How to Become a Professional Trader: Trading

How to Become a Professional Trader: Trading
This is a Guest Post by AK of Fallible
AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.

If you want to trade for a living there are many different paths you can take.

You can join a prop firm like SMB capital. In this role you will trade the firm’s capital and receive a percentage of profits from your own trading book. There’s no cap to the amount of money you can make but there’s also no salary either. Your pay completely depends on your trading consistency.

There’s also opportunities at larger funds like Jane St., D.E. Shaw and Bridgewater. Here you will receive a salaried position with benefits and a job title. You will most likely work within a team on the firm’s trading strategies instead of your own personal trading strategies. Sometimes the work will have nothing to do with trading at all. You won’t have the unlimited upside that a prop trader has but you will have a guaranteed base salary regardless of firm performance for the year.

If you’re lucky enough to know a rich family you can work for a family office which is essentially a large investment fund with a small staff. The trading work here ranges widely depending on the families risk tolerance. Some will want to develop out short-term trading strategies and others will want to focus on asset allocation. Compensation will be similar to that at a hedge fund, a comfortable base salary with performance bonuses.

Large pension funds and endowments like CalPERS and TRS involve trading but on the asset allocation level. This job will feel like a standard corporate job with steady pay but limited upside. It’s unlikely that you will be trading your own ideas but you will still get to stay in touch with the trading and investment world while enjoying a cushy salary plus benefits.

Entrepreneurial traders may elect to start their own hedge fund and focus on trading their own unique trading strategies. This career path has unlimited upside but it’s really hard to pull off. Startup costs for a fund are extremely high and the fundraising grind is tough. It takes a lot of time.

The RIA/wealth manager route is great for people who like trading but also enjoy helping people. In this role the main job is to help people plan for retirement. The investment process is mostly driven by passive buy and holding so there’s a lot less active trading in this role. Compensation differs depending on what firm you work for, but in general it will be stable and not dependent on whether clients have an up or down year.

For traders that dream of no boss, no clients, no hassles, and complete freedom they can choose to go at the markets alone and live off of their individual trading account. This is one of the hardest routes in trading to take because there’s no guaranteed money and you have your own capital at risk. It’s almost impossible to sustain unless you have a large amount of starting capital.

Finally, there’s a new opportunity emerging for quantitative traders. If you have a programmable trading strategy, you can submit it to firms like CloudQuant and Quantopian for review. If they like your idea they will allocate a large sum of money to your algorithm and give you around 10% of all future profits. This is an awesome opportunity for an individual who likes to develop trading ideas but doesn’t want to risk their own capital or pursue trading as a full time job.

To learn more, make sure you watch the video above!

And as always, stay Fallible out there investors!

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