While trading is the foundation that the financial industry is built on, there are several career paths one can consider when looking for internships or a change in professions.
Successful traders can earn lucrative 6-figure salaries every year, but what matters more than the pay is what you can expect to do in your day-to-day as a particular trader.
A common question you’ll come across is, what is the difference between trade consulting vs prop trading?
To help you answer that question, I’ve written this article to cover the basics of what each type of trader does, the similarities, and the differences you can expect from each job.
What Does A Trading Consultant Do?
Trade consultants provide trading and financial advice to their clients. They can also carry out trades of financial assets on behalf of their clients.
Trade consultants analyze the market then make financial plans and investment recommendations to help other companies reach their financial goals.
To be a successful consultant, you will need to be able to utilize your innate knowledge and understanding of economics and the financial markets while working in a fairly high-pressure environment.
Top-performing trade consultants must also be able to cultivate strong working relationships with new clients, be self-motivated, and take initiative while also being extremely analytical and driven.
To answer the question of what do trade consultants do, here are some duties that you will be expected to carry out in your day-to-day as one:
- Provide up-to-date investment advice to your clients.
- Handle your client’s investment portfolio to accumulate profits while reducing risks.
- Provide an investment strategy to match your client’s financial goals.
- Update clients on the performance of their portfolio.
- Ensure your knowledge of the financial market is always current.
- Change investment strategies to address current market conditions.
What Does A Prop Trader Do?
A prop trader works for a bank or financial firm and executes trades with its (the bank/firm’s) personal finances instead of its clients.
Online prop trading firms, like FTMO, have their own online courses and verification criteria that new prop traders have to go through before being allocated a company account with real money to trade with (anywhere from $5,000 to $2.5m).
Once a prop trader gets approved and receives company funds, they’re free to trade based on their knowledge (with some restrictions in place), and any profit they make, they get to keep 50%-90% of it.
Working with a mentor trader, which most prop trading firms offer, allows new prop traders to become profitable much faster than most other trading professions.
However, while being trained is an immense help, prop traders will also need to be self-driven to build a solid and intricate knowledge base on all financial markets to remain profitable with appropriate exit strategies.
The 5 Differences Between Consulting vs Prop Trading
Trade consultants and prop traders have a few differences that need to be considered when choosing between the two professions.
Means & End Goal
The most apparent difference between a trade consultant and a prop trader is their end goal.
- A prop trader is funded by the firm’s own money. Therefore, their goal is to ensure that the firm they work with, as well as their personal firm account, remains profitable.
- Prop traders are welcome to implement their own strategies, as well as invest in different assets (even crypto, for example), as long as they stay profitable.
- A trade consultant works for clients. Consequently, they may execute trades with their client’s money and their end goal is defined by their client’s strategy.
- A client may want to achieve a specific financial goal or may only want to invest in ‘green’ companies, a trade consultant must implement an investment strategy that adheres to that.
- A prop trader’s income is solely dependant on how much they profit. If a red month comes by, their salary will be low to non-existent.
- A trade consultant works across multiple industries and companies, usually with a set contract and salary. Therefore, their jobs are considered to be a lot safer.
A prop trader gets paid on a commission basis. This means they only get paid when they make profitable traders with the firm’s money.
While this can lead to periods of no pay, when a prop trader does make a profit, they get to keep up to 50%-90% of said profit, which can reach quite significant amounts.
Trade consultants work on a salary that can start at $80,000 and increase as they gain more experience or move up in roles.
While this provides trade consultants with a steady paycheck, it severely caps their earning potential, unlike prop traders.
While prop traders and trade consultants have a definite overlap in skills, which will be addressed below, there are substantial differences that a trader needs to focus on to excel in each profession.
Prop trading is a very analytical job. Your daily duties revolve solely around statistical analysis, monitoring the market, and executing strategies to make money for the firm.
While a trade consultant does get involved in trading, they are also required to have extensive MS Office knowledge – Microsoft PowerPoint to create presentations and Microsoft Excel for modeling strategies for clients.
They are also required to have strong interpersonal soft skills that will be heavily utilized in client interaction and acquisition.
As an online prop trader, your work environment is your home. It provides you with a lot of freedom and flexibility where, although you will need to wake up and be active during peak trading hours, you can set your own working hours and have a healthy personal life on your own terms.
A trade consultant generally has a 9-5 job where they have to work on the weekends on occasion. A trade consultant is also required to travel for the job as their clients may not be in the same vicinity as their consulting company.
The Similarities Between Consulting vs Prop Trading
While trade consultants have a lot of differences, there are three main similarities between the two careers.
Both professions ride on the profitability of the trader.
- For a trade consultant to retain clients, their strategies must be profitable or risk losing customers.
- A prop trader trades with the firm’s capital, which means any losses will be experienced by the trader’s employer.
Due to this, low-performing prop traders can expect to be made redundant if companies are not happy with their results.
To be profitable, a trader needs to be driven and highly self-motivated.
While it is true that prop traders get mentored by experienced traders, if a trader does not take the initiative to understand what they are being taught and expand their knowledge beyond what is being shown to them, they will not be profitable.
A trade consultant needs to be driven to ensure their knowledge is current and relevant to the current market, or the strategies they implement on outdated data will not result in profits, leading to a loss of trust from their clients.
Prop traders and trade consultants need to have the ability to carry out technical analysis and implement high-performing strategies.
While prop traders may have more in-depth knowledge compared to a trade consultant who operates more on big picture data, both professions require you to be extremely analytical and data-driven.