Prop trading is a format of exchange and over-the-counter trading where a trader uses the company’s money rather than his own funds for turnover.
The term proprietary trading originated in the USA with the emergence of firms that trained the trader within their structure on the terms of further cooperation and profit distribution. The main difference from asset management is that the owners of a proprietary trading company provide the funds for trading, not the clients.
Due to the development of proprietary trading, both on the NYSE and on other markets, companies began giving money for management not only to staff traders but also to clients, which allows a beginner to open an account with a smaller amount. As a result, both the trader and the company make a profit.
The most obvious advantage of cooperation with a proprietary trading company is that the owners and investors in this business are maximally interested in the effectiveness of their staff traders and for this reason all necessary infrastructure is created for them. To trade with maximum efficiency, such organizations connect the highest quality trading platforms, negotiate the lowest commissions with brokers, and provide corporate training.
Advantages of prop trading firm:
- The use of quality software allows you to get more information about the market, partially automate and speed up your work, so that the trader is always one step ahead of the general mass of people.
- Lower commissions allow the trader to earn significantly more without damaging the broker (thanks to the generation of a large volume of trades)
- Corporate training is a key factor for professional growth, because exchange of experience between successful traders allows you to learn the best from your colleagues, always be aware of what’s “working” in the market, as well as have a constant charge of motivation and healthy competition.
Exactly the opportunity of communication with established traders allows the trader to reach the 5-6 figures income and to grow. In case of “home” trading a beginner has very little chance to compete with professional market participants. Often, along with financial and account opening services, clients are offered the same training as for in-house traders. Based on the course results, the most talented trainees are selected, who show positive dynamics and can later build their career in a proprietary company.
Prop trading: essence and benefits. income, royalties
The essence of prop-trading on NYSE and other markets is to provide funds for effective trading and joint profitable activity. For beginners, turning to a prop trading company is a good decision because they:
- Receive the necessary training before entering the stock market;
- Get professional software;
- Get support from experienced traders;
- Gain control and error analysis;
- Gain initial capital.
Thus, all conditions for comfortable and successful trading are created. When you open an account, you will often be required to deposit a certain amount. It is used to guarantee the return of funds and remains untouched in case of stable successful trading.
Exchange trading under the guidance of experienced trainers will bring a stable high income. The use of established connections of a proprietary company with brokers helps to reduce the cost of deductions.
Trading proprietary companies generate revenue from training fees, use of trading platforms, various paid subscriptions, commissions on transactions.
It should be taken into account that proprietary companies have long-established relationships with American brokers, thanks to which the amount of deductions to the broker is reduced. Advantageous terms of cooperation are conditioned by large volumes of sales made by the clients of a proprietary trading company.
Why proprietary trading in Europe and the USA is the best alternative to brokerage firms?
Proprietary trading in Europe and the United States is the best alternative to brokerage firms. The firms commissions are less than broker’s commissions and the leverage provided is much higher.
The amount of trader’s reward directly depends on his performance. The higher profit he generates – the higher his reward will be.
The size of deductions of proprietary companies will decrease with time. It should be noted that most of the income the firm receives from the trading operations of the staff successful traders who provide theoretical and practical training. In Europe and the USA proprietary trading is very developed but is getting more and more popular.
Many countries actively advertise prop. trading on Forex. Such companies are becoming very popular lately.
What are the main risks associated with prop trading companies?
The main risks of prop trading companies are related to non-return of money, losses exceeding the deposit of a certain client. Such a possibility exists, but it is minimized by risk management means. As mentioned above, opening an account will require you to deposit a certain amount of your own money as a deposit.
- A novice trader learns the basics of risk and money management before starting to trade;
- Before opening an account an effective trading strategy is made and potential profits and losses are calculated;
- Beginner’s activity is controlled by risk-manager on the stage of adaptation to market conditions;
- The trader gets profit by the end of the month, which compensates possible losses.
The result of such an approach is a sensible use of money. Employees of the proprietary company do not allow erroneous “plummeting” of the amount exceeding the deposit of the client.