What is Proprietary trading?
Proprietary trading is the process by which traders are permitted to trade with a proprietary trading firm’s capital in addition to their own. Propriety trading firms produce revenue through the deployment of firm capital by their own traders. This distinguishes them from most other financial institutions that seek to produce revenue through the management of investor or customer assets.
Traders are required to place a “risk deposit” with the firm, the maximum amount of money the trader can lose, which is coupled with funds from the company into an account that the trader deploys into the market. By allowing access to its funds, the Proprietary trading firm provides access to higher amounts of money, or “buying power”, which often allows the trader to employ more advanced strategies, trade in capital intensive instruments, and ultimately generate more income.
In return for allowing the trader to utilize their capital, Proprietary trading firms take a percentage of the trader’s profits and often a percentage of the commissions generated by the trader’s activities. As such, Proprietary trading firms have a vested interest cultivating the long-term, successful careers for their traders.
What distinguishes Proprietary trading firms?
Commission Rates
Many traders at Proprietary trading firms are intraday traders placing a high volume of trades on a daily basis. These traders correspondingly pay a high amount of commissions which reduces the return on the trader’s performance. Proprietary trading firms, through their relationships with clearing houses and ability to leverage the collective trading volume of their firm, typically provide more competitive commission rates than retail brokers.
Trading Platform
Proprietary trading firms utilize customized trading software that allows for more efficient placement of trades and display of information. Advanced traders often prefer specific trading platforms only available through firms like First Proprietary.
Risk Management
Since firm capital is also at risk, Proprietary trading firms monitor their traders through predetermined risk metrics to prevent exposure to an inappropriate amount of downside potential. This protects firm capital while ensuring the trader will not lose more than the risk deposit invested when he or she first entered the firm.
Education
Proprietary trading firms typically offer a number of educational components, both voluntary and mandatory, for their traders. These include online education as well as in person coaching in the technical, strategic, and psychological components of trading. The goal of the Proprietary trading firm is to expose new applicants to more experienced traders and mentorship experiences in order to increase profitability.
What type of person applies?
Traders who seek out Proprietary trading firms usually satisfy one of two criteria:
1) They are seeking to trade with higher levels of capital and obtain lower commission rates in order to increase their personal income.
2) They are new traders seeking the best education on advanced strategies and techniques.
Our traders are often a combination of both.
What makes a good Proprietary trader?
Those who succeed in Proprietary have basic mathematical abilities. They are typically ambitious, competitive, self-confident, easy to teach, and most importantly, possessing of a disciplined work ethic. Those individuals who do not persevere through adversity will not make it as traders.
How are traders compensated?
Traders are compensated through their own performance in the market. Different firms engage in different compensation splits with their traders. More beneficial compensation rates typically come with higher levels of performance.
What must an applicant do in order to be accepted into a firm?
Traders must apply and interview with firm principals to ascertain whether the trader is a match for the firm’s opportunities. Traders must also meet the firm’s risk deposit minimum with their own funds before they can start trading.
Proprietary trading is the process by which traders are permitted to trade with a proprietary trading firm’s capital in addition to their own. Propriety trading firms produce revenue through the deployment of firm capital by their own traders. This distinguishes them from most other financial institutions that seek to produce revenue through the management of investor or customer assets.
Traders are required to place a “risk deposit” with the firm, the maximum amount of money the trader can lose, which is coupled with funds from the company into an account that the trader deploys into the market. By allowing access to its funds, the Proprietary trading firm provides access to higher amounts of money, or “buying power”, which often allows the trader to employ more advanced strategies, trade in capital intensive instruments, and ultimately generate more income.
In return for allowing the trader to utilize their capital, Proprietary trading firms take a percentage of the trader’s profits and often a percentage of the commissions generated by the trader’s activities. As such, Proprietary trading firms have a vested interest cultivating the long-term, successful careers for their traders.
What distinguishes Proprietary trading firms?
Commission Rates
Many traders at Proprietary trading firms are intraday traders placing a high volume of trades on a daily basis. These traders correspondingly pay a high amount of commissions which reduces the return on the trader’s performance. Proprietary trading firms, through their relationships with clearing houses and ability to leverage the collective trading volume of their firm, typically provide more competitive commission rates than retail brokers.
Trading Platform
Proprietary trading firms utilize customized trading software that allows for more efficient placement of trades and display of information. Advanced traders often prefer specific trading platforms only available through firms like First Proprietary.
Risk Management
Since firm capital is also at risk, Proprietary trading firms monitor their traders through predetermined risk metrics to prevent exposure to an inappropriate amount of downside potential. This protects firm capital while ensuring the trader will not lose more than the risk deposit invested when he or she first entered the firm.
Education
Proprietary trading firms typically offer a number of educational components, both voluntary and mandatory, for their traders. These include online education as well as in person coaching in the technical, strategic, and psychological components of trading. The goal of the Proprietary trading firm is to expose new applicants to more experienced traders and mentorship experiences in order to increase profitability.
What type of person applies?
Traders who seek out Proprietary trading firms usually satisfy one of two criteria:
1) They are seeking to trade with higher levels of capital and obtain lower commission rates in order to increase their personal income.
2) They are new traders seeking the best education on advanced strategies and techniques.
Our traders are often a combination of both.
What makes a good Proprietary trader?
Those who succeed in Proprietary have basic mathematical abilities. They are typically ambitious, competitive, self-confident, easy to teach, and most importantly, possessing of a disciplined work ethic. Those individuals who do not persevere through adversity will not make it as traders.
How are traders compensated?
Traders are compensated through their own performance in the market. Different firms engage in different compensation splits with their traders. More beneficial compensation rates typically come with higher levels of performance.
What must an applicant do in order to be accepted into a firm?
Traders must apply and interview with firm principals to ascertain whether the trader is a match for the firm’s opportunities. Traders must also meet the firm’s risk deposit minimum with their own funds before they can start trading.
