When I say the words “Proprietary Trading”, the first thing that comes to mind is a bunch of sophisticated traders @ Goldman Sachs/JPMorgan staring at their Bloomberg Terminals, yelling into their phones, buying AAPL options @ $100 Million Notional. Though that is exactly what Proprietary Trading means, it is not something that is exclusive to Harvard Graduated Institutional Traders. Normal People, who’ve never placed a single trade in their life, can become Proprietary Traders. There are 100s of Prop. Trading Firms (Prop Shops) scattered around the country, that offer retail traders the Leverage and the Tools that they would need to compete with the big guys, or at least make them believe that they can. This is a cautionary post, written by someone whose seen it all. Ignore this warning at your own peril.
As we all know, one cannot trade without capital. Period. How the Fuck can you trade if you don’t have any money to trade with. And even if you can somehow raise the capital, it’s still not enough to give you the kind of return (“Income”) that you were expecting. Enter “Prop. Trading Firms”. These firms are like brokers, that give you insane amounts of leverage to trade with. In some cases, the leverage goes as high as 200:1. What that means is, if you deposit $5000 with a Prop. Trading Firm, they give you $100,000 to trade. Simple and Enticing, isn’t it? NOT. Though this proposition might seem at first glance very seductive/tempting, there are a lot of hoops that you’ll have to jump through, and on top of that, all the hidden fees that come along with it. In the end, if you make $3000 in Profits in a given month, after all the FEES, you’ll end up with $1500, and that’s before taxes. Plus, unlike your regular broker, Prop. Trading Firms have a deposit lock-up period, usually 1 year, before which you cannot withdraw your deposit. Any losses that you incur, are subtracted (taken out) from your deposit. And given the Insane Leverage that these firms offer, you’ll burn trough $5000 within a month, unless of course you can control yourself, your greed, and NOT LOSE MONEY, which is easier said than done.
The problem arises when someone who has never seen more than $10K in their trading accounts, suddenly gets $100,000 to trade. And BOOM !!! The false sense of RICH/WEALTH kicks in.
If you can control you emotions, and have no problem with paying all the (Regulatory) FEES, I recommend you try your luck at Prop. Trading at least once in your lifetime.