Want To Trade For A Living? Here Are 9 Things You Should Know

If you’ve ever wondered what it would be like to trade for a living, a new report by Trading Group’s Michael Milani spells out everything you need to know about the differences between professional proprietary (prop) traders and retail traders. Here’s a look at how the two paths stack up in nine different areas.

1. International traders
This one is the easiest distinction. If you are not a U.S. citizen, most U.S.-based registered brokers will not accept you as a prop trader. International retail traders can simply go online and open up a trading account almost anywhere.
2. Licensing
Prop traders must obtain a securities license, which involves registering and passing either the Series 7 or Series 56 exam. Again, retail traders are funding their own accounts and therefore need no licensing to demonstrate their trading knowledge and prowess.
3. Leverage
For prop traders, leverage limits vary from firm-to-firm and account-to account. On the other hand, leverage limits on retail accounts are strictly defined and inflexible depending on which type of trading account you have.
4. Profits
In terms of profits, you can’t beat the 100 percent take that retail investors get on their returns. Prop traders must yield anywhere from 10 percent to 80 percent of profits to the firm that employs them.
5. Lockup
Once again, retail traders are free to move their money in and out of a trading account as they please. All capital deposits that a prop trader makes to an SEC registered broker dealer, on the other hand, are locked from withdrawal for one year under the “Good Capital Rule.”
6. Firm capital
During certain times of the year, markets become more fertile and trading opportunities are plentiful. During those time, prop traders often gain access to additional buying power, whereas retail traders are stuck with the buying power limits associated with their account type.
7. Data fees
All of the major exchanges have two classes of data: professional and non-professional. While the data is always identical, non-professionals typically pay $1-2 per month for this data, whereas prop traders can pay $40-50 per month.
8. Risk management
Prop traders typically have a whole host of trading restrictions in place to help their firms manage risk. Retail traders, on the other hand, are mostly free to trade within the limits of their buying power.
9. Expertise
This final distinction is likely the single biggest advantage that prop traders have over their retail counterparts. Most professional trading firms have people, technology and materials in place to help traders improve and hone their skills. Retail traders are left to educate and train themselves.

One last similarity between prop traders and retail traders is that making a living trading is not an easy task. Before attempting a career in trading, make sure you are prepared and educated on the difficulties it entails.