When starting your day trading profession, one of the most crucial decisions to make is whether to trade with a proprietary trading business (prop firm) or through a typical retail brokerage account. While I’ve spent most of my trading career at a proprietary trading business, I’ll discuss the advantages and disadvantages of each technique as I perceive them.
Let’s start by looking at the benefits of day trading stocks using a typical retail brokerage account. You may already have an account with one of these brokers for your portfolio or retirement plan if you have a regular retail brokerage account. This leads us to the first benefit of going with a retail brokerage: the ease with which you may create an account and get started.
Second, you get to keep 100% of your net trading winnings when you day trade through a retail brokerage account (after commissions of course). An agreed-upon percentage of your trading gains is often taken by a prop trading business, and this profit split varies per firm. The normal split proportion goes from 50 percent to 90 percent.
Prop businesses often provide high-quality instruction to their students from profitable traders, which is the first and most evident advantage. Some prop firms have better traders and training than others, make sure to ask questions about the training program before joining any firm. Nevertheless, because prop firms primarily focus on day trading, they should be able to give greater training than a retail brokerage giant that strives to please everyone.
Access to the business’s money is another often-overlooked benefit of trading at a prop firm. It is necessary to have money to create money, and the quickest method to obtain big quantities of money is to prove you to the investment business. In the best interests of a prop business, they should provide you more cash so you can make them more money.
Trading Firms
Finding a seat on a trading floor at a respected proprietary trading business, as well as a solid training program, is becoming increasingly difficult since the majority of firms only have a few openings, which are typically only accessible to graduate students with extraordinary academic achievement. There are a growing number of prop trading companies that offer “self-sponsorship” training tracks.
This allows any applicant who does not meet their standard recruitment criteria to pay a fee ranging from a few thousand pounds to $20,000 or even more to participate in the company’s coaching program. In the hopes of becoming lucrative enough to be awarded an elusive “backed transaction” that allows these individuals to swap business money for the firm’s account, applicants adhere to this method. Prop businesses that provide trader training often package a course that can last anywhere from a few weeks to several months. When they will allow trainee prop traders to trade for an extended period of time on a simulator, they may claim to later provide a substantial sum of capital in the firm’s account for the trainee prop traders.