White Label, Big Bill? The Hidden Costs of Going Plug-and-Play in Prop Trading

White label solution providers are quick to point out the challenges of building a prop trading platform, but leading firms tell FinanceMagnates.com that this approach still comes with limitations in terms of flexibility, cost and risk management.

As we recently reported, growth in prop trading is enabling non-bank liquidity providers to compete effectively with banks despite the latter’s dominance of market making activities.

Read more: Prop Firms Challenge CFD Brokers: Takeover or Coexistence?

Third-Party Tech Triumphs In-House Development

According to broker solutions vendors, using a ready-made system enables prop firms to tap into this lucrative market much more quickly and without the hassle of finding and retaining in-house development teams.

Most of the entrepreneurs who want to be prop firm operators have a background in brokerage, sales, marketing and/or social influence rather than technology, says Justin Hertzberg, CEO FPFX Tech.

“The pattern we are seeing is very similar to what has happened in the brokerage space over the past decade,” he adds. “Most brokers are licensing their foundational technologies and focusing more of their efforts on client acquisition, marketing differentiation and brand value. They aren't spending time or money developing their own trading platforms, liquidity bridges or CRM/client areas.”

Given that he comes from a technology and consulting background, Blueberry Funded managing director, Marcus Fetherston, says he has seen many firms jump into building their own technology to save costs only to find out that it is far from easy.

“Prop CRMs—unlike brokerage CRMs—require intricate, near real-time data handling and automation and any bugs during development can seriously impact the business,” he observes. “Most firms still lean heavily on white label solutions for CRMs, trading platforms and bridges. That said, more established firms often partially own or heavily customise their tech stacks to maintain flexibility, margins and branding control.”

E8 Markets believes that owning and continuously improving its in-house technology allows it to deliver a tailored, stable and scalable experience that evolves with traders' needs without being held back by vendor limitations, says Chief Growth Officer, Yavuz Karadeniz.

“That said, we recognise the value of third party solutions in areas where trader preference matters, such as widely adopted trading platforms,” he adds. “While our core infrastructure is built in-house, we selectively integrate external tools that enhance the overall experience without compromising control.”

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Cost Effective, but There Are Trade-Offs

Upside Funding also operates a mix of white label and in-house development explains CEO and founder, Charles Finkelstein.

“A trade execution platform licence like MetaTrader 5 typically costs around $10,000 a month and (the events of) last year taught the industry that you probably want to be diversified,” he says. “You then need a bridge—the best provider in the market costs $20,000 a month, or you can white label, give up some control but pay around $3,500 a month.”

On the CRM/trader dashboard, Finkelstein suggests it could cost between $350,000 and $2 million to build a platform before taking into account staffing costs compared to between $5,000 and $10,000 a month for a white label solution.

“Payment solutions are another headache for prop firm owners,” he adds. “We have more than a dozen different solutions and some firms have more. We felt it was best to outsource this rather than manage each provider ourselves, finding a payment orchestrator that packages it for us.”

Simone Nateri, Chief Operating Officer at City Traders Imperium acknowledges that as the industry has evolved, companies have emerged offering robust white label solutions.

“However, it is important to acknowledge a significant trade-off,” he says. “Relying on external providers means white labelled prop firms have less control over their technological infrastructure. This can pose risks, particularly in areas like risk management where the control often resides with the technology provider rather than the trading firm itself. For traders, this could mean adjustments in terms and conditions that are not always aligned with their expectations.”

“Exorbitant” Profit Sharing Models

David Dombrowsky, CEO & founder of FX2 Funding is even more critical, suggesting that white label technology providers have been demanding “exorbitant” profit sharing models that he says make it increasingly difficult for prop firms to succeed under that structure.

He is also sceptical that the profile of the typical prop trader has changed significantly following recent new platform launches.

“What I have seen is a growing portion of the market attempting to hedge, cheat or game the system,” says Dombrowsky. “If a firm doesn’t place strong emphasis on risk management, these groups will exploit it and they can quickly overwhelm a poorly protected model.”

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Hertzberg refers to significant growth in overall awareness of prop trading and client acquisition, as well as the increasing tension that exists with prop firms and brokerages competing for the same customer and the finite amount of investable dollars those customers have to spend on their trading activity.

“But the profile of prop traders hasn't changed too much over the past five years,” he says. “The demographics are similar to those seen at brokerages, although the average age is skewed a bit younger as the newer generation of traders are enamoured by the lower barriers to entry in prop trading and the greater upside it has to offer over self-funded trading accounts.”

Karadeniz reckons traders are becoming more disciplined and risk-aware, adapting their strategies to align with structured rules and long term sustainability rather than aggressive gains, while Fetherston references an influx of traders from underserved regions like Asia, Africa and South America, driven by platform, pricing and payment options that offer region-specific accessibility.

“We have also seen an increase in average trader profitability in the industry,” he says. “Prop trading often gives traders the chance to improve their trading since the downside risk is limited compared to trading their own funds, along with having risk parameters that they need to trade around. This aligns with the educational focus we strongly emphasise and means the business model for the prop industry needs to continue developing.”