
Prop trading introduces new ways of trading. Traders can get more opportunities for trading even without having a large amount of capital. Prop firms provide traders with the amount of capital to start their career and traders also do not need to face any personal financial risk when trading using a funded trading account. But prop trading also has different challenges that restrict traders from participating in prop trading. Some traders think that self-trading is more beneficial for them because they don’t have any profit target and pressure of time limits. Which one do you think is better for the future of your forex trading? If you don’t know then let’s discuss those factors that help you to better understand which one is better for you whether you need funded accounts or self-trading. So let’s start.
What are Funded Trading Accounts?
Funded trading accounts mean traders execute their trades with the account of prop firms and trade with their capital. They do not need to invest their personal funds in trading and not even take any personal financial risk. This is the main advantage of funded trading accounts that traders trade through the capital of prop firms. Prop firms provide traders with a specific profit that they have to achieve within a given time limit. Traders think that prop trading is a more pressured field as they have pressure to achieve their profit targets in a specific time and by following the rules of the firms. Those traders who are not disciplined or do not work under the restrictions of firms can never be successful in prop trading.
What is Self-Trading?
Self-trading means traders must have their own capital to start their trading career. They can save larger positions in trading to get more profit only when they have a large amount to invest in a specific asset. Traders also face personal financial risk through their capital. Here traders also face pressure because they trade on their own capital and they can’t even risk more than their limits. Traders cannot execute all their strategies due to the risk factor and due to the limited risk trading strategies they even face losses. In self trading traders do not need to follow any rules instead they can trade according to their trading style and preferences.
Advantages of Prop Firms
Access to Capital and Reduced Risk
Prop firms provide traders access to large capital that helps them to execute successful trades and save larger positions in trading. To hold larger positions traders must have a large amount of capital and larger positions provide traders more opportunities to earn higher profits. When traders trade with the help of prop firm capital they also do not face any personal financial risk and easily execute their preferred strategies without having a fear of risk.
Profit-Sharing Arrangements
Prop firms provide capital but in return also take a specific portion of their earnings. This profit split is higher in the favor of traders and also increases when traders perform consistently. With the help of this profit split traders can earn a specific percentage of their profit without even any need for initial investment.
Access to Professional Guidance and Resources
Prop firms not only provide capital but also provide traders with the resources that they need for the successful execution of their trades. Trading platforms are very costly which makes it difficult for individual traders to buy but prop firms provide the best platforms for the best results. These firms also invest in educational materials that help traders improve their trading skills for long-term profitability.
Limitations in Prop Firms
The main drawback of prop firms is that traders are bound to follow the rules of firms which makes it difficult for traders. Then some traders also don’t want to share their profit with the firms but prop firms take a specific percentage of their profit. Traders need high-risk management skills to save their cheap funded accounts from suspension.
Advantages of Self-Trading
- Complete Control over Capital and Strategy: When traders trade with their own capital they do not have any restriction on executing their strategies. They can easily trade and execute according to their style.
- Diverse Investment Options: Individual traders have multiple investment options that help them diversify their portfolios and control overall risk.
- No Evaluation Process: Traders do not need any evaluation process to pass before starting trading when they trade with their own capital. They can start trading anytime.
- Complete profit: Individual traders do not need to share their profit with anyone. They can keep all the profits with the help of executing successful trades.
Limitations in Self-Trading:
Traders face higher financial risk as they trade through their own capital and if the market moves against their position then they can face higher personal loss. Retail brokerage accounts mostly have lower leverage as compared to funded trading accounts and traders can lose great opportunities. Personal trading accounts are also more costly due to the cost of commission, spreads, and broker fees.