Prop Trading for Beginners: Everything You Need to Know

Prop trading has become increasingly popular among Swedish traders in recent years. But what exactly is prop trading, how does it work, and how can you get started? In this guide, we'll go through everything you need to know to begin your journey toward becoming a successful prop trader.

What is Prop Trading?

Prop trading, or Proprietary Trading, means that you trade with a company's capital instead of your own. Traditionally, prop trading has taken place within large investment banks and financial institutions, where traders are employed to trade with the company's own capital.

In recent years, however, a new model has emerged – online-based prop trading firms (prop firms) that offer external traders the opportunity to manage the company's capital after undergoing an evaluation process. This is a win-win situation: the trader's risk is limited because it's not their own capital being traded with, and the prop firm gains access to talented traders without having to employ them.

Advantages of Prop Trading

• Access to larger capital: You can trade with much larger amounts than you personally have access to, which increases your profit potential.
• Limited risk: You don't risk your own capital, only the evaluation fee.
• Professional development: Prop firms often provide advanced trading tools, education, and coaching.
• Potential income source: Successful traders can earn significant amounts through profit sharing.

How do modern prop firms work?

Most prop firms on the market use a business model called "challenge-model". Here's how it usually works:

1. Pay an evaluation fee

   You pay a one-time fee to get access to a demo account with a certain amount of virtual capital (e.g. $10,000, $25,000, $100,000).

2. Go through an evaluation (challenge)

   You must achieve a certain profit target (e.g. 10%) while following certain trading rules such as maximum daily and total loss. This shows that you can generate profit and manage risk.

3. Verification phase

   After the first evaluation, you often have to go through an additional phase to confirm your skills, usually with a slightly easier goal.

4. Funded account

   When you clear both phases, you get a funded account where you trade with the company's real capital and share the profit (usually 70-90% to you).

For a complete comparison of the best prop firms for Swedish traders, see our top list.

Common trading rules at prop firms

Most prop firms have similar trading rules designed to promote responsible risk management:

• Maximum daily loss: Usually 4-5% of account value
• Maximum total loss: Usually 8-10% of account value
• Profit target: Usually between 8-12% of account value
• Minimum trading days: Some firms require you to trade a minimum number of days
• Trading around news: Some firms prohibit trading around economic news
• Maximum position size: Limiting how large positions you can take

How is it to trade with a prop firm as a Swedish?

As a Swedish trader, you need to consider a few specific things when trading with international prop firms:

• Taxes: Income from prop trading must be declared as capital income. Contact the Tax Agency or an accountant for specific advice.
• Payments: Most prop firms pay out via bank transfers or e-wallets. Make sure you can receive payments in the currency the firm uses.
• Time zones: Be aware of time zone differences if you trade on markets outside Europe.
• Customer service: Check if the prop firm offers support when it works for you.

Is prop trading right for you?

Prop trading is not for everyone. It's most suitable for you if:

Conclusion

Prop trading offers an exciting opportunity for Swedish traders to trade with much larger capital than they would have access to on their own, while limiting the risk. With the right preparation, strategy, and risk management, you can increase your chances of clearing the evaluation process and begin trading with a funded account.

Remember to compare different prop firms to find the one that best suits your needs and trading style. See our comparison guide to make an informed choice.