What is a prop? What do beginner traders need to prepare?

What is a Prop - A Clear Definition

Prop (Proprietary Trading) is a form of hired trading where companies provide large capital to traders in exchange for a share of the profits. Unlike regular trading, where traders must invest their own money, trading with a prop does not require a lot of personal funds.

Typically, prop companies have different profit-sharing agreements. Some split 50/50, others give you 25-30%, depending on skill and performance. However, entering a prop company often involves additional costs, such as application fees and trading media charges.

Forex Prop Trade - Trading Forex with Company Capital

When it comes to Forex Prop trade, it means trading currency pairs using the company’s funds instead of your own. There are two main formats:

Traditional - You work for a company, receive a regular salary and bonuses based on trading results.

Online - You apply online, pay a fee, and pass an evaluation by the company. If successful, you gain access to trading capital immediately. Online companies have increased significantly since 2020, as the online world makes it easier for traders to access markets and funds directly.

How Prop Works - Steps You Need to Know

Becoming a prop trader is not as easy as it seems. Even experienced traders must pass strict evaluations called “challenges.” You need to pay an upfront fee because prop companies want to ensure you have the skills and discipline to consistently generate profits.

Prop Application Steps

1. Find a Prop Company - Consider the company’s reputation, trading platform, and profit-sharing terms.

2. Check Qualifications - Review minimum age, experience level, and educational requirements.

3. Submit Online Application - Provide information about your trading experience and skills.

4. Interview - If selected, you will be interviewed about your strategies and trading approach.

5. Evaluation Phase - Receive funding and start a testing period of 30-60 days. You must demonstrate the ability to generate profits according to the company’s rules.

Pros and Cons - What You Need to Know Before Deciding

Advantages of Prop Trading

✅ Freedom - You set your own trading schedule and make decisions independently.

✅ Continuous Profits - If successful, you will earn income from the profit share as per the contract.

✅ Lower Risk - Most of the risk lies with the company; your only risk is the application fee.

✅ Stable Future - Once profitable, you can increase your trading capital and continue developing yourself.

✅ Large Capital - No need for a lot of personal funds; prop companies give access to hundreds of thousands or millions in trading capital.

✅ Support Community - Other traders help and support channels are available.

Disadvantages - Things to Prepare for

❌ Discipline Required - Prop trading demands high discipline. Stick to your plan, avoid impulsiveness, and do not revenge trade.

❌ Trading Psychology - Control emotions to prevent anger, fear, or greed from influencing decisions.

❌ Evaluation Fees - If your income is limited, you may not qualify for higher funding tiers because fees are paid each time.

❌ Uncertain Income - No fixed salary, social security, or benefits. Everything depends on trading results.

Prop vs Hedge Fund - What’s the Difference

Hedge Funds are pooled investment funds collecting money from multiple investors and using various strategies to generate returns.

Prop uses the company’s own capital to trade in the markets.

Who Can Become a Prop Trader

Currently, Prop Traders are more accessible. Online prop companies make registration easy. You can trade from anywhere.

Applying as a Prop Trader involves filling out a form, sharing your experience, education, and background. An interview may be required to discuss strategies, markets, and trading styles.

Once approved, you enter the evaluation phase, lasting 30-60 days. Prop traders must prove they can generate profits and follow company rules.

Good Prop Strategies - Must Try

1. Manage Risks Well

From the start, be cautious of risks. Do not risk more than you can handle. Limit risk to 1-2% of your capital per trade. This step is crucial to protect your funds and minimize losses.

2. Control Mind and Emotions

Markets are constantly changing, and so are your emotions. Do not try to recover losses impulsively. Avoid trading out of anger or fear. Reckless actions often lead to big losses.

3. Stick to Effective Strategies

If your strategy works well, do not change it frequently. Self-improvement is important, but avoid constantly seeking new methods.

4. Trade at Resistance and Support Levels

Trading near resistance levels (where sellers enter) and support levels (where buyers enter) helps manage risk effectively. This approach is especially suitable for beginners.

5. Use RSI Indicator

RSI (Relative Strength Index) measures the speed of price changes and indicates whether an asset is overbought or oversold:

• RSI > 70 = Asset is overbought (Consider selling)
• RSI < 30 = Asset is oversold (Consider buying)

This indicator ranges from 0-100 and helps align trades with market strength.

Risk Management - Specific Steps

1. Continuously Learn Forex Markets

Understand trading types, risks, and tools before trading live. Deep study forms the foundation.

2. Create and Stick to a Trading Plan

Your plan should include strategies, entry/exit conditions, and risk management rules. Do not deviate, even after losses.

3. Test Before Using Real Money

Use demo accounts or backtest with historical data. This helps you understand actual risk and refine your plan.

4. Risk Only What You Can Afford to Lose

Avoid risking more than you can afford. Only risk money that you can lose without financial hardship.

Summary - What is Prop Really

Prop offers traders the opportunity to trade with large capital, significantly increasing income potential. However, becoming a Prop Trader requires time, effort, and strong risk management skills.

Before applying, research reputable companies aligned with your trading style, understand the risks, and prepare mentally.

Reaching the stage of a successful Prop Trader can be challenging, but with the right mindset, strategies, and determination, it is definitely worth the effort.