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Three Ways to Fund a Trading Career

Three Ways to Fund a Trading Career
March 12
22:38 2012

Myth: Trading is a rich man’s game.
Fact: You don’t have to be super wealthy or super connected to make it in the trading business.

The markets are universal and unbiased, one of the most level playing fields out there. The charts will pay you regardless of your background, education, paycheck, race, location or age; in fact it doesn’t even know that you are there! Now that we’ve addressed that myth, here is another fact: trading does require capital. How much capital and whose capital depends on which route you take to launch your trading career. Here are a few of the most popular options

Rogue Trader

Without having any real statistics, one could venture a guess that more than half of new traders start with their own capital. This capital may come in the form of birthday money, retirement savings, or borrowed funds from family and friends. This is probably the riskiest path because an independent trader is wholly and solely exposed to all the risk. However, this is probably the most freeing option because traders can develop their own style, trade what they want, and reap all of the benefits. However, it is important to remember that in order to increase returns traders must invest more risk capital.

Desk Trader

Another way to launch a trading career is to land a position at a bank to work as a trader. This option requires some level of education, in most cases at least a bachelors degree. Also, the hiring process is quite rigorous because hundreds of traders a competing for each position. If you are successful at landing a job as a junior trader, you don’t have to use your own capital which means little to no exposure to risk and in most cases traders have the extra security of a base salary. The first six months to a year is training, which primarily involves supporting the activity of other traders. It takes a considerable amount of time to prove to the firm that you are ready to trade and to be trusted with their capital. In addition, in most cases traders do not have the freedom to trade their own style and must commit to using the bank’s strategy. However, profitable traders are rewarded with a very generous trading portfolio and hefty bonuses.

Prop Trader

Proprietary trading, commonly known as prop trading, is another option for traders who want greater buying power without using all of their own capital. Proprietary trading firms can in all shapes and sizes and cater to all kinds of traders, the scalpers, the swing traders, the intraday traders and more. Each firm offers unique bundle of options which involve the trader putting up a certain amount of risk capital in return for leveraged buying power, discounted fees, coaching, risk management, and professional trading platforms. Traders must do their due diligence to find the firm that suits their trading style and provides the right level of support and stability. Much like in any relationship, traders must be careful to choose an honest and legit prop firm that will provide them the right kind of support. With the right level of due diligence a partnership with a prop firm can be very rewarding.

Traders do not strictly fall into one category and can also choose to use all of the options detailed above. Whichever way you choose, be realistic about how much capital you need access to and how much risk you can take on.

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