Prop trade is a guide for beginners to understand

If you’ve just entered the trading world and often hear the term “Prop trade” but aren’t sure what it is or if it’s right for you, this article will provide clear answers. We’ll explain the basics, methods, and what you need to prepare before entering this system.

What is Prop Trade? Basic Meaning You Should Know

The term prop trade comes from “Proprietary Trading,” which means a system where a company provides capital to traders so they can seek profit opportunities in various markets.

Unlike typical securities firms, prop trading doesn’t start from a demo account. Instead, the company “hires” traders to work with the company’s funds. The amount of capital depends on your skills and experience. When you generate profits, the company takes a share according to the agreement (e.g., 50/50, 70/30, or other ratios).

Fees paid to the prop trading company also include utilities, trading software, and management costs, which vary between institutions.

How Does Forex Prop Trade Work?

Forex Prop trade is similar to general prop trading but focuses specifically on the currency market (Forex Market).

There are two main types of Forex markets:

Traditional: Traders work in a physical office, earning a fixed salary, bonuses, and advancement opportunities.

Online: Apply online, verify skills through a demo account, then gain access to real capital.

Since 2020, online models have become very popular because they are easy to access, no need to relocate, and allow working from anywhere.

How the Prop Trade System Works

Prop trading companies give you access to large funds in exchange for a share of the profits. However, the process isn’t entirely easy. You must pass a test called the “Challenge,” which assesses your skills.

Typically, these Challenges have fees (ranging from $99 to $500 depending on the company), and you need to prove that you can:

• Generate sustainable profits
• Control risk effectively
• Maintain disciplined trading habits

If you pass, the company will open a live trading account with real funds. You will have 30-60 days to demonstrate your abilities during this period.

How to Apply for Prop Trade as a Beginner

If you decide to try prop trading, follow these steps:

1. Find the right company – research reputation, profit ratios, and strictness of conditions.

2. Check qualifications – generally, you must be 18+ with some experience or a serious interest in learning.

3. Apply online – fill out the form and upload documents, sharing your experience.

4. Pass an interview – the company may want to discuss your skills and trading plan.

5. Start the Challenge – test your skills on a demo or limited account.

6. Access real funds – if you pass, you can trade with the company’s capital.

Benefits of Being a Prop Trader You Should Know

✅ Freedom and Flexibility – set your own schedule and make decisions independently, no need to be in an office.

✅ Potential for Huge Profits – if successful, profits can support your livelihood and generate extra income.

✅ Lower Risk – the company bears most of the risk; your only risk is the challenge fee.

✅ Large Capital – access to funds that may be 10-100 times your own investment.

✅ Supportive Community – prop firms often have trader communities sharing strategies and experiences.

Challenges and Drawbacks to Be Aware Of

❌ Discipline and Mental Strength Needed – trading requires high mental focus and resilience.

❌ Trading Psychology Is Difficult – controlling emotions, hopes, and fears is the biggest challenge; avoid trading to recover losses.

❌ Fees and Other Costs – multiple attempts may be costly if funds are limited.

❌ Unstable Income – no fixed salary, bonuses, or sick leave like regular employees; profits depend on performance.

Comparing Hedge Funds and Prop Trading

Who Can Enter Prop Trade?

Prop trading is open to traders of all levels, but certain conditions apply:

• Age: Usually 18+.
• Experience: Not necessarily extensive, but basic market understanding is required.
• Risk Management Skills: Critical for evaluation.
• Resilience: Must be prepared for tests and learning from failures.

In reality, prop trading isn’t about pass/fail but about preparation and mindset.

Key Strategies for Success in Prop Trading

1. Manage Risk Effectively

Risk is a trader’s enemy. Always set a Stop Loss; risk no more than 1-2% per trade to protect your capital.

2. Learn Support and Resistance Levels

A practical strategy is buying near Support (where price bounces up) and selling near Resistance (where price bounces down). This helps control risk.

3. Use RSI Indicator for Decision-Making

RSI (Relative Strength Index) measures overbought (>70) or oversold (<30) conditions. Sell when RSI > 70, buy when RSI < 30.

4. Stick to Your Proven Strategy

Don’t change your strategy daily. If it works, continue; consistency is more important than complexity.

5. Control Your Emotions

Avoid trading out of anger or revenge. Take breaks if your mind isn’t clear.

Managing Risk in Prop Trading

Risk involves your money and the company’s funds. To reduce risk:

1. Deep Market Knowledge – read articles, study technical and fundamental factors.

2. Clear Trading Plan – know your exit points and loss limits before entering a position.

3. Backtest Strategies – use historical data to evaluate performance.

4. Risk Only What You Can Afford to Lose – avoid using essential savings or funds for daily expenses.

Summary: Prop Trade Is About Preparation and Mindset

Prop trading offers high potential for success with large capital and attractive profit opportunities. However, it’s not suitable for everyone without proper preparation.

Most importantly:

• Understand that prop trade involves trading with the company’s money, not your own.
• Prepare your skills, knowledge, and mindset.
• Choose reputable prop firms aligned with your goals.
• There are no shortcuts, only correct methods.

With perseverance, sincerity, and a willingness to learn, becoming a prop trader can be a rewarding path.