There are huge differences between prop firms and traditional brokerages. This article will outline these differences that every trader should know.
What is a Proprietary Trading Firm?
A proprietary trading firm is a type of financial institution that invests in finding skillful traders to trade for them. It does not handle deposits for clients like traditional brokerage firms. The ultimate goal of such firms is to facilitate skillful traders’ trading of their accounts.
Proprietary trading firms do not ask traders to deposit their funds. Hence, they earn revenue by splitting traders’ profits. In contrast, brokerage firms earn their revenues through commissions obtained from executing clients’ trades.
How Do Traditional Brokerages Work?
Traditional brokers act as intermediaries in the financial market. They ensure that buyers and sellers interact and complete their transactions successfully within the stock market. Traditional brokers earn commissions on transactions that traders within the market make.
Prop Firms vs Brokers for Beginners
Prop firms have good scaling plans that traders can use to progress their careers. FundingPips is an example of a prop firm where beginners can build up their accounts as well as their skills. Traditional brokers do not offer scaling plans and beginners might find it hard to progress in their careers.
Prop firms enhance professionalism amongst beginners by availing educational resources as well as conducting training sessions. Some of these prop firms, like FundingPips, provide traders with research/educational materials that are suitable for beginners. The firm has a rich package of features including a well-equipped dashboard to support traders and share important, up-to-date information.
FundingPips also hosts webinars on different topics related to trading and trading psychology. Such an environment is favorable for beginners to hone their trading skills and grow their careers. Brokers on the other hand do not offer extensive resources to beginners.
Benefits of Trading with Prop Firms
There are numerous benefits of trading with prop firms as shall be illustrated below.
Access to Significant Account Size
Prop firms offer traders the chance to make huge profits. They have access to large accounts that increase their buying power. Moreover, with a prop firm’s scaling plan, a trader can develop their career more than they could do on their own.
Advanced Trading Technology
Prop firms usually offer traders advanced trading technologies to improve the trading experience. FundingPips for example has an interactive dashboard where traders can get up-to-date information on the Forex market. Furthermore, FundingPips offers easy-to-use trading platforms that improve a trader’s interaction with the market.
Professional Development Mentorship
Prop firms often offer their traders educational material and coaching services. Prop traders become part of a trading community where traders share trading ideas and stay up to date with developments in the market. Prop firms also offer seminars to train their traders. These services go a long way in developing a trader’s career.
Lower Financial Risk
The biggest selling point for prop firms is that they eliminate risk from trading. Since a prop firm doesn’t require a deposit, the trader is not exposed to any risk on his funds. Such risk elimination gives traders an edge to work without the pressure of losing their own money.
FundingPips Benefits
Brokerage vs Prop Firm Payouts
With traditional brokerages, traders retain 100% of the profit they make. The downside is that they would need a lot of capital to make a substantial profit. This is usually out of reach for most traders. Trading via a traditional broker may also subject a trader to extra fees such as inactivity fees, deposit and withdrawal fees, and swaps.
Prop firms share profits made with the traders in a ratio that favors them. They make huge profits because prop accounts increase their buying power. For most prop firms, traders retain between 70% and 90%. For example, FundingPips offers profit splits up to 100%. This model motivates prop traders since they retain most of the profits.
Before they can access prop trading accounts, traders pay an evaluation fee that is refundable upon completion of the challenge.
Best Prop Firm For Day Traders
FundingPips is among the best prop firms with many features that distinguish it from the rest. One of the most attractive features is the 100% profit split they offer traders. They also offer a quick, easy and flexible payout system, enabling traders to select through different payout options such as weekly, bi-weekly, monthly, or as often as needed.
FundingPips also accommodates popular, easy-to-use trading platforms including; cTrader, Match-Trader, and TradeLocker which are fully optimizable across devices.
FundingPips has two different account types, catering to different stages of a trader’s journey: Evaluation and Master accounts.
The Evaluation accounts are designed for traders to prove their trading capabilities. Once the evaluation is complete, traders are upgraded to the Master account, where they receive performance commissions based on their trading success.
FundingPips Trading Accounts
The Evaluation account is structured to check a trader’s strategy and risk management. Traders pay an evaluation fee to access evaluation accounts. Once the traders hit their profit target, they will move into the simulated version of the Master account that has profit splits of up to 100%.
Capital Requirements
Prop firms do not require a trader to use their money. They will only be required to pay an initial evaluation fee which is often refundable if they pass the evaluation. The respective prop firm will then give you a master account.
Traditional brokerages on the other hand do not give traders master accounts. These brokers only facilitate trade execution where they get paid in the form of spreads and commissions. You have to deposit your capital, opening yourself to the risks of trading in the market.
Risk Management
Most prop firms pay a lot of attention to risk management. Traders that trade for prop firms have restrictions on the maximum drawdown and the lot sizes they can use. This allows them to manage their accounts well to their advantage. Traditional brokers on the other hand are not as particular with risk management as prop firms. Here, traders use their risk management strategies.
Conclusion
Prop firms are different from brokerage firms because of the risk aspect. This has revolutionized trading as beginner traders can build their careers without any investment.
Join FundingPips today and experience all the advantages of trading with a proprietary firm.
