The essence of prop trading is that other group of investors (companies) educates and invests their money in trader who trades with his own money and the company money. The traders risks is within his own capital — once the trader loses money of the failure position, the trade stops.
Advantages for the trader is obvious: the ability to trade large amounts of money, earning more profit. Investors get about half of the earnings of the trader.
Prop trading differs from leverage in that there is no reference to the trader’s deposit and no cash constraints. With the personal deposit of trader, for example, $ 1,000 capital of investors can be tens of thousands.
Prop trading differs from trust management in that investors risk their money, because trades are closed with zeroing of personal deposit of the trader. Trust companies can “merge” the money of their clients.
Prop trading differs from hiring of private trader in that a trader only risks his own money, investors ‘ money can be called leverage.
Example: a trader has $1000, brokerage or investment company provides funds in the amount of $9000. When the yield of the transaction is 10% of personal deposit, the trader profit would be $ 100. when the total deposit is $550 (10% of $9000 is $900 half of profit is left to the trader).
The prospect of prop trading on domestic exchanges
The stock market of the CIS countries is not well developed — only about 10% of the population is fairly properly versed in the principles of currency and stock markets. Prop trading in CIS countries is only beginning to gain momentum, and foreign investment companies play the role of the investors. For comparison, in the US transactions of this type of accounts take about 50-70% of stock market turnover. Investment companies, managing capital clients can independently invest in certain securities or currency, but the opportunity to give part of the money a professional with the risk of only to a 0% income (investing in the asset directly can bring negative returns) is attractive for its simplicity.
The history of prop trading starts from mid-1990-ies, when several large companies began to attract traders of graduates. Later this area turned into professional investing: investors formed its research department that monitored the work of the trader, and carefully looked for stock professionals.
The basic principles of prop-trading:
property-the company gives the trader own money, demanding that he makes a personal deposit of the trader;
a novice trader risks only his deposit;
risks of prop trader limits the risk manager being an employee of the property-company;
the trader receives the profit only a month after reporting – it insures the losses of the future period.
As a rule, investors are 1 or more experienced traders, under the leadership of whose, the team is working at smaller traders, each responsible for its direction. They are able to conduct independent business, and transfer the risks of a prop trader. For a novice prop-trader it is the ability to acquire new knowledge, rotating in the team of more experienced professionals.
In Russia, property companies appear more and more, with the possibility of remote collaboration. For example, one of the famous companies offer the following conditions:
work on intra-day futures trading on CME;
the opportunity to participate in multiple programs of traders selection. The duration of programs from 3 to 8 weeks, a deposit from 160 to 350 USD;
floating remuneration (up to 80%);
establishing a limit on the maximum loss in 1 day, setting a limit on the number of contracts for 1 day, the limitation of the duration of the trading day of the trader.
As property company enters into a contract with the dealing center, receives a platform, prop companies in the US are used by our compatriots as intermediaries, because to get into stock US market through a broker is very difficult. To conclude a contract with a property company, you need to provide future investor archive of profitable trading on real accounts and pass test.
Summary. Prop-trading is a good replacement for paid training in Forex for beginners. However, professional traders may find in it something useful. Because everyone dreams about the possibility of interest-free use of borrowed money, increasing trade turnover. And for property companies – it is the ability to earn in the absence of losses.