Lesson #22: Evolution of the Trader—Proprietary Trading and Funds Management


As the final chord of my course, I would like to talk about the development of the trader. I also would like you to share your thoughts about my course in the comments!

I want to start with my memories of how I started trading forex and stocks. I spent the first year studying an enormous amount of information about the financial markets. I read all the books on technical analysis and I was completely obsessed with this topic. I realized that I could make money if I understood the structure of the market and found some price patterns.

When I was done with the books and I found the money to open my first deposit, then I entered a period of making mistakes: unstructured trading, attempts to profit from the news, scalping. I have been through that, too. I am not sure if it is even possible to start trading wisely with no losses. My free course is designed in the way I would like to be taught to trade and made to help budding traders avoid at least some of the mistakes. I hope my readers will tell me whether I achieved this goal or not.

Nonetheless, I have come to earn a steady profit after a long period of hysteria, pain, and persistence. I increased the deposit, reorganized my working process, and started to work consistently. Probably, something in my mind changed over time. I decided to strictly follow my strategy. I got rid of the habit of going beyond the strategy over time.

I would like to talk about what happens when things settle down. Yes, it takes time and persistence to study trading but, sooner or later, your learning will be complete. Similar to poker, trading eventually becomes a routine. Of course, the unprecedented changes of the modern world economy keep us busy. Now and then, the market gives us amazing opportunities to instantly make a fortune. Think of the pops in cryptocurrencies that you can catch now. It will also suffice to mention plummeting of the cryptocurrencies that you may trade right now.
Anyway, a professional trader must have room for growth. The next stage of the trader is to manage other people’s money.

Trading Investors’ Money

I should say that taking money for trading is an extremely big commitment that may change your life either for the better or for the worse.

The first transactions on the PAMM accounts will definitely make you feel the same way you did when you started trading on a real account after the demo account.

I see why people want to work with other people’s money, though.

First, you can multiply your profit this way. Can you feel the difference between 3% of $10.000 and 3% of $10.000.000? I can. What’s more, we both know that 3% can be earned using the same trading approach.

Second, it’s all about the ego. When a trader takes other people’s money for trading, he/she becomes an investment company consisting of one person. Many traders do this, by the way. All it takes to earn millions of dollars is a talented trader, who may be using the service of dozens of managers, secretaries and lawyers. Actually, many investment companies, including the Wall Street companies, work this way.

Before you start thinking about managing funds, you should answer the following question:

  • Are you ready for such responsibility?
  • Are you sure that your trading is good enough?
  • Does the market you trade in allow to trade $100 and $100.000 with the same efficiency?
  • What will happen if you lose the investor’s money?

How Can You Find Money for the Funds Management?

I see three sources money used for the funds management.

  1. Friends
  2. Many prosperous traders manage the money of their friends. It is not necessary to have them be your close friends but they may be the people who know you; they follow your success, they know you are a reliable person and they know that, if you lose their money, they can always find you. The last point seems to be the most important for me.

  3. Investors
  4. Many prosperous businessmen have the bulk of money that there is to be invested. Funds management is a most risky but also a most profitable funding source, so a good trader will not go unnoticed.

    You can do the following if you want to start working with an investor:
    a) Start to trade publicly and make regular reports. The chance that an investor will find you increases significantly in this case.
    b) Write directly to the investors. In this case, you will need to prove your profit by providing the tax reporting and your trading statistics certified by your broker.

  5. Companies
  6. A prosperous trader may work with a company that entices both private and corporate investors. This is very much like formal employment, but you receive interest from the profit you make on the company’s investment account instead of a monthly wage.

  7. The PAMM accounts

This is probably the most popular way for forex brokers to work with other people’s money. There are trading platforms that allow a broker to start trading publicly and, after a while, the private investors may decide to transfer their money to the PAMM account based on trading performance (such as percentage of profitable trades, maximum drawdown, etc.). Unfortunately for the investor, the trader does not bear responsibility in case of the loss of the funds. Nevertheless, traders who have the largest account history and the most stable strategy gain the most significant money.

If you have been making a profit for quite a long period, I would suggest you start trading publicly with a PAMM account (you don’t need to take the investors’ money for that) or on any service that tracks your trading history (for example, myfxbook), even if you are not planning to take money for funds management. When you feel that someone is watching your progress, you will strictly follow your strategy and mitigate risks whenever it is necessary.

Proprietary Trading

Curiously enough, loneliness is another side of the trader’s life. Even the online poker players, who spend their lives in front of the monitors doing the same actions day by day, go now and then to the tournaments not to earn money but also to communicate with other players.

Traders rarely write about loneliness, but I think this is a key problem that will eventually bring a trader to failure. In fact, it is not so hard to find a profitable strategy. Any of you who have read the entirety of my course will be able to trade profitably. The problem is to follow the strategy strictly. I think that the flawed private life is a most serious reason for the psychological shifts that cannot help but affect your trading. Stress accumulates and, sooner or later, it results in failures and losses of deposits.

Many long-standing traders eventually cope with loneliness. Some of them have a part-time job inherent with professional interaction. Some of them lead an active life on social networks and trading forums and they love chatting in the comments. Some of them settle for communication with their families. However, the offline teams are the best option for some traders. They can eventually unite and set up proprietary trading teams and companies.

проп трейдинг

It usually goes this way: several familiar traders decide to unite and lease an office so that the home environment will not distract them from work. Soon enough, they decide to find more traders to fill the office and widen the circle of communication. Eventually, this team gets a leader, who directs the team for further development. The development stages of the proprietary trading team can be the following:

  • Recruitment of the risk manager who will control and set limits to the risks of the team participants.
  • Development and selling of tutorials.
  • Many prosperous traders are eager to teach someone. Besides, it is very useful to diversify your profit all the more so you can please your ego (that’s exactly what I am doing now). Unfortunately, a good trader is by no means always a good teacher.
  • Bringing on trading algorithms.

If one trader who creates trading robots joins nine traders who trade by hand, they will all inevitably become interested in algorithms. The strategies of many traders can be shaped into formal rules that the trading robot is able to understand. If this is the case, the algorithm does not only save the traders time but also significantly improves efficiency since it prevents human errors.

Unfortunately, there are few proprietary trading teams in any country. If you truly set your heart upon joining these kind of teams, you can try to look for the colleagues and associates from your town/city on the social networks or try to put a team together on your own.

Well, I think this is it! This is the last lesson of my course and I do hope that your precious comments will help us to improve it. I hope this course will help you increase your trading performance. I will be glad to read your feedback on the course and to answer your questions. You may also send me an e-mail if you want to talk to me directly.

Good luck in your trading!

Best regards, Pipbear