Proprietary companies offer trading capital to aspiring traders who show good profitability in the market while maintaining drawdown. The amount of funding can start from $10000 and can go all the way up to millions of dollars. This relationship is beneficial for both parties as the profits are split both ways when the targets are met or at the end of each month, whichever comes first.

Previously traders would have to have a solid financial degree and experience in the markets to even qualify for an interview at a prop firm. With the enhancements in the fintech department, it is possible to join the big boys by passing a simple challenge and trade millions from the comfort of your home. Our article will cover all the possible reasons why you should use the capital from prop companies for trading.

Basic Requirements of Trading Capital

It may seem that you only need $100 to start trading currencies or other stocks. The brokers have reduced their minimum capital requirements to as low as $1 and offer many bonuses to attract novice traders. The truth is you need at least $10000 in balance to generate any decent income with proper risk management.

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To understand better, let us consider an example of an investor who risks 1% on each trade. Their monthly goal is to generate 5% or $500. With $10000 in the capital, they can achieve this in 5 trades with a 1:1 risk-reward on each execution. It would take forever for a trader with $100 to reach this amount. Implementation of leverage does not help here, as the account would get a margin call. Prop firms can easily fund you with $10000 if you prove to be a successful trader.

Capital loss

You are not liable for any losses while trading with a prop firm. The company absorbs all the drawdown up to 10% or more. The initial challenge fee, which can be a few hundred dollars, is also reimbursed to the trader with the first profit split.

Psychology

According to professionals, psychology is a major component of trading that takes about 80% of the whole success pie chart. 15% is risk management, while 5% is strategy. It can be taxing on your mind if you operate with personal capital. The changing profit/loss figures in the trading platform can cause greed, fear, euphoria, anger, etc., to take control of your trading, resulting in huge losses.

It is possible to curb the poor mindset if you are trading someone else’s capital as there is no personal loss. This can give your trading a decent boost and help with overall profitability.

Scaling Up

Prop companies will increase your trading balance if you prove to be successful in the long term. In most cases, 10-20% will be added to the capital if a trader achieves a 10% profit within a set period.

A prop trader with $20000 in initial balance can double the amount in a span of one year. This amount can increase all way up to millions.

Access to better trading conditions

Retail traders have access to normal conditions such as average execution speed and spread from the brokers. Prop companies have an advantage as they cut a deal with the exchanges to get the best quotes passed out to their traders.

High commissions can eat up your profits in most cases, leaving your overall account balance in the negative. This can be crucial for scalpers and day traders who are in their trades for a few pips. Swing traders can also receive interest-free portfolios. Generally, there are no restrictions on trading styles at most prop firms, and traders are free to use any strategy they like.

Trading mentors

A trading mentor can pinpoint your mistakes and aid in building consistency. Top gurus are only available at big institutions, banks, and hedge funds. Good education comes at a decent cost, which retail traders can find hard to afford. As prop companies have abundant capital, they will provide you with the best teachers in the industry free of cost. It’s a win-win scenario for both parties as your success means increased profits which benefits the proprietary firm.

Trading principles

Proprietary trading companies have strict rules that traders must adhere to. For example, they should not lose more than 10% of the overall account balance. A certain profit target must be met to be considered eligible for funding etc. Following these principles can induce a sense of solid discipline in traders, allowing them to reach their short and long-term goals with ease.

Bottom Line

Prop companies have paved a new way for retail traders to receive institutional grade liquidity, balance, and other trading conditions. The benefits here are huge and can pave the way for you to generate thousands of dollars in passive income each month. Passing the challenge may be difficult for some; however, practicing on a virtual portfolio over time can help increase the odds. After becoming a fully funded trader, it is quite easy to generate a stable 2-3% each month which would be $20000-300000 for a million-dollar portfolio.

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