There are a lot of things that can make you a skilled trader in a prop firm, which include analysis of previous data, utilizing charts, developing the right strategies, and managing and mitigating risk. But the real power lies in the moments that you must make the trade, as, in the end, trading is a game of the head, and only with the right discipline and mindset can you achieve success.
Understanding Prop Firms and Their Purpose
If you are wondering what is a prop firm, here is a small breakdown. In a prop firm, many traders work using the company’s capital. They do not have to trade their own personal money but use the firm’s money to make trades. Such a model is beneficial to the traders as they get to keep a percentage of the profits that they make for themselves without having to risk their own money. While prop trading may seem like it is all good, it does come with its own set of psychological challenges that the traders may face.
Working Under Pressure
Working under the pressure of trading with someone else’s money can be overwhelming. While traders do not have to worry about putting their own money at risk or having to deal with a financial loss, there is still the pressure of making the right decisions with someone else’s. A lot of traders can have performance anxiety and may second-guess the decisions that they normally make with the most ease. They are also constantly monitored, with P&L tracking through which their managers can see exactly how many losses and gains they have made daily and can track the performance of the traders under them. They also have the pressure to meet daily targets and avoid losses more than the allowed daily threshold. Around ninety percent of traders lose their money, and such a statistic can be overwhelming for traders to work with, adding to their already high levels of pressure.
Fear of Breaking Rules
Prop firms have strict rules and regulations, such as daily loss limits and profit thresholds, as these firms need to manage risk, and since they cannot look over all the traders working in their firm, they must ensure that the rules are being followed. Through live profit and loss tracking, managers can know exactly how much their traders are making or losing, so they can easily identify any problems before they become huge and allow for better risk management. Bringing in losses for the firm can put the traders at risk of losing their profits or losing their trading account, which can add to the fear of the trader and increase their losses.
Self-Doubt and Imposter Syndrome
A lot of traders are in a lot of self-doubt that can hurt their performance. Even traders who have an excellent track record of performing well can find themselves questioning their abilities when they are entrusted with someone else’s money. Doubt is not a good thing when it comes to trading, as that could mean a moment of hesitation that could ultimately mean a huge, missed trade. Also, some traders may even feel like they do not belong in the position they have been given, as the huge amount of capital in their accounts can make them think that they do not deserve to be in such a position, even if they have the skills. Some will also compare their performance to others, feel discouraged, and their mind will be too full for them to make the right decision. Such traders should overcome these doubts and fight these internal battles so that they can make the right decisions.
Accountability and Professionalism
When you are working at a prop firm, you are working as a professional following strict protocol and gaining something while you give it your all. It cannot work on a fluke, and it cannot be a gamble, the way that you may consider a trade to be when you put your own money at stake. You are answerable to your manager and have thresholds to meet, which builds in you a sense of discipline and helps shape you into a professional who treats the market with respect.
Conclusion
While some may be worried about learning about prop firms, the real challenge is the psychological war that you have with yourself. You will have to master being confident, focus on the process and not the outcomes, and train yourself emotionally so that you are able to make the right decisions without letting your head get the better of you.