What do you need to know to enter the Prop Trading industry? A beginner's guide for those just starting out

What is Prop? It is considered one of the channels that attract new traders to become more interested nowadays. If you have just entered the trading world and are unfamiliar with this type of company, this article will help explain and clarify how Prop works, its advantages and disadvantages, and how interested individuals should prepare.

What kind of business is Prop? Where does the full name come from?

Prop (Proprietary trading) is a business model where companies provide funding to traders to buy and sell various assets, whether stocks, commodities, futures, or even foreign exchange markets. The key difference is that these companies do not offer demo accounts for practice but instead provide a “performance-based” employment contract. Traders receive a certain amount of capital based on their ability. When profits are generated, the company takes a share according to the agreement, such as 50/50 or 70/30, depending on each contract with each company.

In addition to profit sharing, these companies also generate additional income from participation fees, software costs, training, and utilities, which vary according to each organization’s policies.

Characteristics of Forex Prop trade and classification

Forex Prop trade is a specialized branch focusing solely on the currency market, divided into two main types:

Traditional fixed model: Companies hire traders as full-time employees, offering a base salary, performance bonuses, and promotion opportunities. They work from a central office with formal management.

Flexible online model: Traders can register via the internet, pay an initial fee, undergo evaluation by the company, and then access funding without going to an office. Over the past two or three years, the online model has gained significant popularity, especially after 2020 when working from home became the norm.

It is noteworthy that current online Prop trade companies are no longer intermediaries but act as direct connectors between traders and the market. This means traders are fully responsible for their own decisions.

Trading with Prop trade: How does this scene work?

The main mechanism is that companies provide large amounts of capital to traders in exchange for a share of the profits. However, the path to obtaining funding is not as easy as it seems.

These companies need to understand the skills and experience of applicants, so they conduct rigorous “Challenge” assessments, often requiring an upfront fee because the company bears the risk of the trader’s trading.

Steps to apply for Prop and various procedures

1. Find the right company: Check reputation, platform, and profit-sharing conditions.

2. Submit an application: Send online information including background, experience, and trading goals.

3. Interview: If passing the first stage, the company may schedule an interview to discuss strategies and experience.

4. Evaluation phase: Successful candidates will receive a demo account, usually lasting 30-60 days.

5. Access real funds: Once proven capable, you will access a real account and start trading as a company representative.

Important information traders need to know about Prop trade

Clear benefits of working with such companies:

✅ Work freedom: Set your own schedule, make independent decisions, no need to go to the office.

✅ Large capital: No need to invest your own money; the company provides it, only after passing evaluation.

✅ Risk sharing: Most of the risk lies with the company; traders only risk the entry fee.

✅ Continuous income opportunities: If profitable, you can earn a significant amount over time.

✅ Community and support: Most companies have trader communities that exchange knowledge and provide support.

✅ Plenty of tools and platforms: Use professional trading tools, real-time market data.

Disadvantages of being a Prop Trader

But not everything is rosy:

❌ High discipline required: Must have strong mental awareness, manage emotions, and be patient in seeking opportunities.

❌ Trading psychology: Must be in control of your emotions; trying to recover losses or trading aggressively can be dangerous enemies.

❌ Evaluation fees: If earning is low, you may not access larger funded accounts.

❌ Unstable income: No fixed salary or benefits; your success depends solely on you.

❌ Disappointment from evaluation: Not everyone passes the assessment or makes profits.

How does Hedge Fund differ from Prop trade?

Who can join Prop trade?

Becoming a Prop Trader today is more open and accessible than before. Many companies accept online traders from the general public.

The process involves filling out a basic form, indicating experience, education level, and areas of interest. There may be an interview to discuss strategies, target markets, and trading history.

Once accepted, the evaluation period usually lasts 30-60 days. During this time, you must demonstrate your skills, follow rules, and show good risk management.

Tips for experienced Prop traders

1. Manage risk tightly

When starting to trade, the first thing to watch out for is protecting your account funds. Reduce losses by setting stop-loss and appropriate position sizing.

2. Control your emotions

Markets are volatile, with prices fluctuating. Seeing your money disappear can be unsettling. Trying to recover losses aggressively is a mistake. Don’t gamble; be a mindful trader.

3. Stick to what works

Continuous learning is good, but if your strategy is successful, there’s no need to change constantly. Try to perfect it further.

4. Use resistance and support levels

Identify points where prices reverse (Resistance) and support levels (Support). When hitting resistance, sell; at support, buy. This method is especially effective for beginners as it helps manage risk.

5. Follow RSI indicator

RSI (Relative Strength Index) measures momentum of price movements. Read from 0-100. If RSI > 70, it may be overbought; if RSI < 30, it might be a good buying opportunity. This indicator helps avoid entering at prices that are too high or too low.

Risk management framework for Prop Traders

Risk management involves assessment, reduction, and prevention of losses, with methods such as:

1. Continuous study

Understand different trading types, risks, how to use tools, support analysis, and attend seminars.

2. Create and adhere to a plan

Your plan should include strategies, entry and exit criteria, loss limits. The key is to make it a slip and not deviate when experiencing losses.

3. Test before risking real money

Try your strategies on a demo account or backtest with historical data. This helps identify issues before using real funds.

4. Risk only what you can afford to lose

Focus on proper management and position sizing, not risking more than 1-2% per trade.

Prop is a portfolio for the future

Prop trade is a challenging trading activity that can generate income if you prove your ability. The possibility of building wealth through trading is real, but so are the challenges.

Success requires intensive education, good discipline, risk management knowledge, and choosing reputable companies aligned with your goals.

If you prepare thoroughly, do your homework, understand not just what Prop is but what you need to do to succeed, this path can truly change your life.