when you start out. At some firms, including T3, successful traders with a proven track record can get fully backed by a firm.
4. Make Sure You Love Trading and the Market
Many people get into prop trading for the money. There’s nothing wrong with that.
But it can’t be the only reason you pursue a prop trading career, because trading is very challenging.
You have to love what you’re doing to push through the inevitable ups and downs of trading.
So if you’re not following the market closely right now (and preferably you’re trading as well), odds are you are not cut out for prop trading.
Seriously, if you are looking for a way to get rich fast, this business is not for you.
5. Research Prop Trading Firms
One of the most important decisions you’ll make is what prop trading firm to join.
Obviously, you want to ensure any firms can actually accommodate you. For example, you may need to trade remotely from your home, or you may want to trade in a specific city.
We strongly recommend only considering fully registered and regulated firms with history in the business. Non-registered firms that do not require licensing may operate under hedge fund structures that actually put your capital deposit at risk.
You may not be eager to study for regulatory exams, but working with a registered firm can keep you safer.
And of course, make sure your firm has the asset classes you need, like equities, options, and/or futures.
6. Prepare Yourself For Your Trader Interview
Prop trading firms will interview you to determine whether you’re a good fit.
So be ready to discuss exactly why you’re interested in prop trading, and why you think you’ll succeed.
If you have trading experience, even at a very basic level, be ready to talk about it — specifically, where you think you’ve done well, and where you need to improve.
A good firm will also want to know about you as a person. For example, trading firms typically like candidates with some type of competitive background — like sports, poker, martial arts, chess, or video games/esports.
Derrick Oldensmith, head of T3 Trading Group’s NYC trading desk, was a world champion kickboxer.
And our Chief Strategic Officer Scott Redler has completed over 30 marathons and triathlons, including 2 Ironman events.
7. Ask the Hardest Question of All
We recommend asking this question on every single prop trading interview you’re on:
“Let’s assume I pass my exams, make a deposit, and join the firm. Who do I talk to when I have a problem?”
Because there’s a dirty little secret in this industry no one wants to talk about: the fact that you’ll be sweet talked and nurtured and coddled… up until you actually go live trading. Then you’re thrown to the wolves.
We’ll be 100% transparent here.
We’re bringing this up because T3 Trading Group’s #1 competitive advantage is the support we offer traders.
If you’re having issues with trading strategies, market analysis, risk management, platform setup, technology, etc., you can speak to a professional trader one-on-one.
We are always a phone call away.
Plus, T3TG prop traders can join Derrick Oldensmith’s Pro Desk Virtual Trading Floor® room for free, giving them instant access to a friendly community and real-time help.
If you do not get a solid answer to the question “who do I talk to when I have a problem?,” don’t just walk away. Run.
8. Start Studying for Your Exams
If you decide to jump to prop and complete the initial interview/background check process, the next step is to start studying for your licensing exams.
T3 Trading Group traders are required to pass the SIE and the Series 57 Top-Off Exams.
Resist the temptation to procrastinate. Put in the time and you’ll maximize your chances of passing the first time out.
Forget everything you’ve heard about typical pass/fail rates.
Your chance of passing is largely dependent upon the work you put in.
9. Get Mentored By Experienced Traders and Start Learning
When you’re getting started, it is critical that you work with experienced traders and learn as much about trading as possible.
Earlier, we told you that “our #1 competitive advantage is the support we offer traders.”
So we closely mentor our new traders through the Pro Desk VTF® room. And our partner company T3 Live gives all our prop traders a free education suite.
We also make time for one-on-one and group conversations to help our new traders get acclimated to the industry.
If your knowledge base is not expanding rapidly, you are doing something wrong.
10. Begin Paper Trading
At T3 Trading Group, newcomers are encouraged to paper trade.
Paper trading is an ideal way to get yourself used to your trading platform and tech setup, which reduces the chance of error when you trade with real money.
Paper trading is also a good way to test-drive certain strategies, and to train your brain to execute trades after spotting setups.
Just remember that paper trading is not a perfect substitute for real money trading, because having capital at risk has a major impact on your psychology.
11. Go Live in Your Prop Account and Keep Learning
Assuming you pass your exams and fulfill all regulatory requirements, it’s time to go live.
That means leaving the simulator behind and risking real capital in real market conditions.
If you’ve followed all the steps in this guide, hopefully, you’ll at least be in the position to succeed.
And if we can leave you with a final piece of advice, it’s this: keep on learning.
Ongoing education and mentoring are key to longevity in this business.
Veteran traders have been through more ups and downs than you can imagine.
So whatever you’re going through, experienced pros have probably seen it.
And again, in the interest of full transparency, we believe T3 Trading Group’s #1 competitive advantage is the support we offer traders, especially newcomers.
