How stressful is prop trading? Too much stress is one of the hardest things for some prop traders to deal with. It’s normal to feel stressed while trading, but too much of it can hurt your chances of making money with a prop trading firm. As a prop trader, you should try to keep your stress and anxiety in check and stay mentally healthy as much as possible.
We are going to talk about the main reasons why some prop traders feel stressed in today’s blog post.
How stressful is prop trading?
When people trade financial products with their own money instead of clients’ money, this is called proprietary trading (prop trading), and it can be very stressful. There are several things that can change how stressful prop trading is:
Market Volatility
Changes in the market have a direct impact on prop traders. Profits and losses can change quickly when there is a lot of volatility, which can make things stressful.
Risk Management
Prop traders need to be very good at managing risk because they use their own money. Any mistake or lack of risk management can lead to big financial losses, which adds to the stress.
Performance Pressure
Prop traders are often judged on how well they do in trading. Keeping up with your trading and meeting your profit goals can be stressful, especially in a competitive market.
Pressure to act quickly
Markets work in real-time, so choices must be made quickly. Trading is fast-paced, which can make you feel rushed and stressed, especially during times of high volatility. [How stressful is prop trading]
Uncertainty
Economic events, changes in geopolitics, and surprising news are just some of the things that can affect the financial markets. Prop traders may feel stressed because the market is always unclear.
Long Hours
Prop traders often work long hours because they have to keep a close eye on the markets and make quick choices. Working longer hours can make you physically and mentally tired, which can make you feel more stressed.
Performance-based pay
For many prop traders, a big part of their pay comes from how much money they make dealing. This can add to the stress because trade success directly affects one’s own income.
Regulatory Environment
Prop sellers have to deal with extra stress because they have to follow financial rules. Following the rules and regulations is very important, and breaking them can lead to serious problems.
It’s important to remember that everyone handles stress differently, and some people do well in the fast-paced world of prop trading. Prop traders who are good at what they do usually have a mix of technical skills, focus, and the ability to deal with stress well. But because the industry is so intense, not everyone should go into it. People who are thinking about a career in prop trading should really think about how much risk they are willing to take and how well they can handle stress.
Is prop trading risky?
Prop traders don’t use their own money, but that doesn’t make the risks less. Why do you think prop firms are risky? Here are some things you should know:[How stressful is prop trading]
Poor performance
Poor performance is a risk that comes with all types of trading, but it’s especially big when you use a lot of leverage. The market could go down, you could make bad trading decisions, or unexpected economic events could cause you to lose money, even if you do well. Losses have an impact on the trader’s profit-sharing agreement, and in the worst cases, the trader loses their trading privileges.
Financial loss
Traders’ deposits are not protected, so they could lose money. This is because fraud and other business risks can happen. Because there aren’t many rules, prop traders only deposit what they can afford to lose. This is a good rule to follow at all times.
Strict rules for risk management
To protect their money, prop firms have strict rules for risk management. These rules help financial companies keep their assets safe, but they can make it harder for traders to make trades when they need to. Unfortunately, this often means missing out on opportunities or having to leave positions that could have been profitable.
You should be ready for these basic risks when you work with any prop firm. The constant pressure to do well may make the risk of losing money because of bad performance even higher, which is something that many traders can’t handle.
A different kind of risk comes up when you do well; it has to do with intellectual property. In particular, some prop companies might figure out your special strategy, which could make it less likely to work in the long run.[How stressful is prop trading]
How many prop trader fail?
Now, even though it sounds great to make a lot of money trading company funds, you should know that it is not easy to get through the “challenges” and “verification” steps that most proprietary trading firms make their applicants go through. There are often strict rules about maximum drawdown, overnight trading, and swing trading in these challenges and verification steps. This makes it hard to meet the trading goals and pass the challenge.
A study and data received from various prop firms show that between 80% and 95% of traders fail prop firm challenges. It shouldn’t be too hard to figure out why these rates are so high. These numbers come from different places. There are a lot of “Instagram influencers” these days, which makes a lot of people interested in trading. I call them Instant Trader. Most of them don’t have any trade experience or market knowledge.
Traders only pass 10-15% of prop firm challenges, and only 1% to 2% of those traders get to keep their funded accounts for an acceptable amount of time.
Why do people fail prop firms?
People who want to become proprietary traders often fail the challenge and verification stages of proprietary trading firms. These include being greedy, not having good risk management skills, not knowing what a drawdown means, and having a relative drawdown. Anyone can apply to a prop company. [How stressful is prop trading]
Anyone can work at a prop firm.
Prop firms say they want to hire the best and most skilled traders, but that doesn’t mean that only those traders apply to work for them. Anyone can fill out the form on a prop firm’s website and sign up for the trading challenge to become a sponsored trader.
After someone pays their fees, there isn’t much of an evaluation process. This means that the prop company doesn’t know how much experience or trading knowledge the trader has. Because of this and the fact that trading has become more popular in general, a lot of people who have never done it before sign up for the prop funding challenge and fail it.
Want to get quick rich?
As we already said, a lot of people are interested in trading large amounts of money that aren’t their own. This is why many applicants could be seen as greedy. Those who pass the trading tasks and get the money want to make as much money as possible as quickly as possible. This usually causes people to trade too much, use too much leverage, and take too many risks in general.
Not following the rules when trading
When dealing with the financial markets, it is very important to have good risk management. Most likely, this is even more true for firms that do their own trading. Most traders don’t have this or are afraid of taking risks, especially when they’re dealing with money that wasn’t theirs to begin with. [How stressful is prop trading]
Some prop trading firms don’t require traders and people who want to work for them to use stop-losses, but most of them do. We really don’t think any broker should do that. It’s no secret that a lot of new traders don’t know how to properly manage their risks, which can ruin them, especially if they are trying to get money from a prop company.
I don’t understand the rules for maximum drawdown
In the challenge stage, every proprietary trading company has rules about the biggest loss they can take. This could be the biggest loss that can happen in a single day or the biggest loss that can happen during the review stage, which usually lasts 30 to 60 trading days. Sometimes these drawdown rules are very strict. But even when they’re not, a lot of traders don’t read the whole challenge terms and break these drawdown rules, which means they fail the private trading firm’s challenge.
The amount of drawdown
Some firms that do proprietary trade have a conflict of interest and want the people who work for them to fail their tests. These prop firms have rules about relative losses that change based on how well a trader does. Compared to an absolute drawdown, this type of drawdown is hard to keep track of. The prop firm that has this type of drawdown in place knows this. It is not a good idea for traders to apply to any prop company that has a relative drawdown rule in its terms and conditions. [How stressful is prop trading]
Conclusion
To be successful in proprietary trade, you need to be very disciplined, know how to handle risks well, and have a strong mind. There will be times when you question yourself and lose money over and over again, but those who stick with it and keep making money can unlock a world of financial rewards and personal growth. If you’re good at prop trading, it shows that you can deal with stress and uncertainty and come out better and wealthier on the other side.
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I’m a seasoned trader with over 3 years of experience in financial markets. Throughout my journey, I’ve navigated various market conditions and developed my skills in trading strategies, risk management, and market analysis. Now I am also developing myself as a good digital marketer.