To trade forex, one needs not only knowledge and skills, but also capital. In general, broking companies have quite a few offers that allow to start in the forex market literally with one dollar in the pocket. However, if you feel strong enough and have a proven trading system that helps you reach success, but you have too little money of your own to start getting great returns right off?
What should a successful trader that has lack of own funds do? There are two ways. One - evolutionary by gradually growing your own funds to be able a few years later to manage large trades. Another is revolutionary by using services of a prop company.
Such concepts as prop trading, prop company have become a solid part of vocabulary of professional traders and investors. Tarika Business Corp, a company set up by an association of successful traders, is among them. The team of like-minded people that have made enough money in the high-risk forex market tried to invest this money with a minimum of risk and a maximum of returns. Analyzing best practices at companies in countries with developed financial markets, learning a variety of trading systems and strategies as well as the market of asset management in the forex, Tarika Business Corp specialists concluded that this model could well be implemented. The only unresolved issue within this concept was selection of the trading floor.
Operation of the prop trading system requires that the broker should support ECN accounts and real coverage of trades with external providers. If this condition is not met, i.e. in cooperation with the so-called 'bucket shops', successful traders will first face great difficulties in trading and later in withdrawal of funds because, without coverage, successful traders make losses to a 'bucket shop'. Besides, the broker has to be technically prepared to offer high-quality execution, no requotes and slippage. To support the pro system, the broker should implement the mechanism for loss limitation by termination of trading when a certain, pre-determined amount of loss is reached.
Currently, Tarika Business Corp completed negotiations with broking company Skopalino Trading Ltd (Forex Trend) that meets all these conditions.
How do traders ultimately benefit from participation in prop trading? What are actually the broker and prop company interested in as they literally hand around money which exceed the trader's own funds multifold?
It is these and other questions that Market Leader asked General Manager of Forex Trend, Andrey Polishevich.
Market Leader: Andrey, good afternoon! We believe your readers would find it interesting to know more about prop trading. Since your company has direct experience with this fashionable word you must, like nobody else, know what it is and what we need it for. Hence our first question - the history of this new concept.
A. Polishevich (Forex Trend): Prop trading (Proprietary Trading) means an opportunity to trade in the forex market on funds of a prop company. It offers successful traders its money for management thus increasing the volume and liquidity of the broker.
Few people are aware that it is prop trading companies that generate 50-70% of trading volume for Wall Street. This surely is risky trading like any other financial operations in financial markets. But many traders build an illustrious career in such trading. We could remember only a few - Edward Lampert, Daniel Och, Boaz Weinstein. Some investment banks, most historically connected with trading, such as Salomon Brothers, Drexel Burnham Lambert and currently Goldman Sachs. Major operators of this market in Wall Street are Goldman Sachs, Deutsche Bank. I am confident nobody doubts these pros know what they are doing.
In fact, prop trading is a unique and ideal symbiosis of a professional trader prepared to be liable with their own capital and a company that offers this trader its money for management. A successful trader gets a capital 10 times that of his or her own deposit from the company. Therefore, the manager can get profits a few times that of their funds.
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Market Leader: Actually, successful traders may manage the company's capital which exceeds their own capital multifold? How does this model differ from margin lending?0
A. Polishevich (Forex Trend): There is a significant difference. A simple example will do the explanation.
The trader's deposit is 1,000. Leverage is 1:1000. To meet recommended MM, the trader manager buys 0.1 lot. They win 20 pips. As a result, their profit will be 20 dollars (minus spread and commission).
When funds of the prop company are used, this example looks a bit different.
The trader's deposit is 1,000. After the company credits its money, the deposit is 10,000. Leverage is 1:100. To meet recommended MM, the trader manager buys 1 lot. They win 20 pips. As a result, their profit will be 200 dollars (minus spread and commission).
Actually, increasing leverage has nothing to do with profits. In my opinion, minimum margin requirements increase risks and load on the account.
Market Leader: What else, apart from money even though it is equally important, does a really successful trader get from your company?
A. Polishevich (Forex Trend): A trader's income is a stipulated part of profits they generate as a result of successful trades. Depending on the length of cooperation with our broking company, personal experience, size of trades and other conditions, the trader can get up to 90 percent of returns generated by joint effort.
Market Leader: We are clear about returns. But it never happens that you don't need any money, and get half of the returns on a plate! We all well know that financial markets are an area of increased risk and there is no trader that cannot have losing trades. A question in this regard: how does prop trading treat possible losses of the trader?
A. Polishevich (Forex Trend): Prop trading is unique in that trading losses are covered from the trader's own funds. In this case, the trader's deposit is automatically locked when losses reach the amount of their personal capital. You might say this is not quite fair - halve the profits and shoulder the losses on the trader? This is the price you pay for a risk. Trading in the forex market is a business that not only offers high yield but also, as you already mentioned, involves high risks. The trader risks their own money, instead getting an opportunity to make profits larger by one order of magnitude.
Market Leader: Andrey, please tell us who can trade for a prop company? What professional requirements do prop traders have to meet?
A. Polishevich (Forex Trend): Only a few people can trade for a prop company. Candidates are carefully checked by experts of both the prop company and our company, and the chief argument for candidates is real monthly statement of their trading account. The important thing here is not the volume of trading but the proof that the candidate's trading system and personal qualities make it possible for them to manage large amounts of a broking company. Primarily, this means there are no floating losses on the candidate's trading accounts, the number of trades, and high activity in the market (a few lots every day) etc. The trader should also be able to manage risks and possible drawdowns.
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It is on these principles that, in conjunction with the Masterforex-V Trading Academy, we held a contest of traders (which is, by the way, another way to become a prop trader) and managed to identify potential prop traders and already assign part of assets of our company for management. We hope this contest will justify its existence and be held regularly.
To become a prop trader at Forex Trend, the candidate only needs to file an application through its site adding a statement from their trading account. Our company will answer the contender within three days.
Market Leader: Why is your broking company interested in prop trading? Why would you hand around money?
A. Polishevich (Forex Trend): Prop trading is profitable for REAL broking companies. Profitability of prop companies often reaches 150% a year, thus increasing our liquidity as a broker and generating profits from commissions, the bulk of which accounts for professional traders operating within the prop trading system. Despite this, prop trading is weakly represented in the post-soviet space. Forex Trend and Tarika Business Corp are practically the only ones working with the prop trading system in the forex market worldwide.
Market Leader: Thank you for the interview. We believe information about prop trading will be useful for many successful traders. We hope that prop trading will win popularity in the CIS countries, too!
A. Polishevich (Forex Trend): It is me who has to thank you that such a respectable edition as Market Leader really seeks out the best offers in the forex market, so to say, in real time. I am always very keen on reading what you write and always find a lot of useful stuff in your publications. Thank you.
