The 3 C’s for institutional investors; credibility, consistency and conservatism.

The really really good traders make so much money for themselves, they have no need to manage funds for others. Institutional investors understand this. Certainly some of the more aggressive hedge funds will employ ‘risky’ traders but even these roles are few and far between. There is of course massive demand nowadays for anyone who can consistently deliver double-digit returns but these are not mug investors, they know what they want and they won’t make concessions to this.

If you want to have a career as an independent prop trader in the FX space then you need to focus on what the investor wants.

Let’s start with credibility and trust. If the investor finds something in your past that you are hiding (eg a blown-up account or 3!) then they are unlikely to make even a small allocation. Be honest, declare everything. It’s not expected that self-funded self-taught traders will have a blemish free track record! The investor wants to see that if you have made mistakes, they were made on your money!

Settle on a consistent trading strategy and risk management plan. NEVER deviate. The investor must know what to expect in all market conditions (notwithstanding the 5-year black swan events). Investors will pull your funding if you deviate from the plan, even if you are profitable.

Finally, I have yet to come across a serious institutional investor who is chasing 100% returns. They may allocate a small percentage as part of a portfolio to riskier traders, but if you really want to build some serious AUM then do so on the basis of a conservative approach; managed drawdowns and achievable monthly targets.

We know what the investors want, so what is the perfect profile? A 2-year track record, systematic approach to risk management, partially systematic approach to trading, moderately active strategy giving plenty of data to analyse, consistent monthly returns of 0.8-1.2%, and peak-to-trough drawdown of < 2.5%.

If you have this record you should be hanging out your shingle as a professional FX trader.