What is prop trading, and how to create your funding account?

Although Prop trading may seem like a great advantage for traders, it also has many benefits for your business as a broker. If your goal is to move from IB to Money Manager and manage your client portfolio, do not miss the opportunity to offer the best services to traders who will work with you. For this, the Prop Trading solution can be your best ally.

This topic is what Smart Broker Solutions want to address today, prop trading and how this type of service you offer your traders can benefit you besides being an attractive option for them. Let’s see in more detail what it is and how you should handle this type of business, also called fund trading or funding account in the world of Forex.

What is prop trading? Keys to success

This type of business is often linked to new traders, but it is also suitable for those whit experience. In both cases, your operation starts by using a broker’s capital to make trades. In return, traders take a part of the profits they generate in your broker with your capital.

The modus operandi of this modality consists of a system of trading contests where the broker sets specific rules for traders to operate under its name and with a stipulated capital.

Many experienced investors have begun to consider prop trading as an alternative and business model to be taken into account, as it provides new possibilities for attracting clients who would not otherwise be able to invest. In this way, the range expands considerably.

But let’s talk more about how this type of funding account works. The initial entry is low, and the potential benefits are broad for you and your customers.

As the provider of this method, your broker will be responsible for recruiting traders of all levels of professionalism, who will be funded with company capital to invest in commodities, bonds, stocks, futures, indices, and cryptocurrency markets.

In general, you will have to provide additional support to your clients who venture into prop trading, focusing on the variables you decide to trade with your capital.

This assistance is provided through education, professional training, and negotiation tools, which in the end, will ensure the dividends you can obtain, so take it as a necessary investment.

How does Proprietary Trading work?

Conceptually, for you to hire an expert trader to manage funding accounts and you can be sure that he will work most professionally and beneficially as possible, you must first make him an evaluation by levels.

It is usual to do it through evaluation demos or test accounts. The trader must test their skills and trading capabilities necessary for prop trading.

Traders may be rewarded with commissions or part of the profits when performing these tests. After evaluation, they may choose to increase funds if targets are met.

Now, you have the power to develop the rules on which the business will be based. They should support your customers in making profits and, if possible, discourage losses. Remember that all of this pays back to you.

It is necessary to point out that a reputable broker is not a guarantee of a more attractive prop trading offer than others coming from less reputable brokers.

Professionalism, reliability, and legality are the key. If you offer sustainable conditions over time and have a reputation for reliability, your chances of getting experienced clients who want to work under your firm will be much greater.

How do your customers get a funded account?

First, it is necessary to point out that funding accounts have an initial balance of money to operate. To get a funded account, your customers have to comply with the following rules:

  • They must achieve a minimum profit in the simulation depending on the objective set out in the prop trading evaluation.
  • They cannot exceed the maximum number of losses allowed.
  • They must respect the days and times established to operate.
  • They must not exceed the number of open contracts allowed according to the plan chosen by the client.
  • It must maintain uniform and constant profits.

These are some rules that the trader must respect in the evaluation that will guarantee their training to manage funded accounts. Based on them, we tell you the benefits this method can bring your broker.

Benefits that jump out at you

Having a group of trained and experienced traders under your broker and supervision is a valuable advantage since the possibilities of growing your wealth will be greater.

What attracts traders to trade under the prop trading formula? The answer is obvious. Being able to trade without risking their capital is attractive to those who want to try other ways of operating outside the conventional. Also, the initial cost to the trader is low. 

Another substantial benefit of this method is the autonomy you have. As the broker and capital owner, you must develop rules that traders cannot break; these rules must be precise, clear, within the legality, and strict compliance.

After all, you are the one risking the money used in the operations, so your supervision is vital.

Final Considerations

Prop trading, as a method to develop a profitable business over time, has rules that, although rigorous for your clients, will bring you capital gains and will help you increase your portfolio of clients who will trade according to your style and orientation.

Do you know that to have your prop trading, you do not need to be a Broker?

We have left for the end a very coveted secret…

That’s right, far from the expensive structures to be able to mount a white Label, in SBS, we offer you a complete solution for your funding accounts at a much lower price than you may think…

Try our Demo and make your prop trading alternative irresistible.

Rodrigo Insua

Avatar of Rodrigo Insua

Head of Marketing en Smartbrokersolutions. Coordination and management of online and offline marketing campaigns.

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