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Forex brokers enter proptrading. A new trend visible in the industry

Forex brokers enter proptrading. A new trend visible in the industry

created Paweł Mosionek23 February 2024

A new trend has been noticeable on the market for some time now. For a piece of the investment pie that it is proptrading, Forex brokers are increasingly using this type of services to their offer. What is proptrading, who is it intended for and why are brokers interested in financing traders? You can read about it in the article below.

What is proptrading?

Let's start by explaining what it even is proprietary trading, which is colloquially referred to as proptrading / prop trading. Broadly speaking, it is a type of cooperation between an investment company (so-called prop) and a trader. The cooperation itself involves lending the company's capital to the trader in exchange for his time and skills. The trader trades with the company's funds on the account, and the profit he achieves is divided in agreed proportions between both parties (usually from 50% to even 90% to the trader). In case of loss, the risk lies with the company and the trader does not participate in it.

The main advantage of this cooperation is above all the trader receiving large capital for investment, which usually increases gradually and may ultimately be as high as several million dollars. Often, a trader also receives a number of other benefits, such as access to stock exchange data, platforms, education and unique tools. This work is most often remote, although it is associated with pressure to regularly achieve positive results. From a prop perspective, the biggest advantage is "acquisition" a person who will potentially effectively multiply their assets.

What does the trader recruitment process look like?

It is generally accepted in the industry that in order to start such cooperation, a trader must undergo the so-called investment challenge (from challenges), during which he will demonstrate his skills. Certain conditions apply during the challenge, including risk levels set by the company that cannot be violated (e.g. daily and maximum capital drawdown). Trading at this stage usually takes place on a demo account for a specified period of time, during which we must achieve the indicated rate of return.

Participation in the challenge is paid, and prices range from several dozen to even $1000 for a single trial. This is intended to filter out people who actually feel up to it and are ready to risk a fee to start such cooperation. At the same time, selling challenges is an additional profit for the company, although it sometimes happens that if the challenge is passed, the fee for it is returned to the trader.

READ: The first Pole to become a trader at The Trading Pit

Proptrading and regulations

Due to the fact that trading takes place on the company's account, and PROP itself does not offer any investment services, this industry is currently not subject to any regulations (which will probably change over time). But if a trader trades not with his own capital, doesn't he have to have any license that would authorize him to do so (e.g. an investment advisor)? The industry has also found a solution (or even two) for this.

If a trader is employed in a company, there is no such need, because as an employee he does not manage "third party capital" only the company in which he works. However, employment is an additional cost for the prop, so this is rarely possible. Therefore, trading is often done on a demo account, from where these transactions are then copied by the company itself to its own real account. Consequently, settlement is based on the contract "providing signals".

Ultimately, it can be concluded that proptrading is on the verge of regulation and constitutes a gray zone. This has its dangers, which were revealed in the recent scandal with the previously second largest proptrading company in the world - MyForexFunds (MFF). This prop ceased to exist practically overnight as a result of an investigation by the American regulator, which revealed the embezzlement of funds by the owner of MFF. More on this you can read here. And it is the lack of any supervision that raises the greatest doubts.

CHECK: Proptrading companies - List of the best offers

Forex brokers are entering the prop trading industry

After a long introduction, we can finally get to the heart of the topic, i.e. a trend that we have recently observed. Due to the fact that typical proptrading companies are not brokerage houses and do not offer trade intermediation services, they are forced to cooperate with a broker (or several brokers). After all, you need a platform and an account to trade. Additionally, some automation and quick response to what is happening on the account are needed, e.g. disabling the possibility of concluding transactions in the event of violation of capital drawdown limits, etc. Additionally, each trader taking part in the challenge has a new account, and if the prop has hundreds or thousands of customers, serving them is quite a challenge. This requires cooperation between both companies, but ultimately everyone benefits from it (prop from selling challenges and cooperation with traders, broker from additional trading). Technology companies have appeared on the market that offer a ready-made solution to both parties, which shortens the process of starting this business, but on the other hand, there is no shortage of props that play dirty. And I can quote here one of the last mini-scandals involving props Funded Engineer. But wait – does the broker need the prop, or only the prop needs the broker?

Proptrading brokers – the future of the industry?

This observation probably caused it Forex brokers more and more often they decide to enter the proptrading industry on their own. After all, not only do they have all the infrastructure on their side, they have a customer base and adequate capital, but they are also regulated by financial supervision, which only increases their trust in the eyes of traders. Spotting this seems like a great opportunity to optimize brokers' profits because:

  1. they earn money from traders' participation in the challenge,
  2. find profitable traders who can multiply their capital,
  3. they earn (or rather save) on commissions and spreads,
  4. they attract customers who are strictly interested in prop trading (a customer who has previously used another prop).

At the same time, it is a threat to classic prop-trading companies, which will have to compete on price, quality and offered opportunities. But this is of course good news for traders themselves.

Forex brokers offering proptrading services

Only a few brokers have joined the game so far - Axi, Purple Trading (as a sister company Fintokei, which belongs to the same group of companies as Purple) and Hantec Group. Some have decided to create new brands (to separate both activities) and even companies, e.g. in offshore countries, which to some extent deprives us of the advantage of having the company's operations supervised by a regulator (e.g. Hantec Trader), but we are still sure that a large company is behind the business. with experience.

At the moment, the list may not seem too long, although I am sure it is only a matter of time until more brokers join this group. The model for starting cooperation has been practically implemented "missed" and here too we face challenges, though they are not always paid (e.g. Axi Select).

Forex brokers offering proptrading – Summary

axi select fintokei prop trading hantec trader
Country of Registration St. Vincent and the Grenadines Czech Mauritius
The price of the challenge lack* o EUR – EUR 99 b / d
Capital for investment from $5000 to $1 million from EUR 1000 to EUR 4 million** up to $200
Share in profits from 40% to 90% to 95% to 90%
Trading platform MT4 MT4, MT5 MT4, MT5
Szczegóły oferty offer in preparation

*it is necessary to pay your own deposit of at least $500 to $4000 (depending on the selected program).
**depending on the selected plan, in the initial stage the capital ranges from EUR 1000 to EUR 400, with a later option to increase it to EUR 000 million.
***The table shows the status of offers as of January 2024.

Who is proptrading for?

After reading the whole thing, we can come to the conclusion that proptrading makes no sense. None of these things, though it's certainly not for everyone. Propy is a gateway for traders with the potential to manage large capital without having to risk their wealth. In return, we give up part of the profit, we have to adapt to certain conditions and we have to bear the initial cost in the form of a challenge fee. It all comes down to one question and simple math:

Can I make money on the market?

If the answer is yes, then the calculation remains. If we have a capital of, for example, USD 10 and we are able to safely and regularly earn 000% per year, it will take us years to reach a level that allows us to make a living from trading. However, if we receive capital of e.g. USD 30, then at the same rate of return, even if we give in an extreme case 50% of the profit, we can give up full-time work or other gainful activity. And this is the goal of many, especially young traders.

Who is proptrading NOT for?

Certainly for people who have problems with earning money regularly. Protrading companies very rarely offer any basic remuneration, so our "salary" will depend primarily on the results achieved. Additionally, if we happen to experience larger capital losses on the account (above 10-15%), this cooperation will most likely end quickly. On the one hand, we have a vision of trading large capital, but on the other hand, it is worth being brave and preparing for it before starting the adventure with proptrading.

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.