Proprietary futures trading involves high-risk speculation of the financial derivative markets. A prop futures trader should possess knowledge and experience in analyzing and executing market orders and understand the basics of profit-and-loss ratios. The role involves designing and developing trading strategies and methods to achieve profits and manage trading risks. Aspiring prop futures traders must understand the basic requirements of working in the financial securities market, including capital contribution and licenses.
Prerequisites
Prop traders must understand the dynamics of the derivatives market. Although a college degree isn't needed, you may want to take training courses at local colleges or online. Most employers also will provide intensive on-the-job training on various trading strategies and specific approaches used by the firm. Proprietary futures trading firms will require you to make an initial capital contribution prior to joining them. The average contribution is around $10,000, which is security in case of losses from your trading activities.
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License and Certification
To join a proprietary trading firm, you must pass the Series 7 exam and become a "registered representative." The exam basically covers securities industry rules and regulations, as well as pricing valuations. Some firms require additional licenses. For example, prop firms affiliated with NASD will also require a Series 55 for you to trade with them.
Payment Commissions
There is a lot of competition in trading firms, requiring you to maximize profits to earn your commissions. Commissions vary by firm and are negotiable. Most prop futures traders prefer joining groups to negotiate the best rates, though these setups generally require the leader to get a cut of all commissions. Depending on the proprietary trading firm, you may get a 30 or 50 percent commission on your total profits without liability for losses.
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Qualities and Attributes
Successful prop futures trading require a confident and disciplined personality to help you resist emotional reactions, especially in the face of losses. With large sums of money at stake, you will need to make speedy decisions in placing futures trades. In addition, you will be required to apply math skills in working out profit-to-loss ratios to identify potential futures trading opportunities in the market.
