Picking Up the Pieces After Prop Trading

It’s time to have the conversation.

“I lost more than money. I lost time, good health and peace of mind. I feel like hiding and there’s no way I can tell the people that I’m close to, especially not at work.”

Whose words are these?

It’s a composite of statements made by people who have spoken to me privately over a couple of years, blended to protect their identities. These were not chancers who’d stumbled across trading on social media platforms looking to make a quick buck. They are accomplished, educated, lettered professionals, in many cases holding responsible positions in finance, aged between 35 - 67 years old.

The common denominator being a sense of suffering. I’m talking about anxiety and stress, feelings of deep shame, disappointment and unworthiness. For some it is affecting their sleep, for others their ability to relate to their loved ones and others their health. Tortured by an underlying niggle that concludes… “Clearly, I’m just a failure”.

For those holding responsible positions, there is another dimension. Depleted confidence in oneself creates a hollow facade of confidence at work, fuelling further fears of being found out as not being good enough.

Trading as an industry is famously known for taking no prisoners. The advent and proliferation of the prop trading industry has super charged this dynamic (I’m talking about the more recent ‘funded trader’ prop firms, not the traditional proprietary trading desks in banks).

What might surprise you however is that those it is impacting are in plain sight. They are our peers. People who have, for whatever reason, been drawn to an industry that makes it super easy to engage and find it hard to recover.

Why I’m writing this now

I’ve deliberately avoided writing about the prop trading industry. There are people far better qualified than I to debate the firms and whether the economics stack up.

But there is another side that doesn’t get much press and it’s increasingly entering my work. Behind the payout screenshots that get posted on social media I’m seeing debt, savings depleted, people hiding how much they’ve spent and a growing sense of shame, guilt, remorse, anxiety and stress.

And so I feel compelled to tackle the topic.

But is it trading?

I understand the attraction. A small outlay, no large sums of your own at risk.

Yet there’s a thought I can’t shake. An important part of trading is working out your own style, rules, edge, risk and operating hours.

Prop trading comes with a set of built-in rules and constraints that differ amongst firms and change frequently and your job is to survive within them. Before long it can morph into gamification of prop firm rules rather than purist trading.

Passing an evaluation doesn’t necessarily make you a good trader, and repeatedly failing them doesn’t necessarily mean you’re incapable of becoming one.

It’s a subtle distinction, but it matters enormously as it can frustrate the potential of a strategy’s edge. And with that frustration and mounting failure, the trader starts to take this as evidence of personal failure.

When does persistence become something else?

Traders have been blowing accounts and chasing losses for as long as people have been trading, so I’m not suggesting prop firms created the problem. What I am wondering is whether something about the structure makes it harder to recognise.

Lose $100K of your own money and you sit up and take notice. Lose $100 or $200 on an evaluation and it doesn’t feel significant enough to stop. Fail, reset, fail again, try another firm, get close, break a rule, start again. Each decision feels insignificant on its own. It’s only when you add them together that the picture changes.

Traders, after all, are taught to persist. Take the loss, learn, adapt, go again. Generally good advice. But once you’ve lost a meaningful amount of money, stopping means accepting the loss. Continuing allows for the possibility of getting it back. Annie Duke wrote a whole book about that trap. She called it Quit. It is not a word traders are taught to like.

And when I hear someone say “I just need to make it back”, I know we’re no longer talking about the next trade. Trading from a need to recover is very different from trading from a position of choice.

A cerebral challenge, becoming a financial problem intertwined with an emotional one.

The part nobody wants to talk about

Shame. There’s more of it around this subject than is openly discussed. Often buried down deep and covered with coping mechanisms and a mask of some sort.

After having invested so many hours, weeks, months, years in this pursuit, how do you explain to your partner that you’re further away than when you started?

It gets harder the more intelligent, capable and successful you are elsewhere in your life as you’ve been able to make other things work. There’s a certainty that you will crack this too.

So perhaps you stop talking about it or if you do, you minimise the numbers involved and suggest that you’re “nearly there” whilst privately carrying a very different reality.

The separation of truth, what you hold inside and what you share externally creates a sense of isolation.

When failure becomes personal

Of the people I spoke with, one gave permission to share aspects of his situation. He is considered to be a high achiever, academically and in his career. Having studied the markets at a PHD level, he had a thesis he wanted to test.

The Prop Trading industry offered an attractive option - an opportunity to test his strategy, at low cost and perhaps even reward him by funding him should his strategy be successful.

To begin with he was very successful. He passed the evaluations and ran an account up to tens of thousands in a matter of weeks. He received payouts and started to believe that if he continued he might well be able to turn this into an income stream. This is precisely what made it harder to step away.

Fast forward 10 years… he lost somewhere in the region of $100K.

“The losses are weighing me down. I don’t look forward to anything anymore. I think I was turning into a gambler rather than a trader.”

When one starts out, it’s typical to be consumed with questions about trading. “What strategy should I run?” turns into “what’s wrong with my strategy?” After enough setbacks the question morphs into “what’s wrong with me?”

At this stage, deep down, the trader knows another strategy won't fix the situation. It’s easy from the outside to say “just stop”. Not so easy after having pursued a venture for years and invested thousands in the process. Sunk cost fallacy rearing its head.

Picking up the pieces and final thoughts

I’m not anti-prop trading. People do get funded and for some it clearly works. I’m less interested in whether it’s good or bad than in the person left picking up the pieces.

If you recognise yourself here, perhaps the next step is not to buy another evaluation, but instead to pause.

I’m very conscious that finances are a sore subject for many of those I’ve spoken to. Even though they are still employed the sense of loss and subsequent scarcity is enduring. It is clear that they could use some support to recover and I believe it’s a space where I can make a real difference.

Before I decide what accessible support might look like, I’d rather listen.

If you’ve been through this, or are going through it now, I’ve put together a short anonymous survey here: http://tally.so/r/q4y0Zd

I’d simply like to understand what happened to you, and what would actually help you now.  Or if you know someone who’s been through this please pass it on.

And if you’d rather talk, message me privately on LinkedIn DM or our contact page.

I’m passionate about supporting the human behind trader performance because traders are people too.

Thank you for reading,
Sonal