What Brokers do Prop Trading Firms use?
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Thread: What Brokers do Prop Trading Firms use?

  1. #1

    Everyone has insights to the question?

  2. #2
    My opinion is that Prop Trading Firms utilize the broker that they make the money together, and not the broker who is most suited to their own traders style/styles of trading.

    I spent twelve months out of the previous two years wasting ten million dollars with a prop trading firm who insisted we exchange via their brokerage. Unfortunately, the kind of trading I wanted to perform depended on reasonable spreads. And of course, their spreads inflated to add to their entire profit margins.

    One more learning experience for me, and hopefully my last. I feel that after nearly a decade in this trading game I have finally come to understand how to trading success :--RRB- And it has nothing to do with Dealing with prop firms, that is for sure ;--RRB-

    Erron Ad

  3. #3

  4. #4

    We want context before anyone can even come close to answering that question properly.

    For starters: that market? Broker setups will be impacted by this.

    And at least answer which business model you are speaking to as prop?


    I will assume you mean in Forex. . (to save myself a crud-tonne of writing since the constructions of props in the equities market is where the interesting relationships and company structures occur.... Would have a solid page or two to detail)

    And by 'business model' you imply the firms you see advertising their solutions around the net (maverick fx, or basement-dwelling fly-by-night shop fx .com) (I will get some hate mail from some folks for this post, I understand it. )

    There are not many prop firms that only focus on forex. There is simply leverage readily available to retail traders, and trade costs are already low on retail aspect of brokerages for a trader to find an edge at a vs on their own to trading.

    This makes it almost impossible for props to hire decent talent (good talent knows this,) or keep new talent that have become profitable (new talent learns they could trade on their own for a greater profit split, better terms and instantly leaves)

    So most forex prop firms don't bother trying to supply a greater implementation / information / fee / leverage installment to traders, since they can not really compete there. Rather, they frequently simply partner with a broker (generally retail level) and attempt to justify their existence with complimenting solutions, such as instruction, training, market box stre, teaching a method by the head trader, etc.... basically providing support solutions for traders that need to be guided and handled as traders.

    But there is the thing, the prop company is not earning enough revenue from your account turning volume, and if there is a profit split, they can not guarantee they will be able to keep the lights on and cover all of the services they supply if non of the traders turn a profit in a given month... so they frequently charge a membership fee, desk charge, eduion fee, etc.. And also make it necessary to trade with them.

    I actually find no problem with this front, that is, providing moving services to get a fee profit split. . Since some traders really benefit from such an environment (they want hand holding, no shame in admitting it, some only work with a supervisor breathing down their throat and a egy in black and white they will need to follow) My problem is that the majority of firms will do so while shing the risk to the trader, and also make the trader put their capital to trade. They call it a risk deposit but it's really only the trader using their own capital (remember, leverage is considerable.)

    Why does this matter? The company no longer cares what is good for the trader (like firing someone who clearly is not going to work outside, or creating a trader who has the opportunity to really make bank for the company) and instead only cares about attracting on as many customers as possible and not give a crap if they profit or burnt out. . In effect, they become a value added introducing broker/agent for a retail brokerage. Their company interests are no longer tasked with creating individual traders successful, as it is more profitable for them to put their efforts in marketing and marketing.

    In other words, DECENT prop firms don't market (especially on craigslist.) If a company is advertising their goal is to get meat and flip the deal, not grow traders or share in a trader's success.

    Outside of all this, as I mentioned these company are often making money from the volume you do... on the backend they will have a volume rebate agreement and act as both a corporate thing and introducing agent with their broker of choice. Just in case you were wondering why you are forced to use one platform and broker through the company.

    These models are akin to this broker-dealer prop models you can find in equities... though I would say they're usually a worse deal total on the forex side.



    Oh who do they use? I've seen 2 firms use F_CM's Active Trader platform, which is not the very best for pricing but F_CM is good on supplying these firms income.

    4xprop. Com would be one example of this.

    Maverick FX uses Interactive Brokers.

    IB has an agency markup option on their trade group subaccounts where they could increase the transaction costs and bank that gap for their managed accounts. . Heck, IB includes a branch that ers to trade classes like props and offers a lot of those tools required to manage them from the back-office standpoint:
    (Forgive me if that link breaks afterwards, if it does, you need to go to the associations tab at the top of their home page, then loe prop bands on the menu from the left.)

    I have no clue if Maverick uses this markup to gain income from trade volume of their customers, though it would match the tendency if they did.

    (in case you could not tell, I rather dislike the condition of this FX prop business... or really the lack of adequate options within forex in regards to straight prop, since the only business models that live and make cash for the company are at the expense of the trader and are not traditional props as we see in different markets.)

    Disclaimer: My experience is with equity firms that trade in a proprietary manner. . I've only been at firms (and currently with a private company) with no risk deposits, that are selective on who they invest their time and effort in training and hiring (training is not a profit centre for them like the prop firms you see advertisements online, a junior employee is edued at the firm's time and expense since the company wishes to generate income from their performance later on,) and only profits when their traders profit. . In reality, it's impossible for me to maintain a situation where cash flows from me back to the company... since I'm not a customer and not paying for any services of theirs... I'm a trader on their floor. They tend to fire traders that aren't performing. They also doesn't need to market, as they are not selling anything... and invest additional time batting off desperate traders needing a free ride than hiring new ones. Bear this in mind while you look up firms in general, if they're attempting to 'sell you' on the services of the firm, there is a reason behind this.

    I'm not wanting to sound snobbish, I'm just explaining where my point of view comes from. Some traders do really well at broker-traders (the firms where you set up risk capital and cover services,) and there is a place for them in the increased market for sure. I only sound like I'm against them since I dislike how many noobies they burn off and flip through without care as it is their means.

  5. #5

    Since prop models (at least the ones I believe decent) do not match nicely in the Foreign Exchange market... what's actually more common to traders who want to go institutional is the capital alloion version:

    Traders remain independent. They get a few regulatory certifies (in the US, frequently this means being a CTA.) And they operate.

    They generally get the majority of a 2/20 split, like a hedge fund. 2% MER plus 20% of profits beyond watermark. Frequently this is split down the middle with the capital introduction agent... and as you obtain a better and far better track document, you can control a greater split for yourself (think of it like this, the less the funding introduction agent must sell your solutions, the more they will be prepared to part with... in case your track record and AUM sells itself, they will take less of a cut. Til then, you'll need them more than they want you, so you'll bend over at just get 1 and 10. )

    Of course people do not just drop AUM on traders at random, this is really only a path for someone who has a very clear and consistent track listing (generally audited by a 3rd party accounting company, not just a myfxbook page) It is a business, but it's the way to go if an independent trader wants a shot at institutional capital in the Foreign Exchange arena.


    Places that operate this kinda model (that operate with FX traders at the spot market):


    These guys can help you set up a legal entity like a hedge fund. Later, if your fund is doing well, they take direct investors funding and funding introduction services up .


    These guys are new and have a few million to devote traders... they do not deal too much with all the corporate arrangement side of it (like, sure you'll want to set up a legal entity like a hedge fund LLC, however they do not concentrate on making money from advising you on that. .) Rather they just look at funding alloion to trading ability.

    In both cases, you are working together with the broker of your own choice, as you're a different and set up a corporate account in the broker you want to trade with.

    There's a lot more businesses out there which do this rather service. . But these two really are off the top of the head. Some brokers even do so if they have the small business relationships in place.

    Pepperstone has a funding introduction program for instance...

    Again, this can be for recognized traders with adequate track records, and many funds alloion providers see right through the large risk trading and tips individuals do on sign service sites to profit investors. This is a significant business, where a 20% drawdown on an account is a disaster, and you're going to be assessed for risky trading in case you're making 100% (corporate world isn't dumb, if you're doubling your funds, your blessed, trading dumb risk that hasn't violated the account yet, or exploiting a legitimate advantage and generating true alpha. . They will make damn sure you're in that last class, so a high flying trader with huge returns is considered using the same risk microscope as someone who blows away 20% of an account)

  6. #6
    Quote Originally Posted by ;
    I will assume that you mean in Forex. . (to save a crud-tonne of composing since the structures of props in the equities market is where the intriguing connections and company structures occur.... Would have a solid page or two to detail) [...]


    Blast my quick typing and ranting nature... :/

  7. #7
    Quote Originally Posted by ;
    My frank view is that Prop Trading Firms utilize the broker they make the most money with, and not the broker who is suited to their own prop traders style/styles of trading.
    Capitalism 101

  8. #8
    Jack, reply! I referred to FX Prop Firms. I wanna have a fantastic idea of the more reputable FX Brokers out there. And that I got more than I bargained for.

  9. #9
    Quote Originally Posted by ;
    Awesome Answer, Jack! I referred to FX Prop Firms. I wanna have a good notion of the reputable FX Brokers on the market. And I got more than I bargained for.
    No difficulty.

    Just keep in mind that the requirements of a trading company will be very different than that of a single trader. Concentrate on what attributes would be a good fit for 'you'. .

    I mean, a company might pick one broker over another for greater funding efficiency, capability to clear through a specific prime broker or bank, or back office report creation by the broker to offload this job from company managers.

    For example, so long as the broker has decent service uptime, deals with you and politely as a customer, and is well controlled (so you've got a 3rd party to tackle if anything go wrong,) then you are set and can pick and choose exactly the finer details that thing for your own preference as a trader to narrow down your selection. For example, some people don't mind paying a wider spread should they get access to tools and software that would cost them a little to get on their own. Others might just want great implementation and tight spreads and need the broker to get out of their way differently (no frills, etc..) This material depends on you.

  10. #10
    That's true. Retail and Prop trading firms have different requirements from a broker.

    I'm using Oanda at Singapore. Their spread is great. What scares me is their slippage and extending of spread throughout vol. I've been using alot of limit orders to trade so I wanna make sure I get a broker with minute. slippage.

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