Should you be training at prop trading arcade instead of paying for an MSc?

If you've just graduated, you want to work in financial services, and you still don't have a job offer, you've got reason to feel concerned.

There are a few jobs still out there for 2011 graduates in major financial services employers (we'll have a list of these next week), but at this stage there are really three main choices:

1) Give up

2) Study a finance-related MSc

3) Join a prop trading arcade

Unless you're prepared to switch into another sector, giving up probably isn't an option. An MSc in finance typically costs another 17k in fees alone and there's no guarantee you'll get a job at the end of it. So you should you forget that too and join a prop trading arcade instead?

Maybe.

There are a few well known prop trading outfits in existence, each operating a slightly different model.

In some cases, you'll be asked to pay for your training (with no guarantee you'll ever make the money back). In others, you'll be trained for free and then kept on and given money to trade with - if you demonstrate an aptitude for trading. And in other cases, you'll be paid during your training but expected to live off your profits when the training programme finishes.

In all cases, prop trading arcades don't pay salaries once the training programme's over - if you're successful, you'll become a self-employed trader and will pay the arcade a monthly fee to cover your desk space. If you can't make enough money to cover this fee, it won't viable. What you make over and above that is your profit.

This is still an incredibly competitive option

At first, it might seem as if joining a prop arcade will be comparatively easy - unlike investment banks, they accept graduates with 2.2s.

In reality, it's even more competitive.

For example, Schneider Trading Associates takes on 36 trainees a month, but receives applications from 500. Of those 36 trainees, anything from 6-12 typically make it through to the end of the training programme. That's a success ratio of 41:1.

If you succeed, you CAN make a lot of money, but success is very elusive

Schneider doesn't pay its trainees anything at all, and advises that even if they make it through the training programme it will be another 6-12 months before they're able to support themselves.

"The course works best if you've got financial stability and are still living with your parents," says Joni Sloan, Schneider's recruitment assistant.

One trading recruiter says he receives CVs from graduates who've joined prop trading arcades (not Schneider specifically) and can't pay their way.

"The desk cost at these places can be really high - sometimes as much as 1.8k a month, which is a lot to make before you're even turning a profit," he says.

"90% of people at an arcade won't be able to make any money," confirms Lex Van Dam of Hampstead Capital and a former trader at Goldman Sachs and GLG.

However, the recruiter claims a handful of traders at arcades do incredibly well for themselves: "There are a few guys who make seven figures."

This is not a direct route into trading at an investment bank

"I've never seen anyone who's come from a prop shop go to work with an investment bank," cautions another ex-Goldman trader.

However, people running arcades say they do offer a route into investment banking - just not necessarily into the front office.

"We've had a few people who've left us and gone to work for banks like Nomura," says Sachin Shah, founder of Savi Trading. "They normally go in as something like a trader's assistant, although we've had a couple of people joining front office roles."

Or you can trade in your bedroom

"Working for a trading arcade isn't really optimal, but if you're sitting at home and not doing anything else, it might be worthwhile," says Van Dam.

And if you can't get in to somewhere like Schneider, or don't want to pay the upfront training fees elsewhere? One trader says you'll be just as well off saving some money (say 10k) and working with a brokerage.

"A brokerage will often let you leverage your money ten times," he says. "Why bother paying all that money to an arcade when you can trade at home?"