Why Does A Proprietary Trader Receive Fat Pay Check?
A prop trader's salary averaging around $68,000 doesn't sound extremely attractive. However when bonues are counted, the figure becomes completely different. Prop traders can take home as much as multi million $ per year. If his portfolios turned out to be profitable, his take-home money could be practically no ceiling. However I’ve seen star traders taking home millions of dollars and also traders who lost their jobs when their portfolios lose money.
Let's look into more details of how a proprietary trader make money for himself and the bank.
A proprietary trader (or prop trader) has carte blanche to speculate with the investment firm's funds on all markets. He doesn't need to provide quotes to clients. With a high-risk job, the prop trader is paid a percentage of the profits. When other traders have to share the profits with the structuring, sales and research teams, a prop trader doesn't.
For instance, a bank transfers $100 million at the beginning of the year to a trader's proprietary account. At the end of the year, if his portfolio grows to $300 million, he will then share a portion of the $200 million profit as his bonus. Hence prop traders are among the highest paid traders however have to be the most experienced kind of trader. They have usually put in ten years in the trading room before assuming this post.
Everything has a beginning. If you want to assume a role in proprietary trading, you usually begin as a market maker who works with basic products, such as spot (currency rates), cash equity and government bonds.
In my next post, I'm going to talk about a trader's job in a trading room.
Investment Banking Career - Proprietary Trading