Prop trading firm vs broker: who wins?

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23 Apr 2023

Bouncing between a retail broker and a prop trading firm? It would be better to understand the difference. Let’s address your concerns.

Retail brokers are a good choice for many traders and investors who just want to facilitate transactions. But if you want to scale your profits and skills and do not have capital yet, go prop! The prop trading firms, like FXCI, offer endless opportunities to soar to new heights in your trading career without risking your own money. They could become a tried and trusted partner for you. Here are some reasons why opting for them over brokers is in your best interest!

The reasons to set your sights on prop firms

If you are interested in trading just as we are, you can notice how swiftly this industry has evolved and how fast it has come. At this point, trading prop firms are competing in seeking talented traders to work for them. They offer sizeable initial trading capital, easy entry, and a big number of programs that cover most trading styles and needs. On top of that, they provide tutorials such as blogs, videos, and interviews with successful traders to name a few.

As you can see, most trading brokers do not offer any of that. A broker is a different entity in the financial industry with distinct roles and functions. It’s an intermediary that facilitates the buying and selling of financial securities or instruments in different markets, including stocks, bonds, commodities, forex, and more. It can be challenging or impossible to directly participate in these markets without a broker.

Still, brokers lose any competition with prop firms before it even starts. Many think retail brokers are out of date. However, this is not always the right thing to say, since the best brokers offer such features as free demo accounts. It’s a great opportunity to learn and practice before joining a prop trading firm. Apart from that, it’s slightly true that retail brokers have become obsolete.

Let’s list the main aspects when comparing retail brokers with prop trading firms.

1. Capital

We’d like to start by going straight to capital as it’s the brokers’ weakest link.

Once decided to turn their lives 360 degrees, retail traders can gain a basic level of field knowledge and basic education from the abnormal quantity of online content. Yet, they also need a fair amount of money to make it worth trading.

A brokerage company requires traders to use their own capital. If you are flat broke, it will not be enough for survival.

Prop trading firms come, see, and fix it.

These days, a $100 investment can give you access to trading accounts with capital 100s times bigger than your initial one!

Prop trading firms have solved the problem of small accounts and psychological pressure on traders. Yes, indeed, no one who tries prop trading can become a Forex pro overnight. But Forex prop firms have certainly helped thousands of traders by funding them. The best thing to know about trading capital is that it increases faster and without much effort.

Traders that opt for the services of prop trading firms need a smaller capital compared to what they may end up having as brokers. For a few hundred dollars, a trader gets a chance to trade an account of a few thousand dollars they could never afford. This, in turn, leads to a financial and mental boost.

2. Discipline

Among the reasons we observe, this is the second big one.

You see, lack of discipline is a key reason why novice retail traders lose money and blow up their accounts. The same goes for prop traders. To be accepted and welcomed as a trader by a prop firm, you need the qualities like:

  •  discipline;
  •  focus;
  • commitment;
  • consistency.

Through the implementation of clear and simple trading objectives, prop firms make sure their traders stick to discipline. Therefore, more prop fund traders remain consistently profitable and, eventually, become successful.

Don’t you think it explains why the rate of success is higher among prop traders than among retail ones?

3. Risk

A matter of fact is that a fair number of aspiring retail traders rely on their gut feelings and intuition. No wonder that with such a strategy consequences may turn out to be catastrophic.

Stress is a part of the emotional turmoil that the beginning traders go through due to risking their own money. Then again, the chance of losing a big sum of money would be enough to make even more experienced traders fall into despair.

So what if you wouldn’t have to risk your own money? What if you could also have no legal liabilities and none of the downside if things would go not as much as you’d like to? That’s exactly one of the advantages of trading for the best prop firms. That’s the reason why it would be much better to join it than go solo with a retail broker.

4. Tools and Resources

Truth be told, some brokers offer some tutorial content. It’s free and accessible to everyone. For sure, that’s better than nothing, but it’s only basics mainly focused on attracting more customers. There is nothing new compared to the stuff that can be found online for free. Nevertheless, high-quality trading tools either require coding knowledge or paid subscriptions.

Retail brokers do not care whether you are successful or not and for a good reason. In fact, they don’t care if their customers make money or lose. Actually, brokers earn commissions on your trades, regardless of the outcome.

On the other hand, prop firms have a share in traders’ profit and are, therefore, more motivated to boost their success, implement better risk management strategies, and offer comprehensive customer support & great educational content.

They provide the best educational resources and top analytical trading tools to ensure maximum profitability of the Forex brokers. And that, of course, is what can make a difference.

5. Like-minded community

Online brokers play mostly solo. Most of them work from the comfort of their homes or small offices. More often than not, they are isolated whilst doing so.

Trading for a prop firm means being part of a wide trading community that is sharing ideas, opinions, and advice through their groups on social media, like Discord, and periodic interviews and video conferences.

Prop traders can discuss their ideas with peers and learn from one another while striving to double their accounts.

6. Starting conditions

As far as we know, there are no special requirements for a retail broker apart from a brokerage account and some starting capital.

Prop firms, on the other hand, require traders to complete evaluation challenges and meet trading objectives to become eligible to get a funded account.

7. Reward

The whole profit belongs to the trader as there are no external conditions to follow.

The prop firm charges a certain percentage of the profit that varies from firm to firm.

8. Flexibility

Brokerage firms execute whatever transactions they like. No conditions to bind them except for the exchange.

To protect their capital, prop firms don’t allow overly risky strategies. To a certain extent, traders are bound by that.

Final thoughts

Honing your strategy on a retail broker’s demo account should be part of your learning process. Opening such an account with a small capital can improve your confidence with real money management. That might come in handy when the figures become much higher.

But the advantages that prop trading firms offer are way better.

It goes without saying that prop firms are a better option to amplify profit and enhance the experience while accelerating the trading career process.

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