Day Trading Jobs: Working at a Proprietary Trading Firm

day trading at a proprietary trading firm
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Day trading firms are scattered around the US, Canada, and the world, providing traders with training and the opportunity to trade firm capital, receiving a cut of the profits in exchange. It can be a lucrative business, but also a very tough one. Here's how day trading "prop firms" operate and what to expect if you get in.

What Are Proprietary Trading Firms

Proprietary firms are called such because they each do their own thing.

Some firms provide traders with capital and/or training and then receive a cut of the day trader's profits. Other firms make money off of commissions and seat fees (seat fees are paying a fixed a dollar amount each month to maintain your seat on the floor), or a combination of all the above. Proprietary trading firms are structured in different ways. The main proprietary trading firm models are discussed below.

What is a Proprietary Day Trader?

A day trader working for a proprietary trading firm is typically a contractor, not an employee. Traders are not usually paid an hourly wage or salary and don't receive perks like health care. Instead, the contractor is only paid if they produce a profit, which can take months when starting out (see How Long It Takes to Become a Success Trader).

A proprietary day trader trades stocks, currencies, options, and/or futures on major global exchanges, with the express purpose of producing a profit.

The day trader has no clients--except for the company he or she is contracted by--so there is no talking on the phone, sales or cold calls. A day trader is not a stock broker or financial advisor. A day trader doesn't care where a stock will be next week or next year, they care about where it could in two or five minutes from now.

The types of proprietary day traders vary. Some only trade a few times a day for bigger gains. Other proprietary day traders will make hundreds of small trades a day, jumping in and out of the market. Some will trade the whole day, while others only trade certain hours of the day.

Proprietary day traders may work out of an office, where they are initially trained, or some firms allow the trader to work from home. Day traders who are allowed to work from home are typically experienced with a history of success with the firm or are hired as an experienced trader with a proven track record. 

For further reading, see How to Become a Day Trader.

The Perks of Working For a Proprietary Trading Firm (compared to day trading for yourself)

  • Surrounded by other successful traders who can help you get profitable and stay there.
  • Access to more trading capital than you would have on your own (see How Much Capital is Needed to Day Trade Stocks, Forex, or Futures). 
  • Reduced commissions (typically) compared to what retail day traders face.
  • Access to training from professional day traders (you may have to pay for training, as this helps the firm eliminate traders who aren't serious).
  • Ability to work from home, if you develop a successful track record (and people to keep you on track until you do).
  • Don't need to worry about the $25,000 minimum account balance for day trading stocks.

Cons of Working for a Proprietary Trading Firm (compared to day trading for yourself)

  • Many firms have moved on online because it is cheaper than having a brick and mortar business. This, unfortunately, means you are no longer surrounded by other successful traders when you start out. Chat rooms and Skype are useful tools, but not as effective as having other successful traders there, in person, to answer your questions.
  • With more firms online and fewer physical trading floors, competition for seats on a trading floor is high.
  • Retail technology has improved to a point where the technological advantage of proprietary trading firms is diminished. Retails traders have access to trading platforms and internet speeds which rival most proprietary technology.
  • While the commissions charged by a prop firm may still be lower, active retail day traders, who negotiate with their broker, may be able to get commissions which are close to what would be paid at a prop firm.
  • A day trading firm has to make money. Fees charged by some firms include a seat rental fee, software access fees and/or marked up commissions. A percentage of the profits may also be taken. This is discussed in the section below. 

If you are considering quitting your current job to day trade for yourself, or for a firm, read Quit Your Job to Day Trade? Steps and Expectations.

Typical Proprietary Firm Structure

Like any job, you need to get hired. You'll need to submit a resume, cover letter and go through an interview process (see Day Trading as a Career: Don't Make These Resume Mistakes).

Proprietary trading firms typically have two model types or a slight variation of these models:

  • The firm takes a cut of your profits, anywhere from 50% to 20%, leaving you with 50% to 80% of your profits. Little or no capital is put up by the trader, although paying for training may be required, as well as a deposit which is held by the firm to offset losses incurred by the trader. Adequate trading capital is provided by the firm (based on experience and skill). With this model, trader profits are the main source of income for the firm. Commissions are typically low (firm makes little or nothing off commissions)...allowing traders to make more, and thus the firm makes more. The firm may also charge a seat rental or software fee. This model is popular in Canada and in other parts of the world. 
  • The firm takes little or none your profits, paying you 90% to 100% of your gains. Firms leverage your capital, meaning you need to have your own capital to get started (typically several thousand dollars or more). You get more capital than you would trading on your own, but for this, the firm is going to make money off of training fees, higher commissions, seat fees, and software fees. This model is prevalent in the US.

The Day Trading Academy offers proprietary trading in several countries, contact them or another firm in your area for details. To find physical trading floors in your city search "proprietary trading, YOUR CITY" on the internet. There is a list of proprietary trading firms here: http://leverageacademy.com/blog/proprietary-trading-shops/, although maintaining an up to date list of firms is difficult since many do not last...always be careful when handing over money to someone else or trusting them with your trades.

Day Trading Jobs At a Proprietary Trading Firm - Final Word

There is always a trade-off somewhere. When you work for someone else, they need to make money too. There are benefits to trading for a proprietary trading firm--mainly access to more capital and/or training--but you pay for this in some way. If the training is good, and the capital provided allows you to make more money than you could on your own, it is worth trading for a firm. One model type isn't necessarily better than another, and you may only have access to one model depending on where you live. Which firm is best for you depends on how much you trade and your capital and training requirements.

If you are new to day trading, then training is important. You want to be trained by people who produce successful traders and are not just making money off of training fees. If you are an experienced trader, then training isn't as important. Instead, your focus should be on finding the most competitive structure possible so more of your profits stay in your pocket. But at the same time, you want the firm to be financially sound enough (which means they still need to be making money) so you can trade with confidence and they are there to help you out when you need them.

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