Prop-trading is one of the forms of cooperation between companies and private traders, which lies in the fact that the company transfers a fixed amount of capital to a trader for trust management. But from the trust management services themselves, the difference is that the trader conducts trade only within the framework of his deposit. In other words, the prop-company “multiplies” the trader’s deposit for making transactions, but the trader bears the risks only within his capital, the “margin call” occurs when the trader runs out of personal money.
What are the benefits of prop trading for a trader and an investor?
A reasonable question: how does such cooperation differ from the leverage provided by the broker?
Answer: for the purpose of such cooperation. In both cases, the investor (broker or prop company) loses nothing, but on the contrary, only acquires additional income from the commission for the transactions made by the trader (the prop company retains a percentage of earnings). A broker is only an intermediary, whereas a prop company is interested in professional traders.
Features of prop trading:
- A proprietary trader can be almost any person in two ways: 1. Take part in a contest (trading on a demo account under the conditions offered by the company). 2. Show your own experience to the prop company, namely to present the statement for the last 1-2 years, show earnings, applied strategies;
- A prop trader can only trade according to company rules. Prop-company has its own department of analysts who develop risk management rules. The trader chooses strategies himself, but follows the general rules of the investor and reports after a fixed time. Examples of restrictions: the maximum limit of loss for 1 day, the limitation of the time of the trading day, the setting of the maximum limit of contracts for 1 day;
- a trader gets his profit only a month after the reporting period – insurance for future losses.
Hence, the most important thing for a trader plus is the opportunity to get free training from professionals. No free courses of brokers or webinars will not be able to give what the prop company will teach, if only because it is in its interest to invest maximum efforts in the trader and “grow it up”.
Prop-trading is very popular in the United States and Europe. Since prop companies work with dealing centers through their trading platforms, and it’s difficult for our compatriots to break into the US stock exchanges (a few American brokers are willing to work with CIS traders), they are used as intermediaries.
But in Russia there is a problem with prop-trading: under the guise of prop-companies, “kitchens” and hyips (pyramids) operate, luring traders with the reliable phrase: “We will give you money for trading”, imposing our own platforms, pocket brokers and etc. Real prop companies in Russia and the CIS units, and how to distinguish them from the “kitchen”, we will tell in the next article. Stay with FxCash rebate service – discover something new in stock trading every day!