Becoming a prop trader upon joining a proprietary stock trading firm will allow you to day trade with using the prop firms trading capital.
Many prop trading firms even offer remote trading so that you can day trade right from the comforts of your own home (or anywhere else) on your own time schedule.
Compensation As A Prop Trader
The amount of compensation that you could possibly earn as a prop trader is determined upon how successful you are in your own trading abilities.
Some prop traders with professional trading experience can make income well into the 6 figures per year. In reality, however, the range of compensation can vary greatly from incurring losses to earning zero to earning a very substantial amount of money. Again, it really depends on how successful you are in your own trading abilities.
Compensation is also based on the profit sharing agreement. Such agreement, can vary among different prop trading firms, but can be as much as 90/10 or 95/05 with the largest portion going to you – the prop trader.
Profit sharing agreements can be renegotiated for a better profit sharing split between the prop trader and the prop trading firm. If you are successful as a prop trader with a proven ability to generate consistent trading profits than you can always renegotiate for a better profit sharing split.
Benefits Of A Prop Trader
- Trading from home (remote trading)
- Relative low cost of entrance (risk deposit)
- Substantial day trading buying power
- State-of-the-art day trading platforms (such as Lightspeed and Sterling Trader Pro) – delivering lightning fast executions, direct market access with real-time level II quotes, real-time scanners and data feeds, and plenty of advanced trading tools
- Heavily discounted commission rates due to the prop firms collective trading volume
- You are the boss – trade on your own time schedule
Substantial Day Trading Buying Power
In order to be entitled to day trade with the prop firms trading capital, you will most likely be required to put up a risk deposit. The amount of the risk deposit, however, is usually much less than the required $25,000 minimum to maintain in your personal brokerage account if classified as a “Pattern Day Trader” by your online broker.
The amount of risk deposit can vary among prop trading firms. It can range anywhere from say $2,500 and up. The more risk deposit that you put up, the more day trading buying power that you may potentially get.
For example, day trading buying power can range from say 10:1 to 20:1 (or something entirely different) depending on such factors as the prop trading firm, your level of day trading experience, how successful you are as a day trader, and the amount of risk deposit you are putting up, etc.
(note: if you need more day trading buying power at some point, you can always ask for an increase from your prop trading firm. Generally, your day trading experience, amount of trading profits consistently generated, and volume of shares traded can all help to negotiate for an increase. You can also consider increasing the size of your risk deposit).
As an illustration – here is how much day trading buying power you would get from a prop trading firm offering 20:1 margin with respect to the amount of each risk deposit:
| Risk Deposit | Buying Power (20:1) |
| $2,500 | $50,000 |
| $5,000 | $100,000 |
| $7,500 | $150,000 |
| $10,000 | $200,000 |
Choosing A Prop Trading Firm
Prop trading firms can vary from firm-to-firm as they have their own individual structures, trading rules, and firm polices.
Some of the things that prop trading firms can vary with include:
- Amount of risk deposit
- Amount of day trading buying power
- Profit sharing agreements
- Daily trading loss limits
- Commission rates
- Trading platforms
- Monthly costs/fees
- Ability to receive liquidity rebates
- Instruments available to trade
- Offering remote trading
Be selective in choosing a prop trading firm to trade with – but a little flexible too since no single firm can deliver to you everything that you may desire. Ultimately, there should be a good trusted relationship between you and the prop trading firm that you choose to join to help ensure a long-term trading relationship.
And finally – read the prop trading firm agreement (contract) very carefully before joining!
(to see a list of in-depth questions to ask a prop trading firm click on Questions To Ask A Prop Trading Firm)
(to see our recommended prop trading firms that offer remote trading click on Remote Prop Trading Firms)
