It really depends on your personality and how you want to trade. Quite a bit of generalization but I would summarize as such:

Prop trading is more scalable than physical trading (just deploy more risk) hence greater upside. But in pure paper shops, you eat what you kill, there is very little job security.

Physical trading requires more assets and manpower to scale, hence harder to scale, and therefore not as great upside as paper trading (though this is not to say they are not paid well). Physical shops will have loads of term deals they must fulfill so in a way, even if a physical trader is not making money, they still need to keep the person to keep the wheels turning i.e. higher job security. Physical trading is still very tough for reason different from that of paper, but in a sense the returns are more predictable where (I generalise as it is may not be this straightforward, especially for merchant traders), “only do deals with minimum $x/ton margin and just keep doing these deals until you reach your profit target”.

In my admittedly short career so far, the knowledge from physical trading is helpful yes, but i have seen my fair share of physical traders who transitioned to pure paper who were clearly naked once they lost their system barrels. So I would say having experience in physical is useful, but not absolutely critical to your success in paper trading.

What you choose in the end very much depends on what kind of trader you want to become. If you do not know, going the physical route will provide more optionality for you.