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Prop-Trading Firms – A New Trend For IB's, White Labels

by Tim Furey
  • Do the same thing better. Coffee shops around the world would sell coffee for 25 cents and give you free refills in the 1970's and 80's.
Prop-Trading Firms – A New Trend For IB's, White Labels
Photo: Bloomberg
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Do the same thing better. Coffee shops around the world would sell coffee for 25 cents and give you free refills in the 1970's and 80's. Starbucks took an idea from Italy and charged over $3 for a cup of coffee that taste just a bit better. The innovators at Starbucks where just ahead of the trend. They came up with a place you can go other than a Bar and built it up from there.

I see a growing trend with forex IB's starting their own prop trading-firm. I am convinced this will become a major growth area of this business. Just like Starbucks, companies are coming up with a different approach with gathering groups in an office or online. The twist is traders trade the company’s money. They are starting PROPRIETARY TRADING COMPANIES.

Proprietary trading firms are companies that put their own capital to work in the markets, rather than the capital of their clients. Regarding compensation, prop-trading firms often pay nothing or a small base salary and a very size-able performance bonus. In addition, newer firms often require a contribution of capital from traders who wish to join, from about $5-20,000. In return, these firms often offer substantial leverage and training. Many times, the training is well worth the experience and price and sometimes its is given for free and on the flip side some of these places have teachers that couldn't trade to save their lives. So do your homework.

Now, prop-trading is nothing new. On the equity trading side, it has been around for a long time. During the glory years of day trading, Professional and Retail trading grew in the late 1990's till early 2000 and prop shops where popping up everywhere. However, a few things happen that slowed the industry down dramatically. It started with the stock market going from fractions to decimals. After 9-11 the market fell dramatically, changed the environment and opportunities of day trading. The good times didn’t last. For starters, the rules changed: day traders need at least $25,000 in their account, which eliminated the small guy.

Margin requirements became tighter, short selling became harder, the extreme volatility decreased and it’s hard to make money when the market closes by less than 100 points a day. Today we hear about High-frequency traders (HFT), which are already in the spotlight amid investigations into their activity.

Prop Equity traders have been turning into CURRENCY TRADERS. They are attracted to the Forex market because of its high Liquidity , 24 hour trading and the amount of leverage that is given to participants and you can open an account for a small amount of money. Most forex prop companies provide you with proprietary tools, specific rule-based tactics and methodologies, coaching, mentoring, and live online training. Many traders trade remotely, or in locations of their choosing full-time or on a part-time basis, enjoying the life of a trader.

In business one needs to ask: "How can we add more value than anyone else? How can we make a company young again?" The answer is Bring back the entrepreneurship. Climb aboard a young trend or in this case a trend that became young again in a different market.

What’s next- make it easy for companies to enter – recently, I was talking to a prop trading firm talking about how they wanted to run their business. They wanted software to enable a company to start a prop-trading firm, using the industry leading MetaTrader 4 software. So, we built something truly innovating. This software is something no other broker in the industry currently uses. Using this software, IBs and money managers will have the ability to “lock” or limit individual MT4 trading accounts based on the following variables:

• Max. Trade size

• Max. Daily draw-down

• Trading hours

• Trading products

Prop Trading on MT4 is now a reality. A small or big company can now start their own prop-trading firm overnight and have company controls for traders. Managers can easily change trader settings in real-time based off their performance, which they can also see in real-time. As traders grow, if a manager notices improvement in a trader’s ability, they can loosen up trading restrictions. If that same manager notices a decline in ability or performance…they can quickly and easily tighten them back up.

Maybe your company is in NO MAN'S LAND. Your company is no longer able to sustain or increase its profitability. This could be your transition out of NO MAN'S land.

Do the same thing better. Coffee shops around the world would sell coffee for 25 cents and give you free refills in the 1970's and 80's. Starbucks took an idea from Italy and charged over $3 for a cup of coffee that taste just a bit better. The innovators at Starbucks where just ahead of the trend. They came up with a place you can go other than a Bar and built it up from there.

I see a growing trend with forex IB's starting their own prop trading-firm. I am convinced this will become a major growth area of this business. Just like Starbucks, companies are coming up with a different approach with gathering groups in an office or online. The twist is traders trade the company’s money. They are starting PROPRIETARY TRADING COMPANIES.

Proprietary trading firms are companies that put their own capital to work in the markets, rather than the capital of their clients. Regarding compensation, prop-trading firms often pay nothing or a small base salary and a very size-able performance bonus. In addition, newer firms often require a contribution of capital from traders who wish to join, from about $5-20,000. In return, these firms often offer substantial leverage and training. Many times, the training is well worth the experience and price and sometimes its is given for free and on the flip side some of these places have teachers that couldn't trade to save their lives. So do your homework.

Now, prop-trading is nothing new. On the equity trading side, it has been around for a long time. During the glory years of day trading, Professional and Retail trading grew in the late 1990's till early 2000 and prop shops where popping up everywhere. However, a few things happen that slowed the industry down dramatically. It started with the stock market going from fractions to decimals. After 9-11 the market fell dramatically, changed the environment and opportunities of day trading. The good times didn’t last. For starters, the rules changed: day traders need at least $25,000 in their account, which eliminated the small guy.

Margin requirements became tighter, short selling became harder, the extreme volatility decreased and it’s hard to make money when the market closes by less than 100 points a day. Today we hear about High-frequency traders (HFT), which are already in the spotlight amid investigations into their activity.

Prop Equity traders have been turning into CURRENCY TRADERS. They are attracted to the Forex market because of its high Liquidity , 24 hour trading and the amount of leverage that is given to participants and you can open an account for a small amount of money. Most forex prop companies provide you with proprietary tools, specific rule-based tactics and methodologies, coaching, mentoring, and live online training. Many traders trade remotely, or in locations of their choosing full-time or on a part-time basis, enjoying the life of a trader.

In business one needs to ask: "How can we add more value than anyone else? How can we make a company young again?" The answer is Bring back the entrepreneurship. Climb aboard a young trend or in this case a trend that became young again in a different market.

What’s next- make it easy for companies to enter – recently, I was talking to a prop trading firm talking about how they wanted to run their business. They wanted software to enable a company to start a prop-trading firm, using the industry leading MetaTrader 4 software. So, we built something truly innovating. This software is something no other broker in the industry currently uses. Using this software, IBs and money managers will have the ability to “lock” or limit individual MT4 trading accounts based on the following variables:

• Max. Trade size

• Max. Daily draw-down

• Trading hours

• Trading products

Prop Trading on MT4 is now a reality. A small or big company can now start their own prop-trading firm overnight and have company controls for traders. Managers can easily change trader settings in real-time based off their performance, which they can also see in real-time. As traders grow, if a manager notices improvement in a trader’s ability, they can loosen up trading restrictions. If that same manager notices a decline in ability or performance…they can quickly and easily tighten them back up.

Maybe your company is in NO MAN'S LAND. Your company is no longer able to sustain or increase its profitability. This could be your transition out of NO MAN'S land.

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