Proprietary trading is a popular method of making money in the financial market. Companies that offer these services provide training and funds to traders. They then take a cut of the profits made by these traders. Examples of proprietary trading companies are Day Trade the World (DTTW), the 5%ers, and Lux Trading Firm. In this article, we will look at some of the best strategies for hiring and managing your traders.
How proprietary trading works
Proprietary or prop trading is a different method of making money online than regular trading. In ordinary trading, you create an account with a broker like Robinhood, Schwab, OctaFX, and ATFX. You then fund your account and start trading right away. You trade using your personal strategies, and in most cases, you trade on your own.
On the other hand, in prop trading, you register with a company and go through some training about their processes. You are also given a demo account and a particular duration to prove that you can trade well. If you pass the test, you may be required to deposit some money with the broker. These funds are mostly used for margin.
Finally, you are given a fully-funded account for you to trade with. Unlike in ordinary trading, your overall income will be part of the profits that you make. For example, if you make a profit of $10,000, the prop trading firm will keep $2,000, and you can keep the rest.
Many prop trading firms allow their traders to trade on their own. Others, like Day Trade the World, focus on establishing trading floors where traders work side by side. Most of these traders have at least five team members.
Benefits of prop trading
There are several benefits of using prop trading instead of ordinary trading. First, most prop trading firms have more advanced trading platforms than regular platforms. In my experience, I have seen many platforms offer direct market access (DMA). DMA is a feature popular among traders in that it allows them to select their own market makers. At times, these market makers pay them for routing their orders through them.
Second, unlike ordinary trading, you don’t need to have a lot of money to become a successful prop trader. This is mostly because the firm will provide you with the money you need to trade. You just need a small portion of it.
Third, prop trading is a good way to test your managerial skills and to let you grow as a trader. Besides, you may be managing traders on what resembles a real trading floor.
How to hire traders
There are several benefits of having several traders on your trading floor. First, depending on their success, you could make more money by having a team of traders than when you are just alone. Second, you can diversify your income. For example, instead of making money just on forex, you could have traders who are experienced in other assets like stocks and bonds.
Third, you can maximize your returns by having traders work in shifts. Some could work during the Asian session, while others could work during the American and European sessions.
Therefore, you need to spend a lot of time doing your research about the traders you want to hire. This is simply because these traders can make or break your trading floor.
At times, you might be tempted to reach out to your family and friends to introduce them to your floor. This could make sense when you are getting started since you, too, are fearful about whether the floor will succeed. Also, bringing external folks will also push you to pay salaries, which you might not have when they are starting.
Still, I recommend that you spend a lot of time doing real interviews with the people you are bringing in. In this, you should look at their overall interest in the financial market and their knowledge about it. You want to bring in people who have some experience in the financial market. They also need to be enthusiastic about the market and how it works.
After this, you should guide them in the processes that you use to analyze assets that you trade. If they are experienced traders, you should ensure that you take them through a demo account to see their performance.
Managing the traders
Hiring traders for your proprietary trading firm is just the first step. The overall success of the floor will be determined by how well you manage them.
You should do several things to manage them well. First, you should have them know the rules and conditions about your floor. For example, you should mention to them clearly about reporting time on the floor and the consequences of arriving late.
Second, you should have rules about the maximum sizes of trades that the traders can initiate. Many trading floors have a rule that young traders should only open small trades and then increase them as they gain more experience.
Third, you should have rules about journaling trades. In this, every trader should always write down the reasons for entering each trade and their outcomes. As the floor manager, you will use this information to track the overall performance of the trader.
In addition to rules, you should ensure that the trading environment is conducive. For example, all members of the team should communicate well with one another. At the same time, there should be some activities to boost the team’s morale. These include team-building activities and regular meetups.
Having a conducive environment will help to ensure that the performance of team members is the best. It will also help reduce turnover, which can affect your performance.
Running a prop trading floor can be an exciting thing, especially when you are surrounded by good partners. In this article, we have looked at how a prop trading firm works and some of the best tips to use when hiring and managing floor partners.