The following are some basic questions about prop trading that you can ask a prop trading firm if you are possibly thinking about joining one. These questions will help give you a better understanding as to how prop trading firms operate and what to expect as a potential prop trader.
(To learn more about day trading with a prop trading firm click on Becoming A Prop Trader).
Questions To Ask A Prop Trading Firm:
- Do they offer remote trading?
- What is the amount of the minimum risk deposit?
- Is there a lock-up period on the risk deposit?
- How much day trading buying power do they offer?
- What is the profit sharing ratio?
⚐ this may be as high as 90/10 to 95/05 with the largest portion going to you – the prop trader
Tip: if you are a consistent profitable trader you should ask for a larger profit split if your current profit sharing ratio needs to be more inline with your trading abilities.
- What is the commission structure? How much are the commissions per share?
Tip: if you are consistently trading huge share volumes beyond certain thresholds you should ask for lower commission rates
- What are the available trading platforms?
- How much are the trading platform fees?
- How much are the fees for live data feeds?
- How much are other fees (such as exchange fees)?
- If I hit certain thresholds based on number of trades (per month) or trading volume (per month) do the monthly trading platform fees get reduced (or possibly even waived)?
Tip: if you are on the verge of meeting certain thresholds, you might want to consider stepping it up a little to get the benefits of exceeding those thresholds if possible
- What is the maximum daily loss limit allowed before trading is halted?
- Am I free to trade my own trading style and strategies?
- What kinds of financial instruments are available to trade?
- Do they offer any trading education (paid or free)?
- Is a license needed to trade with your prop firm? Do they provide free study materials or cover the cost of taking the exam?
⚐ such as the Series 57 exam (formerly series 56 exam) or Series 7 exam
- How soon can I start trading upon joining?
- How often can I make withdrawals from my trading account (weekly, bi-weekly or monthly)?
- How long have they been in business?
- How many prop traders do they have?
- Are they registered as a SEC broker-dealer and (or) a member of the CBOE Stock Exchange (CBSX)?
- Are they in compliance with the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority)
- Are they based in the U.S.A. or based outside of the U.S.A?
- Any legal issues in the past (or currently pending ones) against the firm?
- Do they provide transparent reporting and year-end tax statements?
Hopefully these questions will help you in learning more about prop trading firms and to see if one would possibly be a good fit for you.
(To see a list of prop trading firms offering remote trading click on Remote Prop Trading Firms).
