Can I reach financial freedom by being a prop trader?

The proprietary trading firm industry has expanded immensely in the last decade. There are many reliable prop firms to choose from.

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The proprietary trading firm industry has expanded immensely in the last decade. There are many reliable proprietary trading firms to choose from. But the main question is, can an individual reach financial freedom and live from just being a full-time prop trader? Let’s dive deeper into the essentials that have to be considered to receive an answer to the question. We will be considering the potential of the capital that the proprietary trading firms are offering, with an average profit split and realistic monthly earnings, while also including the tax on your earnings. Note that taxes depend on the country that you are from, and you should do your own due diligence on how much tax you are required to pay on your earnings. However, since the article is about setting examples for our community, we will set the required tax payment as 20% of your earnings.

We are going to cover three different amounts of capital an individual works with and see how much would they be earning to determine if they could make a living out of being a full-time prop trader. Note that we will be calculating the earnings in all examples by using an 80% profit split on the earnings a trader makes.

Example number 1: Prop trader working with a $100k funded account

Prop trader with a funded account with a starting account balance of $100k, making a 2% monthly return.

$100k + 2% = $102k, profit of $2k

$2,000 profit x 80% profit split = $1,600 profit

$1,600 profit – 20% tax = $1,600 profit – $320 = monthly profit of $1,280

$1,280 x 12 months = yearly profit of $15,360

So after making the calculations, we can see that a prop trader with a balance of $100k that is making a 2% monthly return would earn $1,280 on a monthly basis and $15,360 per year after considering the 20% tax deduction.

Prop trader with a funded account with a starting account balance of $100k, making a 5% monthly return.

$100k + 5% = $105k, profit of $5k

$5,000 profit x 80% profit split = $4,000 profit

$4,000 profit – 20% tax = $4,000 profit – $800 = monthly profit of $3,200

$3,200 x 12 months = yearly profit of $38,400

So after making the calculations, we can see that a prop trader with a balance of $100k that is making a 5% monthly return would earn $3,200 on a monthly basis and $38,400 per year after considering the 20% tax deduction.

Example number 2: Prop trader working with a $400k funded account

Prop trader with a funded account with a starting account balance of $400k, making a 1% monthly return.

$400k + 1% = $404k, profit of $4k

$4,000 profit x 80% profit split = $3,200 profit

$4,000 profit – 20% tax = $4,000 profit – $800 = monthly profit of $3,200

$3,200 x 12 months = yearly profit of $38,400

So after making the calculations, we can see that a prop trader with a balance of $400k that is making a 1% monthly return would earn $3,200 on a monthly basis and $38,400 per year after considering the 20% tax deduction.

Prop trader with a funded account with a starting account balance of $400k, making a 3% monthly return.

$400k + 3% = $412k, profit of $12k

$12,000 profit x 80% profit split = $9,600 profit

$9,600 profit – 20% tax = $9,600 profit – $1,920 = monthly profit of $7,680

$7,680 x 12 months = yearly profit of $92,160

So after making the calculations, we can see that a prop trader with a balance of $400k that is making a 3% monthly return would earn $7,680 on a monthly basis and $92,160 per year after considering the 20% tax deduction.

Example number 3: Prop trader working with a $1M funded account

Prop trader with a funded account with a starting account balance of $1M, making a 1% monthly return.

$1M + 1% = $1,01M, profit of $10k

$10,000 profit x 80% profit split = $8,000 profit

$8,000 profit – 20% tax = $8,000 profit – $1,600 = monthly profit of $6,400

$6,400 x 12 months = yearly profit of $76,800

So after making the calculations, we can see that a prop trader with a balance of $1M that is making a 1% monthly return would earn $6,400 on a monthly basis and $76,800 per year after considering the 20% tax deduction.

Prop trader with a funded account with a starting account balance of $1M, making a 3% monthly return.

$1M + 3% = $1,03M, profit of $30k

$30,000 profit x 80% profit split = $24,000 profit

$24,000 profit – 20% tax = $24,000 profit – $4,800 = monthly profit of $19,200

$19,200 x 12 months = yearly profit of $230,400

So after making the calculations, we can see that a prop trader with a balance of $1M that is making a 3% monthly return would earn $19,200 on a monthly basis and $230,400 per year after considering the 20% tax deduction.

Now that we went through some of the examples, you can see that even with realistic earnings of just a couple of % of your initial capital, you can certainly live from being a full-time prop trader. This shows that the proprietary trading firm industry has incredible potential, not to mention that most proprietary trading firms also offer a scaling plan that allows you to increase your capital. In most cases, you are eligible for scaling when you reach a certain profit target or after being profitable for a certain number of months.

IMPORTANT NOTICE: No matter the fact what we just explained and went through, this doesn’t mean that you should leave your job and start trading full-time. If you are interested in trading, start slowly, learn, develop and backtest your trading strategy and start part-time while you maintain your job as your main income source. Gather the experience and acquire your first funded account to become comfortable with being part of the markets. From there on, the potential is unlimited. Just remember, discipline and proper risk management is the key to long-term success.

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