Sunday, July 01, 2007

Steps Toward Joining a Proprietary Trading Firm

A reader and active trader recently emailed me, requesting my assistance in helping him land a position with a proprietary trading firm.

He didn't attempt to convince me that he had a passion for trading, that trading was his dream, that he was a hard worker, or anything of the sort.

Rather, he enclosed month after month's worth of account statements. He lifted the skirt and showed me his trading.

That, folks, is what winners do. I am only too happy to help such a trader.

There are many reasons you might be interested in joining a proprietary trading firm. Access to superior technology and support, reduced commissions available to traders at member firms, working in an environment in which you learn from others, and--of course--access to greater trading capital: all of these are reasons that bring traders to "prop" firms.

But what would interest a proprietary firm in you? Nothing speaks as loudly as your account statements and a summary of your P/L metrics (number of winning/losing trades; average size of winners/losers; breakdowns by long and short trades; etc.)

The trader who wrote to me has not been wildly profitable. But he has been consistent and--most important of all--he has demonstrated an ability to manage risk and the downside. If you can be profitable after commissions with consistency and if you can demonstrate sound risk management, you have taken important steps toward joining a prop firm.

The other step that is worth taking is demonstrating an ability to increase your trading size when you have been profitable over a period of time. This should be done gradually, but should illustrate your ability to handle larger levels of risk. Managers at proprietary firms will want to see evidence of your growth and development as a trader, and this is one way to demonstrate that.

In short, if you're potentially interested in joining a proprietary trading firm and trading the firm's capital, the best thing you can do is treat your current, personal trading as an audition for the firm. It doesn't matter if you're trading small; just document that you can trade well. If you do a good job of managing your own money, the firm will have greater confidence that you can successfully manage theirs. And I will be only too happy to help you find a good trading firm.


How Can I Join a Trading Firm?