Proprietary trading is a common method of participating in the financial market by being part of a bigger company. The service is provided by several companies that offer their services globally. Most of these companies are not well-known. In this article, we will look at what prop trading is, how it works, and some of the best companies in the industry.
Proprietary trading vs. retail trading
Retail trading is the simple process of opening an account and then starting to trade from it. For example, when you create a Robinhood, Schwab, or TD Ameritrade account and start trading, you are a retail trader. In this, you are responsible for sourcing the funds, coming up with a trading strategy, and executing it. You are answerable only to yourself. Also, you keep all the profits and losses.
Proprietary trading, on the other hand, is a trading approach that involves an intermediary. In it, you trade with the company’s funds and then share profits. The amount you get to share depends on the company. Some firms offer more than 70% of the total profits.
These companies work differently. The most common approach is where a customer creates an account, and then he is given a demo account where he will trade for several months. After seeing the trader’s profitability in the demo account, the company will then offer them an account where they can trade with real cash. So, here are some of the best prop trading companies in the world.
Day Trade the World (DTTW)
Day Trade the World is a Canadian company that offers prop trading to customers from around the world. The company has been in business since 1997 and has more than 3,200 customers in about 90 countries.
DTTW uses a unique approach where it encourages its customers to create trading floors. A trading floor is an office that has several traders. The office manager is the main point of contact and is then deputized by several traders.
The company works like this: a customer creates an account with it and then deposits a refundable $500 deposit. The goal of this deposit is to help facilitate the shipping of the PPRo8 Cube. This is a device that connects the customer’s account with its network.
After receiving the cube, the customer is taken through a coaching process that introduces them to trading. The company’s trading platform has an easy way to use a demo account. After showing that they can trade, the customer is supposed to deposit margin funds of about $3,000.
With that, they can start trading either independently or being part of a team. The company gives traders about 91% of their profits when they trade forex and CME futures and about 84% when they trade equities. They receive an 84% cut when they trade in other assets.
DTTW is a good prop trading company for several reasons. First, it has a long proven track record in the industry. It also has direct market access (DMA), which gives traders an opportunity to select their market makers. Second, it offers relatively higher payouts than other companies. Most importantly, the firm enables you to start your trading office.
The 5%ers is a relatively new prop trading firm that was established in 2016. The company uses a different model to DTTW.
The company offers two packages that traders can join. There is a low-risk package that enables a customer to receive a funded account of between $6000 and $20,000. As they grow, these accounts can increase to between $24,000 and $80,000. It also has an aggressive account that gives bigger leverage than the conservative one.
To create an account, you need to select the package you want to enroll in and then deposit an initial fee. After doing this, you will receive a funded account and then start trading. The company will then give you a commission for all your profits.
The benefit of using The 5%ers is that it is relatively easy to use the service. Also, there is no waiting period. This simply means that you can register and start making money instantly. At the same time, the starting capital you need to get started is quite affordable. Also, it uses MetaTrader, which is a well-known platform.
TopStep is another prop trading company that is different from the other companies that we have looked at. The main difference is that the company takes traders who have proven experience in the trading industry.
Customers first sign up on its website and are then taken through a long process to prove that they can trade well and generate profits. As such, only a small percentage of people make it who apply for its proprietary trading membership.
Another difference is that the company offers two types of accounts. One can trade forex and futures only. The futures account’s buying power ranges between $50,000 and $150,000, while the forex account ranges between $200k and $500k.
The other popular prop trading company is known as BluFx. It is a London-headquartered company that offers an instant funding account for forex trading. It has more than 30,000 traders globally.
BluFx works in an easy way. As a customer, you just need to select one of the two account types: subscription and swap-free pro. In the subscription account, you can sign up for the Lite and Pro package that gives you funding capital of $25,000 and $75,000, respectively. You will pay a monthly fee of £99 or £249 per month.
On the other hand, the swap-free account gives you $25,000 and $50,000, and you pay a monthly fee of either £139 and £329. While BluFx is a good opportunity to grow, I find that its fees are quite high for most people.
There are many prop trading companies out there, but we believe that these four provide the best opportunities for one to grow. If you can afford the $3,000 charged by DTTW, we highly recommend it because the company provides better coaching and services. It also provides you with the ability to create a trading floor that you can use to manage your money.