Would you prefer to be a prop trader or a regular trader? Which one would make you happier? This article explains how trading independently with prop firms differs from trading on your own as a retail trader. Before reading to the end of this article, you should have understood the key differences between prop trading vs. retail trading so you can make a better decision about what the future holds for you in business.
1. Definition (score: prop 0-0 store)
Prop traders use money from their firm to make trades. This means the firm has a big deposit with a broker, and traders are using the firm’s money instead of their own. They usually ask the broker for a small deposit but offer a lot of leverage based on how well the trading goes. Retail traders trade their own money, have more strict risk requirements, and have restricted leverage.
2. Leverage (score: prop 2-0 retail)
Prop traders often have more money to trade than individual retail traders. This is because prop firms have a strong image and more influence. They have customers, capital, and their own ways of managing risks. A prop company can provide you with extra money to trade based on how well you perform. Retail buyers start with low leverage, and it’s hard to change this unless they add more money to their account.
3. Commission Costs (score: prop 5-0 retail)
Because prop firms trade a lot, they can get lower commission fees from middlemen and share these savings with prop traders. Retail traders have less power to negotiate and find it more difficult to get good fee rates.
Tip: If you’re starting with little money, try becoming a prop trader. You’ll pay lower commission fees while you learn. Once you increase the size of your account and trading volume, you can talk to your prop company about lowering your fees or choose to trade on your own using retail options for larger trades.
4. Training (score: prop 2-0 retail)
A prop company usually provides free training because they earn money from commissions. They want to help you learn to trade strategies that involve a lot of trades. Most companies have an office where traders and teachers can look over your trades and give you advice. This is very important, especially at the start, when you need both knowledge and emotional help to handle the stress of the markets. Retail traders can trade whatever they choose, but they might not get help from experienced traders or have a good setting for growth. Some prop firms share traders’ results every day to help keep people inspired.
5. Profit Split (score: rating from 0 to 5 for sale)
The main difference between prop and retail is how earnings are shared. A prop business earns money through commissions and by taking a portion of the trader’s profits in exchange for the resources they offer. This percentage can change a lot between different companies and traders because it considers factors like the trader’s performance, level of risk, money spent, and trading approach. In contrast, the retail trader keeps all of the gains.
Tip: Always discuss your profit portion as your income increases.
6. Technology (score: prop 1-0 retail)
Typically, professional traders have more tools available to them. However, thanks to advances in technology, individual traders can now access the same trading monitoring tools like Controlio, like advanced trading systems and real-time news. Sometimes, prop traders can get discounts on trading platforms if their business has a partnership with the platform company. However, these discounts are usually small and might not be given to the trader. The prop company usually gives the trader a fast computer and at least 2 monitors for free, but may charge them if they don’t meet commission goals.
7. Market Data: (score: prop 0-2 retail)
The difference is unclear because prop traders are considered professional traders. This means they usually pay more for exchange data than retail traders. However, fees may be waived based on how you trade and where you live.
Tip: Before starting to trade with a prop company, check all the costs for exchange data to avoid shocks at the end of the month. At the start, every cent counts.
8. Work environment: (score: prop 2-0 retail)
In a prop firm, you may have the option to work from home, but trading in the office is usually better. In the office, you can share ideas with other traders, discuss trades, take classes with mentors, and keep track of group profits. You’ll also have access to great technology, like power and internet backups, computers, and advanced displays. The downside is that you need to trade every day, and you might have to pay rental fees because you’re taking another trader’s spot. On the other hand, private traders are responsible for 100% of these costs.
Your guide will always advise you to trade in larger amounts if you’re getting good results. In an office, skilled traders can earn 50 times more than you, so see that as a strong motivation. Retail traders may take more time to improve because they lack experienced dealers to guide them. Retail traders can be driven by different factors, but watching another trader earn $50,000 in a day is a strong inspiration.
9. Risk Management: (score: prop 1-0 retail)
In a prop company, the risk manager can set limits on losses and special rules to help you make more money and reduce losses. This may include stopping traders when they reach their goals, setting a daily loss limit, and disabling certain functions. These steps help the company stay financially healthy and also ensure that the seller follows rules. Retail sellers can make rules for themselves, but they are likely to break them more often.
10. Selection process: (score: prop 0-1 retail)
The top prop firms usually have certain requirements for selection. They usually like to hire people who have little or no experience in the market so they can train them in the office methods. But retail buyers don’t have to do this. They can open an account with a shopping company and start trading immediately.
Conclusion:
You might have seen the number assigned to each comparison we made. The scoreboard shows the pro beating the retail seller 13-10, but it was a close match. This doesn’t mean you should prefer property over retail; instead, consider which option is better for you.