{"id":20231,"date":"2012-07-28T21:55:17","date_gmt":"2012-07-29T01:55:17","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=20231"},"modified":"2014-01-05T15:54:50","modified_gmt":"2014-01-05T20:54:50","slug":"the-opportunity-for-a-prop-trader","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/the-opportunity-for-a-prop-trader","title":{"rendered":"The Opportunity for a Prop Trader"},"content":{"rendered":"

@DynamicHedge wrote a must-read piece recently that went viral,\u00a0“Letters to a Young Trader”<\/a>, in which along with buckets of awesome advice he also asserted prop trading shops are dying. \u00a0This is true. \u00a0But this is not the same as prop trading is dead and\/or ALL prop shops are dying. \u00a0That would not be correct. \u00a0The author never stated this but some might have missed this important distinction. \u00a0This is an opportunistic time for the right people to be prop trading! \u00a0Let me explain why and offer a status update on prop trading.<\/p>\n

First here is what @DynamicHedge wrote about prop trading:<\/p>\n

(Question from @dynamichedge reader)It doesn\u2019t seem like many proprietary trading firms are hiring these days and large financial firms are basically on lock down since 2008.\u00a0 I received an offer from a firm called [insert firm name] but turned it down.\u00a0 I got a bad gut feeling about it and they wanted me to pay them initially, then get firm capital.<\/p>\n

(@dynamichedge response) Prop shops are dying.\u00a0 Only one in a hundred are worth your time and they\u2019re not hiring because the business model is dead.\u00a0 It\u2019s the end of an era.\u00a0 The truth is that prop trading hasn\u2019t been that great since the the days of decimalization.<\/p>\n

Keep in mind that not\u00a0every<\/em>\u00a0place that requires you to put up capital is a scam but they do deserve extra scrutiny and due diligence.\u00a0 The previous notes on seed capital apply. (end of @DynamicHedge response)<\/p><\/blockquote>\n

Over the past three years prop shops have closed and downsized. \u00a0This is true of even the best prop shops. \u00a0Risk on discretionary traders has been decreased or eliminated. \u00a0Trading profits by many discretionary prop firms has declined. \u00a0Most Arcades, an entity where you put up first loss capital to trade, offer a new or experienced trader little chance of success and harm the reputation of the industry as a whole. \u00a0 2009-2011 were down years for prop trading, which can be a cyclical business, leaving hoards of failed prop traders, yet bright individuals, quick to bash the industry instead of seeing their experience for what it was potentially. \u00a0A\u00a0sub-optimal\u00a0time to start. \u00a0Or perhaps trading was just not their thing (The Failure Rate of a Proprietary Trader<\/a>). \u00a0New regulation on most prop traders makes it more expensive for trader and firm. \u00a0This leaves even some of the better firms to wonder if their ROI makes it all worth it.<\/p>\n

Some well-known prop firms have lost confidence in the business model of the discretionary prop trader. \u00a0They are enamored with automated trading strategies even if this is not their core competency. \u00a0Some of the better prop shops are seeing an increase in profits from automated trading and are mostly interested in quant growth. \u00a0 Traders can be hard to deal with while a good system just prints money and is more scalable than the median prop trader.<\/p>\n

Having said all of that from my seat I see a huge opportunity going forward for the right prop traders. \u00a0This begs the obvious follow ups: Why? And who are the right prop traders?<\/p>\n

If you are sitting at a job that you cannot stand (unfortunately a large percentage of our population) and dream of a better life with no passion for trading, then prop trading is not your answer. \u00a0If you have just graduated from college and want to give prop trading a shot with no passion for trading, you will soon be a former prop trader. \u00a0Unfortunately the low barrier of entry to some prop firms and aggressive recruiting tactics by lesser arcades lures some into this career misstep. \u00a0More unfortunately, the rest of us can get mistaken for the lesser arcades since it appears from the outside we do the same thing. \u00a0Hah! \u00a0Every prop firm is different from their dress code to their payout to their core principles. \u00a0Think of a college basketball squad. \u00a0Does every college basketball player have the same experience as\u00a0matriculating\u00a0at Duke and being coached by Coach K?<\/p>\n

The right traders are those with a passion for trading, who will work on their trading game daily, with the mindset of improving each day. \u00a0Moreover, new prop traders should start building skill even before they turn prop (So you say you want to be a pro trader<\/a>). \u00a0Process, process and more process should be their mantra. \u00a0Do the right thing. \u00a0Make one good trade (I hear good things about a book with the same title). \u00a0Step outside of your comfort zone each day. \u00a0Practice your trading after the close like an elite athlete does. \u00a0There is never a place to get to, there is no top of the mountain, there is just the endless, enjoyable journey of daily improvement for the sustaining, professional trader.<\/p>\n

So let’s say we think we have found ten of the right traders through advanced recruitment screening. \u00a0This only after combing through thousands of resumes and doing hundreds of interviews. \u00a0What will be the success rate of these traders? \u00a0This is the data that I have:<\/p>\n