Have you ever heard of the term proprietary trading or prop trading? And are you confused about what it actually is? Do you want to know about prop traders and prop trading?
Here in this article we will discuss prop trader and proprietary trading, its pros and cons with a brief topstep review.
A trader who is doing proprietary trading is known as a prop trader. Prop trading is done when financial institutes like brokerage firms or commercial banks directly trades or invests in the stock market activities. They can trade different trading aspects like currencies, stocks, bonds, commodities, or derivatives.
Prop readers use their own funds for investment and trading purposes in the stock market. They don’t use their clients’ money. So along with the commission they can get from investing and trading their clients’ money, you can get full time profit by doing proprietary trading.
Pros of Prop Trading:
Prop trading do have plenty of pros and here is a list of few of them:
High amount of profit:
Institute can earn a high amount of profits as compared to working only as a broker and earn commision.
Security of stockpiles inventory:
They are allowing firms or institutes to stock up on shares. These shares can be sold to clients.
When you add liquidity to the market you will get compensation which is known as rebates. All the prop trading institutes give you rebates which you can’t get retail clients.
Offering good support:
Prop trading companies usually closely knit procedures which involve only a few people. This means their customer support is good and quick enough that they can solve your problem even on a single call. Compared with trading with brokers which have millions of traders it can take time to respond.
Leverage rate limit:
You can have filled orders along with open orders. Leverage rate limit is not forced in proprietary trades.
Providing Liquidity by open accounts:
Prop trading usually deals with open accounts that provide Liquidity to the market. Some of the prop trading firms are allowing you to have more than thousand open order accounts at the same time.
Easy entry for traders:
Prop trading offers easy entry to the trading market. If you have less than 25,000$ in your account for investing then prop trading is the best option for you.
Diversify and reduces risk:
Having a big bank account? No problem. Proprietary trading can be a viable option. You can deposit a small amount and then use margin that you can lose and invest the rest of your capital in stocks or mutual funds.
Multiple trading platform:
You can get multiple trading platforms in proprietary trading. You will have a choice in several platforms and you can select among them. In contrast to this as a retailer trader you are bound to whatever choice company is offering you.
Big inventory list:
Prop trading provides you with a big inventory list so that they can effectively sell short. But you first have to research and locate shares, and a prop trading firm helps you do this. As a retail trader you don’t have much choice of locating options and selling shorts.
Cons of Prop Trading:
Like everything else that has benefits prop trading also has their lists of cons. Here are the following:
- Prop traders are less regulated as compared to retail brokers.
- There is a high risk of losing money because it is not insured.
- Prop trading has high trading fees. They will charge you for the software you are using.
- Proprietary trading is usually done during the day time because you won’t get much leverage during overnight trading.
- There is a chance that prop trading firms can steal your intellectual money or property.
Brief Topstep Review:
It’s an unique international trading firm aiming to provide you day trading. No experience is required. You can’t open a real account immediately. First you have to go through two stages. One is the “trial period” in which trading limits are set. It is not regulated by any regulator.
Analysis of features of topstep:
Overall rating (3.09/10)
Minimum deposit 1$
Leverage rate 1:100