Why Prop Trading May Become the Next Big Thing in Finance
Discover the rapid rise of prop trading in the financial world. Learn the basics of how it works, as well as why this innovative trading model is gaining popularity.
If you've been keeping tabs on the financial world, you might have heard about something called "prop trading". It's a term that's quickly gaining popularity and for a good reason. This article will unravel what prop trading is, why it's growing at an incredible pace, and why it's becoming a top choice for traders, both in traditional finance and the world of crypto. So, whether you're a trading veteran or a finance newbie, get ready for a deep dive into one of the hottest trends in finance today.
TL;DR:
- Modern Prop trading is a setup where prop firms provide their own capital to independent, third-party traders in exchange for a profit split.
- It's catching on fast, particularly among crypto and forex traders who may not have vast personal capital but possess the necessary skills and drive.
- FTMO, a modern prop trading giant, has seen record-breaking growth rates in the last few years, making it the fastest-growing company in central Europe.
- The success of prop trading is probably caused by its attractive opportunities for skilled traders with generous profit splits and advanced tools.
A Refresher on Prop Trading
In the modern day prop trading refers to a financial model, where specialized prop trading firms recruit third-party traders to conduct trades on behalf of the firm. These third-party traders, who otherwise might not have access to large personal capital, can thus leverage the firm's resources to make bigger potentially much more profitable trades.
The process typically involves rigorous challenges, where traders have to prove their trading skills and risk management abilities. Once they pass this, they're allowed to use the firm's capital for trading. Profits are then split between the firm and the trader, usually favoring the trader. The exact ratio can vary but in many instances, traders might receive as much as 90% of the profits with firms such as BillionsClub.
Prop Trading Firms
In the prop trading ecosystem, the firms play a crucial role. They serve as platforms where traders with potential skills but limited resources can access large-scale trading accounts and state-of-the-art technology.
If you are just beginning to research this field, read our in-depth guide on Prop Trading firms. It contains crucial information you need to know in order to become a funded prop trader.
These firms, in essence, bet on the skills of independent traders while providing them with trading education and analytical tools. By sharing the majority of the profits with the traders, they incentivize high-performance trading, thereby boosting their own revenue.
The Stunning Growth Rate
FTMO
One reason prop trading is making headlines is the incredible growth some prop trading firms are experiencing. FTMO, a leading firm in the market, is a shining example. Over a period of four years, their growth rate shot up from 1,465% in 2019 to a staggering 39,432% in 2021.
Even though such a high growth rate isn't sustainable forever, they still managed to report a 25,255% growth during 2022. This level of expansion is virtually unheard of, setting a high bar in the industry.
MyForexFunds
Founded in July 2020, My Forex Funds quickly carved out a significant place in the prop trading industry. Within a year, they had launched a successful evaluation Prop Trading program that attracted over 120,000 traders from 80 countries, executing over $500 billion in notional volume monthly.
Their growth accelerated even further in December 2021 with the introduction of product automation and a new Forex Prop Trading dashboard, solidifying their influence in the market. This rapid expansion aptly demonstrates the rising popularity and stunning growth rates in the prop trading sector.
The Funded Trader Program
Another compelling example is The Funded Trader Program, established in May 2021. In less than a year, they surpassed $1 million USD in payouts. Their growth trajectory continued steeply; by May 2022, they had made their largest payout of $140,000 to a former Wall Street trader.
Just a year later, in May 2023, they significantly surpassed their record by reaching $55 million in payouts and expanding their trader community to over 100,000 traders. This peak was accompanied by another record payout of $203,000. Today, their website garners over 1.8 million visits monthly, reflecting the high interest in and rapid growth of prop trading.
Why is Prop Trading Getting So Popular?
Prop trading is catching on for several reasons:
- Opportunity for skilled traders who don't have a lot of money - They get to trade on a larger scale and potentially earn big profits, something they couldn't do with their own limited funds.
- Prop trading is a great way for traders to develop their skills. They get to learn from the best and use sophisticated tools and technology that might be out of their reach otherwise.
- Prop trading firms are typically more flexible than traditional financial institutions - They are more about the results traders achieve, rather than their financial history or background.
Bottom Line
As we look to the future, this trend in proprietary trading shows no signs of slowing down. The combination of its enticing profit-sharing model, the thrilling environment, and the prospect for traders to significantly grow their skills make prop trading an attractive opportunity in the evolving landscape of finance. Prop trading and its potential impacts are certainly worth watching closely for anyone interested in the financial world.
