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 Prop Firm that provides its capital to the Prop Trader to trade ‎in the financial markets in exchange for a profit share.

This is what makes it accessible to retail traders, in other words, everyone ‎, including you, me, and Joe at the pub.

Hence,people ‎looking to make money online have experienced rapid growth byjoining a prop trading firmsuch as City Traders Imperium.‎

The prop trader could make extensive profits by leveraging their skill and having access to more capital than they would normally have on a personal broker account.

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, good risk management skills, and consistent with your strategy.

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.

Each prop firm’s main objective is to ensure that the Prop Trader who gets funded is skilled enough to obtain funding.

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,the way prop trading works has completely changed these days.

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 know how to trade or to learn how to trade, a nice computer, a comfortable desk to help you stay focused, 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.

One-Time Fee

In this case, the Prop Trader would pay an initial fee upon sign-up.

Then, the prop trader would undergo an evaluation (1-Step), Challenge (2-Step), or Direct Funding (No Evaluation) and hit the profit target to qualify and become a Funded Prop Trader.

Usually, the more difficult the rules are, the cheaper the one-time fee is.

For example, programs that have trailing drawdowns (drawdowns measured from the high water mark) are much more difficult to pass, and the pass rate is less than 1%, hence why some companies offer these evaluations at a cheaper price.

Therefore, you should always seek companies that offer absolute drawdowns, which are drawdowns calculated as a fixed value from the initial balance rather than from high watermark.

Monthly Fee

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?

The fees will vary depending on the funded account size. The bigger the account size, the higher the fee. This model is usually more common with Futures prop firms.

One piece of advice is to stay away from prop firms that offer this option because paying 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 share between the prop firm and the Prop Trader.

The profit share given to the profit trader could be50% up to 100%, depending on the chosen prop firm.

For example, at CTI, our starting offer is 70% profit share and it goes up to 100%.

Access to Capital: $10,000 Personal Capital.

Risk: To start making a decent profit, the trader would have to deposit at least $50,000 of their hard-earned money.

If they lose 10%, they risk losing all $5,000, with the potential to risk and lose the full $50K.

Access to Capital: $50,000 Prop firm’s Capital.

Risk: The fee the prop trader will pay, around $200 to $500, to get a $50K account, depending on the program chosen, is the only downside risk the prop trader would be taking.

The Prop Trader would be risking only the signup fee but still have the same opportunity as funding a personal account with $50K.

To put things into perspective, the risk-to-reward ratio is 1:1 because you need $50K of personal funds to fund a Personal Account with a broker.

Meanwhile, with a Prop Firm Funded Account, the risk-to-reward ratio is 10 to 1 because you only need to pay a $200 to $500 sign-up fee to get access to the same $50K funds to trade.

Traditional prop firms will not consider funding you until you can prove you have excellent math computer programming skills and 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.

But the New Online Prop Firms are different and only require you to pass a test to prove your skills to get access to large capital.

If you want to become a full-time trader but your personal trading account is too small to generate any significant profit, Prop Trading is the way to go.

Trading with a prop firm will unlock your potential to generate high profits while you risk little to nothing of your hard-earned money.

After paying the initial access fee, you will not be liable for any losses because the firm will take the risk and manage it for you.

This gives you the mental peace you need to perform better without fear of losing large sums of your capital.

When trading your personal account, any withdrawals you make will reduce your account size and limit its growth over time.

On the other hand, while trading for prop trading, your account size will not be affected if you wish to withdraw, so you can keep growing your account exponentially.

This is 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. They must 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 losing their funded account the next month.