What does the trend on prop trading mean for retail brokers and traders?

Any conversation about prop trading usually starts with the consideration of this term. Shortly, from the traders’ point of view, it is about the opportunity to test skills and gain access to more capital and profits. By passing the challenge, traders may increase the earning potential of their accounts with less upfront capital than they would need at a brokerage.

As for retail brokers, proprietary trading is a more controversial term. Probably we may highlight key arguments about brokers’ cogitations around prop trading.

First of all, traders funding firms isn’t a new idea for the trading industry. There already were classic companies that tested out traders and hired them to trade with the company’s capital. What has changed in the last years is about digitalization and democratization trends. It finally reached and influenced proprietary firms similarly as they influenced traditional forex brokerages a few decades earlier. After the development of the online retail experience, it became much easier to access a broker than it was in the early 2000s. Likewise, it was much harder to access traditional proprietary companies and undergo evaluation before modern digital firms appeared on the scene.

The next interesting side for brokers in proprietary trading is the regulations field. It is well known that now there are no specific regulations for traders funding firms. This both attracts and repels industry stakeholders from this sector. On the one hand, new people in the industry are considering prop trading as a new easier, and faster way to start up a company and that’s exactly why so many new companies are appearing in the USA and UK, where rules for brokerages are quite strict. On the other hand for established companies, uncertainty about potential risks is more important than the potential benefits of launching prop services.

Now the whole industry is in a situation where it is very difficult for brokers to evaluate the pros and cons of the strongest trend of proprietary trading. The conditions develop fast and the decisions that operated a few months ago could not continue to do it today. Additionally, this circumstance was exacerbated by the conflicts of prop trading companies with trading platform providers, which began to acquire a systemic character. No brokers want to risk the stability of their infrastructure in favor of extending their offerings.

Finally, some brokers may consider prop firms as their direct competitors, but if we look closer at the demographics, we could say that probably it isn’t a threat to retail firms. The average trader in traditional retail brokerage is 37 years old, while the average prop trader is in their late 20s. From this point of view the traders’ funding firms don’t just take away potential clientele of more traditional brokerages, but, in contrast, extend market borders, attracting new audiences.

This is exactly the point, where a fruitful space for cooperation appeals. Brokers have the trading infrastructure and resources prop trading companies need for their operations. This includes the already mentioned trading platforms, liquidity providers, CRM systems, and even compliance departments. At the same time, prop trading companies may offer their expertise in other areas: traders’ education, affiliate programs, client engagement, and so on. All these questions come up to retail brokers every day as challenges, while traders funding firms seem to handle them. Hence cooperation appears to be a mutually beneficial idea for all stakeholders, including the traders themselves.

For traders, besides more favorable trading conditions due to a more advanced trading infrastructure, the cooperation between retail brokers and prop companies would also mean non-obvious professional opportunities. For instance, retail brokers that provide trading with PAMM or Social Trading systems are constantly looking for qualified signal providers. The trader funding firms could offer a retail broker to involve their best traders who have proven their success by passing the challenge and reaching the funded stage.

Surely, for these developments, a reliable technical base is needed. It should provide both brokers and prop firms with the ability to effectively manage clients’ trading accounts, integrate databases, and manage risks. In this sense, the growth of the prop trading trend opens up new challenges for all technology developers. The key issue that we face is to provide companies with the necessary software to fully cover the needs of customers and meet the challenges of the market and industry. The release of Prop Pulse is a consistent step in this direction, laying a trend for the future development of such systems in the industry.

Lately, Brokeree Solutions released a new Prop Pulse solution – an account management solution for prop trading firms.