In recent weeks, I've had a number of traders reach out to me, asking about joining proprietary (prop) trading firms or joining trading communities. Here is the essence of my response:* There is value in learning trading and developing trading skills and experience when you can learn from the experiences of others. The best trading firms that I work with operate with team structures where there is a commitment to help each other and learn from each other. Having trading partners can increase our accountability, and it can provide us with multiple role models. Simply being online with other traders is not team trading. Go where traders are committed to one another.
* The best trading organizations only succeed and make money if their traders succeed and make money. When I began my work in Chicago, the best prop firms covered basic overhead with desk fees and passed along member firm commission rates to traders. Those firms shared profits with successful traders. They did not succeed if traders were not profitable. They invested in the best trading technology, because that would make the traders--and the firm--successful.
* You should be encouraged to make money, not simply to trade. Other prop firms in Chicago operated as arcades, where traders traded their own capital, kept most of their profits, and paid fees for access to equipment and technology. Some charged high commissions and made the bulk of their money by getting traders to place lots of trades. When traders pulled back their risk taking due to uncertainty, this became a problem for management. The interests of the firm and the traders did not always align.
* Beware firms selling hope as their main product. Some prop firms are not really prop firms at all, as they promise access to capital based upon tryouts that traders pay for. The conditions of the tryouts are quite challenging, and it's not unusual for aspiring traders to engage in multiple tryouts. Often, the interests of some of these firms are in selling tryouts, not in funding and growing successful traders. Is there real training, real performance feedback, and real teamwork among participants? Does the firm's growth depend upon the success of those who pass the tryouts?
* Seek interactivity. Online trading communities often offer education and coaching as well as sharing among community members. This can greatly broaden the learning of developing traders. The key question in evaluating online trading communities is the degree to which members actually form virtual teams and make teamwork a daily part of their trading processes. If the communities succeed mostly by selling memberships and services, they cannot foster the mutual learning and development essential to our learning curves.
A quick anecdote: Tomorrow, I'll be joining Jeff Holden from SMB Capital to help traders make use of a new technology that tracks the expected value of trades in real time. This can be of tremendous value in sizing positions appropriately and in helping traders grow their risk-taking in responsible ways. SMB is training the traders to take better risk/reward trades and they are investing in the technology so that the firm will succeed as the traders become more successful.
Be selective: The right firms and communities treat you as an investment, not as a trade--
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