Proprietary trading is commonly practiced in major financial markets, including stocks, bonds, commodities, and forex.
Proprietary trading, more popularly known as ‘prop trading,’ has seen a surge in popularity in recent years. In this trading model, proprietary firms take on the role of financial backers, providing the necessary capital for traders to pursue their profit objectives.
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Given its increasing significance in the investment landscape, this article will delve into the important touch points every investor should know about proprietary trading.
It will cover the list of leading prop firms in the market in 2023 and provide a review of Lux Trading Firm, addressing the escalating demand for one of the most popular proprietary firms among today's investors.
What is a prop firm?
Prop trading is a trading arrangement wherein a company, typically a financial institution or commercial bank, provides funding for your trades in exchange for a portion of the profits generated through trading activities.
In essence, the trader functions as an employee executing trades on behalf of a prop firm, utilizing their capital instead of your own. Traders employ a variety of strategies, melding fundamental and technical analyses while utilizing the backer's funds.
In return for their financial backing, the prop firm receives a significant share of the profits accrued which varies per firm depending on the agreement. This symbiotic relationship between the trader and the backer aids both parties in achieving their respective financial objectives while minimizing cost.
Proprietary trading is commonly practiced in major financial markets, including stocks, bonds, commodities, and forex.
Getting started with proprietary trading
For traders wanting to break into proprietary trading, it is important to note that a good knowledge of the market is a crucial part of the equation.
This type of trading requires a high cost of entry and traders are mandated to initially put a significant amount of collateral money before they can start using the prop firm’s capital. Nevertheless, the reward is high – traders earn more than you can imagine.
Here are some of the important points to remember when getting into prop trading according to the Traders Union.
- Make sure you have a thoroughly tested strategy in place before embarking on your trading journey.
- Explore various market strategies. The most popular strategies among investors are statistical arbitrage, merger arbitrage, index arbitrage, volatility arbitrage, technical analysis, fundamental analysis, and global macro trading.
- Conduct market research to profile and create a shortlist of firms that align with your goals.
- Delve into in-depth research about the prop firm. Traders must exercise due diligence and thoroughly understand the platform before making any commitments as one can lose all funds within the blink of an eye.
Checklist when choosing a prop firm
When it comes to choosing a prop firm, traders should test the platform through a demo if such a tool is available.
This trial period allows traders to assess the platform's suitability and functionality to the trader’s financial goals before committing any funds.
In addition, here are some of the checklists traders should look into when choosing a prop firm:
- Examine the reputation of the proprietary trading firm by checking reviews and trader forums.
- Take into account your trading style when evaluating prop firms. While some may provide higher profit splits, it is essential to make sure that their trading instruments align with your preferred approach.
- Look for signs of a long-term partnership with prop trading platforms. Since prop trading can evolve into a full-time career with lucrative financial rewards, selecting platforms committed to sustained support is crucial.
- Evaluate the cost of entrance associated with prop firms. These platforms typically require traders to pay an "entrance fee" before joining. Opt for options that align with your budget and financial preferences.
- Consider the initial balance funded in your trading account – this determines your ability to trade at a comfortable pace and take positions that lead to substantial profits. Choose a platform that offers a balance that is both extensive and flexible.
- Examine the profit-sharing structures of different prop firms. While some may provide a generous 90% profit split, the majority start at 50% but offer better long-term benefits.
Top prop firms in 2023
After a series of professional evaluations on 34 proprietary firms globally, Traders Union has released its updated list of the top prop firms of 2023:
1. FTMO - offers one of the highest profit-sharing models in the market, with a 90/10 profit split
2. Lux Trading Firm - offers a high starting capital of $200,000 and the highest maximum capital of $10 million, with a profit split of 75/25
3. Funded Next - with a starting capital of $15,000 and maximum of $4 million, this prop firm offers a competitive advantage to traders, with payouts standing at $22 million
4. 5%ers - observes a 50/50 profit split in a maximum capital of $4 million
5. Audacity Capital - has a 50/50 profit split in a maximum capital of $2.8 million
6. Fidelcrest - offers a lucrative profit split of 80 to 90/10 and a maximum capital of up to $2 million
7. The Funded Trader - profit split is at 80 to 90/10, with a maximum capital of $1.5 million
8. BluFX - a 50/50 profit split with a minimum capital of $10,000 and a maximum of $1 million
9. My Forex Funds - 75 to 85/15 profit split with a maximum capital of $600,000
10. Earn2Trade Forex - this platform is advised for traders that are just starting out with prop trading, with its 80/20 profit split and $200,000 maximum capital
Lux Trading firm review
Ranked as one of the top proprietary firms this year, Traders Union’s Lux Trading Firm review is sought-after prop trading references among investors today.
TU placed Lux Trading Firm on the 7th spot among 34 prop companies evaluated during the period, scoring high in regulation and safety, commission and fees, and trading instruments.
Lux Trading is a British prop firm with close relations with the biggest financial institutions in the location, including Barclays, Credit Suisse, and Goldman Sachs.
Minimum deposit starts at 149 GBP, affordable for beginner investors, offering four standard trading accounts including $25,000, $50,000, $100,000, and $200,000. Users that successfully pass Lux Trading’s two-step evaluation are entitled to get a refund for their enrollment fees.
The most important part: fully-funded traders are on a 75/25 profit split which is one of the most lucrative offers in the investing space in 2023.
The article was written by Ivan Andriyenko.
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