Is Proprietary Trading A Good Fit For Me?
Subscribe to receive weekly updates!
I am about to write the most SEO friendly post for traders who are thinking about joining a Proprietary Trading Firm. - Going forward, when people ask about this topic, send them this;)
Before we start, let's clear something up. This isn’t about those dubious trading challenges that masquerade as 'trading firms'— the ones where you’re required to put up money and pass some evaluation period. Those are nothing more than Ponzi scheme cash grabs while you're trading on a demo... paying out the winners from the losers!
This is about real-world trading firms. We’re talking about reputable firms like Trillium Trading, SMB Capital, Kershner Trading Group, Seven Points Capital, Great Point Capital, Avatar Securities, Chimera, and others!
One thing these firms often fail to do is set clear expectations for the traders they’re onboarding. Without it, some people seriously f*ck up their lives by not asking the right questions or running the numbers beforehand!
First things first, expect to not make a living off your trading at a firm for the first two years. These firms are going to start you off incredibly small, and between desk and tech fees and the split being between 20-50% of what you actually get to take home, expect peanuts for years until you gradually are allowed to size up.
Expect to start with a daily stop (how much you are allowed to lose per day) between $50 and $500. I recently heard that Chimera starts a group of their traders with $50 of daily risk, whereas SMB Capital starts their traders with $500 of daily risk and a couple hundred thousand in buying power! I would suspect the others are in this range as well.
Okay, so at most, you probably have a daily stop of $500 with about $500 in desk and tech fees per month for the first six months (this can ramp up significantly to $3K+ later on). Now, don’t forget about locate costs, interest on overnights, and commissions. It’s hard to put an exact number on this since it depends on your trading style, but roughly 20% of whatever you make per month will likely go towards the cost of doing business.
Let’s say you had a great month and made 6 daily stops ($500 x 6 = $3,000). Subtract 20% for locates, interest, and commissions, and you’re left with $2,400. Now, subtract the 60% the firm takes (50% for them, 10% for your risk bank), leaving you with $960. Finally, subtract the $500 in desk and tech fees and you are left with $460.
Ask yourself: can you live off $460 before taxes? I’ll answer that for you—no!
Now, keep in mind that we used the higher end of that daily stop range at $500, whereas many of the firms start with much smaller amounts.
Okay, so what some of these firms have done, since it's clearly unlivable, is offer a stipend to those who need it. Many provide around $2,500 per month before taxes, which you’ll repay by taking home a smaller split—let’s say 20%—until it’s fully paid back. Ask yourself: can you live off $2,500 a month before taxes in an incredibly expensive metropolitan city like NYC, Chicago, or Austin Texas, where most of these firms are based? Cutting it close to say the least, but probably not!
Now, this is what you need to consider:
Do you have true financial support from others (probably your parents)? If so, working at a firm could be a great option. Many of the best traders had significant financial backing early on. This is also why it’s common for star traders at these firms to come from families with substantial means—doctors, dentists, successful business owners, lawyers, fund managers, and so on!
No support? That's okay! But, are you willing to take on an additional part time or even full time position elsewhere while learning and growing? If so, you might be exhausted, but it can be manageable!
Or, do you have 3-5 years of savings that you’re comfortable using? If so, working at a firm could be a great option if you're prepared to dip into your savings.
Another factor to consider is whether the firm allows remote work. If it does, you can significantly reduce your expenses (if you're in a fortunate situation), making working at a firm even more viable!
I just wanted to provide this post to help weigh your options. - to see both sides of the coin! Working at a firm was one of the best decisions of my life, but I lacked this perspective when I first started.
Consider all the factors, and you’ll know if working at a firm is the right fit for you!
Subscribe to receive weekly updates!
If you made it this far, please hit that little toast button so I know you finished it!