Questions to Ask When Considering Joining a Self-Employed Trading Company

If you are considering joining a self-employed trading company, how do you evaluate different companies, especially if you have never worked or traded for one before?

There are so many companies out there, and they offer so many different combinations of rates, settings, training, remote/onsite, market specialization, training, etc. you really have to do your homework.

Start by asking around reputable companies, but don’t be afraid to look for a new company (as long as you do your due diligence). There is nothing better than going to your location, shaking hands and having a look.

The good thing for traders is that there are many companies, so you can afford to be picky. There are a number of high-profile cons that sadly taint the general perception of the entire prop industry, but there ARE some reputable ones.

Any company that allows you to leverage their money without your money up front will want you to take some type of training course or have a proven and audited track record of performance. This is perfectly reasonable, as they are not in the business of giving away their money to anyone who wants to try their hand at trading. The training fee buffers them down in case you are losing your money and the course itself ensures you at least know how they would like you to trade your money. However, whether paying for training is right for you is the subject of another article.

There are other prop firms that will require you to make a deposit into your trading account, usually a minimum of $5000, from which they will add additional buying power, usually 10:1, and no courses are required. You still use your money for the additional leverage, but it is your deposit money to lose, they do not intend to let you lose your share of the principal.

Here are some questions you can ask any proprietary business venture you are considering joining. The questions cover a variety of the most important criteria that we suggest you consider:

1. What is the name of the incorporated company, not just the trade/brand name and how long have they been in business?

  • This means you can look them up in the state registry or company house and see how long they’ve been around, and in some cases, for a small fee, you can access their annual accounts or statements to see how financially stable they are. are.

2. Find out all the fees you may be charged.

  • Not just commissions! While you obviously need to find out what your total cost per contract/action will be, you should also ask about any desktop, access, or software fees. You should also ask about exchange refunds, ECN kickbacks, or cost reductions or price markdowns for hitting volume thresholds.

3. How does the company make money?

  • Do they require high fees? High Commission? Are traders required to put up money before trading? Obviously, if a trading company makes most of its money from trading activities, that’s a good sign. Beware of a company that makes most of its profit from fees, such as training charges.

4. Do you need to deposit your own money or does the company offer “fully backed” deals?

  • If a deposit is required, how much?

5. What “size” can you deal in, or what buying power will be given to you?

  • What is the procedure for scaling or increasing your size as you deposit profits into your account? Is this purchasing power reduced if you take a drawing or a paycheck?

6. In which markets can you operate?

  • Are there any restrictions, ie only large cap stocks or only STIR Futures, or can you trade whatever you want? Does the company market a variety of products and strategies?

7. What is a profit sharing or payment arrangement?

  • Can you keep 50%, 70% or whatever of the trading account profits? What are the withdrawal intervals? Some companies allow only certain days of the month or a certain number of withdrawals in a month. Does the money need to stay in the account for a certain period of time?

8. What are the Risk Management parameters?

  • Is there careful business management and, more importantly, risk management? What is the management philosophy for developing traders? How do traders view this management style?

9. What are the stop loss criteria?

  • If you are trading company money, how much can you lose before you have to stop trading for the day/week/month?

10. Is the company authorized by the FSA in the UK, or by the NFA or SEC in the US?

  • Check and confirm any claimed regulatory affiliation. Being licensed as a prop company is not a legal requirement in the UK unless the company accepts deposits, but it is a definite measure of credibility and quality if they are. Beware of unauthorized prop groups, as regulators in many countries are taking a closer look at the activities of stockbrokers, and you don’t want your prop business to disappear or close down taking your money or profits with you! of your account!

11. Are you members of any exchanges?

  • Check and confirm your exchange memberships.

12. Is any type of license or permit required to carry out commercial operations?

  • In the United States, most prop groups require NFA series 7 certificates. Canadians are exempt from this requirement. If a license is required, will the company sponsor it? Will they help you get the license?

13. Read the customer agreement or commercial contract carefully!

  • Highly recommend that you invest in the small expense of having a lawyer read the contract for you! You should be aware of any foreclosure clauses that may force you to pay losses, pay fees, or lock up your capital or profits by leaving the company.

14. Do you offer training or mentoring?

  • Find out who provides this and how. For how long? Is there a cost? How successful have other trainees who have gone through the course been? How many traders have been trained and how many are still in business? Does the company invest in its developing merchants?

15. Who are the owners/sponsors of the business?

  • Look them up on Google, Linkedin and anywhere else you can think of. What is their background, experience and history? Are there skeletons in the closet that you should be aware of?

16. How long have the best traders been working with the company?

  • Has the company fostered successful traders? If you see highly successful merchants staying with a company, you know the company is building loyalty and delivering value.

17. Talk to those who trade there or have gone through the training program.

  • What is the atmosphere in the office? What kind of people work there? Are they happy/satisfied with the company? Do merchants collaborate and share ideas? Is it a fun place to work? Post questions or ask for experiences on trading forums like Trade2Win and EliteTrader, though understand that you’ll get a wide range of responses, some of which may be highly polarized on topics the writer knows nothing about.

18. What business strategies does the company employ or prefer?

  • Are they a calendar or pairs swap setup? Do you market or provide liquidity for ECN redemptions? Do they allow trading rights and in which markets?

19. What software, graphics and trading platforms do you use?

  • Look for these apps – are they big names you’d be happy to work with, like TT, CQG, Reuters, Bloomberg, or are they less developed or supported apps that may cause you stability issues?

20. How is your IT hardware setup?

  • How up to date is your infrastructure and how is it supported? Do they have dedicated IT staff?

21. Do you provide proprietary or in-house trading signals, software or technology?

  • Do they have superior trading platforms, IT support and decision support tools for traders?

22. Consult the regulatory infractions, disciplinary measures or sentences handed down against them. 23. Through whom do you settle your operations?

  • Check the adjuster and make sure they are financially stable and reputable, as that is ultimately where your money or account will be kept.

24. Request a copy of the most recent financial statements or balance sheet of the owner business.

No single company will offer you everything you’d like on all of these suggested criteria, but by keeping a “score” against your answers, you’ll quickly separate the most compelling options from the rest. Find a support company that makes most of its income from your success and invests in good overall support for its merchants. Beware of companies that charge high fees and then offer very small amounts of capital to trade.

Above all, find a company that operates the way you want to operate. Ultimately, there has to be a match between the prop company’s business strategy and the skills and interests of its merchants.

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