What Is Proprietary Day Trading?

Also referred to as prop day trading, proprietary day trading is different from traditional day trading in that it allows you to buy stocks using your broker’s money. With access to more capital, you’ll be able to increase your trading volume and earning potential. Since your brokerage firm will be investing with you, the amount of risk you need to take is lower. However, you’re required to give a part of your profits to the firm.

To become a competent proprietary day trader, you need to have extensive knowledge of stock market conditions, hedge funds, and various investment strategies. Most prop traders have at least a bachelor’s degree in finance, computer science, mathematics, or business. You should also complete an internship with a trading company to gain hands-on experience and make professional connections.

Once you have these credentials, you can apply for a prop trading job at a brokerage firm. Some of the top firms hiring prop traders include Citadel, D. E. Shaw and Co., Jump Trading, Hudson River Trading Co., Tower Hill Trading, and Jane Street.

How to Become a Profitable Proprietary Day Trader

As a prop day trader, your ability to generate profits not only benefits your brokerage firm, but it can also give you great financial rewards. As such, you must learn how to use effective strategies to become a successful prop trader. Depending on the firm you work with, you may be allowed to choose your own strategies or required to follow your firm’s trading style and approach.

Nevertheless, certain strategies are popular among both prop trading professionals and companies, such as:

  • Algorithmic trading: Some prop trading firms focus mainly on algorithmic trading. They have highly skilled computer and data scientists who create algorithms that can help their day traders make better trading decisions.

  • Price action: Price action is a simple strategy that requires you to look at charts to identify patterns. There are many different types of patterns, including bullish and bearish pennants, bullish and bearish flags, triangle, and head and shoulders.

  • Scalping: This trading strategy involves entering and exiting trades within several minutes in order to take advantage of small movements in price. Generally, the goal is to make a ton of trades in a single day and make a small profit per trade.

  • Fundamental trading: Fundamental trading is an approach that relies on a profound understanding of underlying economic data and news. This can mean knowing the latest news about a company, such as its earnings, acquisition, or merger.

Becoming a profitable prop day trader takes a lot of effort and commitment, but the potentially huge rewards it offers make it a worthwhile venture.