We have yet another one pass our funded prop trader programme! For you traders that feel being in the game, as it were, on and off means you are unable to profit. Fear not, Simon was just like you and he’s our newest addition prop trader!
Something about Simon’s background got me thinking, about something many prop traders do and likely many prospective prop traders do or likely will end up doing or think of doing: trading different securities/asset classes. Either at the same time or hopping between and either deciding to switch or add them to their portfolio.
There are benefits and drawbacks to each approach which heavily depend on your level of experience, trading style and time. Many of you know how to choose your initial market, so we’ll skip that. However, do reach out to the team if you would like an article on this.
A prop trader will normally add the other capital markets (commodity, equity, fixed income and cryptocurrency) if they trade FX if they look at macro fundamentals because they rely on the happenings of the other markets, news and movements to guide their trades. However, that is as far as it could go if the prop trader is not experienced enough trading those markets.
(Or if their account is nor large enough, as some of the other asset classes require larger account sizes.)
A more experienced prop trader, with the right account size, may very well put a trade on. For instance, if they have a view on oil rather than take a position on CADJPY, they may directly take a position on oil or an oil refinery company. As outlined in the “Hierarchy of the Markets”, different securities are really different ways of speculating future movements (the article itself can provides insights why some traders add other assets to their portfolio).
To be frank, a prop trader may simply add more securities simply because they do not want to be bored in the market. Technically a prop trader who traders Equities, Crypto and FICC (Fixed Income Commodities and Currencies) will always spend their time on the screen as there will always be something to trade.
It also depends on how you define diversification and asset class, some would define it by region. Depending on the prop trader you speak to, the would say they trade different asset classes because they trade G10 FX and EM FX since EM FX can be quite volatile. In a similar vein, a prop trader in equities could say the same because they look at US, APAC, and European stocks. Not even commodities are safe—but you get the picture.
Perhaps you are picturing a multi-asset prop trader in a office (or a home office these days) at home with a screen that may resemble a pod trading all these asset classes!
The reality is though, some might. But not for the long-term, usually. Prop houses usually have different traders looking at different asset classes, and nowadays you have algo prop traders scanning the markets. It is possible to have knowledge on the markets. It is also to be selective on how and when to trade them, but not like how a machine can… unless you want to become a machine.
A conversation on this topic would be beyond the scope of this article, the long and short of it is there are many reasons why as a prop trader you would choose to add an additional asset to your book, but it is not a necessity.
Without further ado, here is Simon’s interview: