Pros and cons of trading with a prop firm
Trading with a prop firm offers traders a way to get around the regulations and leverage of retail trading. I have been day trading stocks at a prop firm for about seven months. I put in some of my own money and they allow me to trade ten times that amount. Here are some of the pros and cons:
Let’s start with the bad, in this order:
1) The safety of your money: this is what I worry about the most. Your money may not be as safe with a prop firm as with, for example, cybertrader. If the firm blew up, you can lose your money. I don’t want to lose my money.
2) They charge you: The fees vary, but no firm is going to let you take advantage of extra leverage without getting something out of it. The fees can come in the form of high commissions, monthly desk fees, and/or percent of profit fees.
3) You have to do things their way: I don’t have to worry much about this because with my prop firm, their way is my way. It’s not always like that. Often firms will train and make you trade their system. And even if they let you trade whatever system you like, they will often require you to use a specific trading platform.
Here are some good things:
1) You are more powerful: you get more than the normal 4x buying power. You can make money more quickly this way, but you can also lose money more quickly.
2) You can only lose what they have: If something bad happened and I end up losing over 100% of my account, I only lose 100% of my account. I know, this doesn’t sound good – but if I had an account with cybertrader I could lose over 100% of my account. It is some added safety.
3) Benefits if they like you: At least in my case, the firm has kind of been my “agent” – they have helped to give me opportunities that I otherwise wouldn’t have had access to.
4) Trading buddies: I trade from home, so I don’t even really know the other traders at my firm, but I have heard that new traders can learn from watching other experienced traders (mentoring) in the office. Also, you have access to more market information when you are in a room full of traders.
Does the good outweigh the bad? It depends on what you’re looking for, the deal you are offered, and the trading firm who offered it. Trading with a prop firm has been beneficial to me so far.
My suggestion is to find a place where they only make money when you make money, and they let you trade how you want. And if you are just starting out full-time – make sure you have another source of income!
