Proprietary trading or Prop trading is a term used when a firm or company makes use of its own capital to trade in the market and thus, make direct profits for the company. Proprietary traders are specialist traders who are responsible for doing this kind of a job. Capital is allocated to proprietary traders for the purpose of trading in a specific market in which they specialize in.
The only job of a proprietary trader is to trade with the capital the firm has allocated and made profits out of the money. They do have clients line stock brokers have. Proprietary trading is usually done by big investment banks that trade millions of dollars each day in assets. The Proprietary traders are usually highly qualified and experienced but there are also small firms that hire inexperienced traders and train them to become prop traders.
Prop traders at large institutions are usually highly qualified and have a lot of trading experience. With the advancement in technology, there is a need for more mathematicians and computer programmers. Making the prop trading strategies automated means that the inefficiencies of slow trading are eliminated and things happen at lightning speed.
Prop Traders are usually employees of the large institutions and the pay is very good as they are incharge of controlling large amounts of a firms’ capital.
Proprietary trading in major institutions like banks is on the decline due to the risk involved in handling the investors’ money and sudden financial crisis.
Small trading firms around the world that are independently run also do prop trading. These firms usually hire less experienced and people with no experience in prop trading and give them the proper training before giving them the opportunity to handle funds.
The main concept of proprietary trading is to multiply a firm’s money. Thus, the firms provide the prop traders with the capital for trading purpose. If the prop trader is experienced and makes more money out of the capital, then the firm makes money. Sometimes, this money or capital provided will be in millions of dollars.
There are also firms that require the prop trader to put their own money into the trade. Thus, the risk of the firm is reduced as the trader takes up some. But this is not the case with experienced traders.
Proprietary trading is a very interesting field. For those willing to take the risk, it is all about producing returns each day in the market. There are few companies like Millionaire Blueprint who provide the necessary support and help in Prop trading. Each company is different and the model of trading is different. If you want to join a firm, make some research on the firm before joining to be assured of success.