In this episode of Truth About FX, Walter goes deep into prop trading and learning its ropes. He shares some key points on this and why some traders does not qualify even after years of trying. And you will also find out how this one guy was able to turn the tides and made prop trading work for him.

Download (Duration: 05:50 / 13.3 MB)

In This Episode:

00:37 – started in stocks01:42 – qualification period03:01 – dangle the carrot05:06 – more profits as you go

Tweetables:Your trading style should fit [Click To Tweet].Look for a good match  [Click To Tweet].Some operations are not upfront [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. I know we’ve kind of touched on this on the last episode of the podcast but what is prop trading and how does it work?

Walter: So, this is how prop trading works. I think it started in stocks – with stock traders – but essentially, what happens is you join a group. Normally, what will happen is they teach you how to trade and they’ll teach you their methods and what they deemed the way that you should trade.

And then they’ll say, “Now, what we want you to do is qualify and show us that you’re a good enough trader. Once you do, we’re going to give you a little chunk of money to trade. We will keep most of the profits that we make on this little chunk of money and you get to keep some of it”.

For example, the first time that I had a job like that I was getting 9% of the profits. The group was getting 30% of the profits. So the 21% went to the company, 9% went to me and then the remainder of the profits, the 70% went to the client who deposited the funds.

So, that’s kind of prop trading. It’s basically a great idea. The idea is, “Hey, if you’re good at trading but you don’t have any money, come to us and trade for us and we’ll give you some of the profits.”

But normally, what will happen is that there’s a qualification period. There are no restrictions on that. You have to take x number of trades or you have to have less than x drawdown or, you have to have more than x returns. Whatever it is, usually those restrictions apply to the qualification period too even if you’re only trading demo.

You might not be trading a live account so that is something to keep in mind. You want to make sure that your style of trading fits with what they are looking for. Some of the drawdown stuff you can change that.

If you’re using a fixed fractional method of risk management. So you risk, for example, 1% and they tell you you can’t have more than a 6% drawdown and you know that you’re probably going to have a 6% drawdown when you’re risking 1%, you can normally reduce that.

Like, if you reduce your risk to a third of 1% or a quarter...