Broker vs Prop Trading Firm - Prop Firm Hero (2024)

When deciding where to trade, the choice between a brokerage or a proprietary (prop) trading firm is vital. This decision depends on your individual trading style, aims, and capital access.

Brokerages let you trade with your own funds, offering more freedom. However, they often require significant capital to start and maintain positions. In contrast, prop trading firms supply traders with the firm’s capital to trade, typically in exchange for a share of the profits. They offer access to more resources and lower barriers to entry.

The prop trading model is attractive for those lacking sufficient capital to meet the financial thresholds imposed by traditional brokers but who still possess the requisite skill. While the lure of trading with someone else’s money is compelling, it’s important to note that it comes with strings attached—namely, profit-sharing and potentially less autonomy in trading decisions. On the other hand, brokers offer straightforward access to markets, albeit often coupled with higher costs and risks for the trader.

Key Takeaways

  • The choice between a broker and prop firm impacts your trading autonomy and capital requirements.
  • Prop firms provide capital and resources but take a share of profits, while brokers offer more control over trades.
  • Assessing risk tolerance and trading skill is critical in selecting the right platform for your trading activities.

Understanding Brokers and Prop Firms

When navigating the financial markets, you are typically confronted with two main avenues for trading: brokers and proprietary (prop) trading firms. Recognizing the role each plays can help determine which path aligns with your trading goals.

Role of a Broker in Trading

A broker acts as a middleman between you and the financial market. Retail brokers cater to a broad range of clients, including both novices and veterans, facilitating access to major markets like stock, forex, and commodities. When you trade through a forex broker or any other retail broker, you’re trading with your own capital.

Brokers are usually licensed and are subject to regulatory protections, offering a layer of security for your trades. Financial institutions that serve as brokers provide trading platforms that you can utilize to buy and sell assets in the stock market and other financial markets.

What is a Proprietary Trading Firm?

Conversely, a proprietary trading firm, or prop firm, grants you access to trade with the firm’s capital. This allows you to operate with higher leverage without needing to commit a large personal investment. Prop trading firms assume the risk but also take a share of the profits.

Unlike traditional brokers, prop trading firms usually provide you with advanced trading tools and educational resources, aiming to foster profitable strategies. While they may offer greater profit potential, prop firms also carry particular requirements and risk considerations that may not suit every trader.

Evaluating Capital and Profit Models

When you’re choosing between a broker and a proprietary (prop) trading firm, it’s crucial to understand how each handles capital access and profit models. This understanding will help you determine which option aligns better with your trading style and financial goals.

Capital Access and Leverage

With a proprietary trading firm, you gain access to the firm’s capital. This means you can trade with more money than you personally have, which is known as leverage.

The level of capital access can vary widely among prop firms, with some offering significant leverage that increases your buying power in the markets. This arrangement allows you to partake in funded trading without risking your own capital, but with the stipulation that you adhere to the firm’s risk management strategies to protect their investment.

On the flip side, brokers typically provide you with leverage based on the amount of your own capital deposited. This can be less than what prop firms offer. However, brokers do not generally offer the same level of funded trading accounts since you are trading primarily with your funds, which may limit your potential for large-scale trades compared to a prop firm’s backing.

Profit Structure and Sharing

The profit split is a critical aspect when evaluating prop trading firms. As a prop trader, you’re typically entitled to a share of the profits you generate from trading the firm’s capital.

This split can vary, often starting around a 50/50 split and can be as high as 90/10 in your favor for very successful traders. Be aware that your earnings may be subject to certain commissions and fees, which should be carefully considered against potential profits.

Working through a broker, your profit is yours to keep, minus any commissions and fees for the transactions. While this can be appealing, remember that your profits may be lower overall due to less buying power and the absence of additional capital provided by prop firms. Brokers usually work on a commission-based model, where they earn money through your activity in the markets, whether or not you are successful.

Analyzing Costs and Resources

In choosing between a broker and a proprietary (prop) trading firm, understanding the details of costs and resources available to you will significantly impact your trading career.

Trading Costs and Fees

When trading with brokers, you typically encounter commission fees for trades, which may vary depending on the trade volume and type of assets you are dealing with. Additionally, you might be charged a monthly desk fee, which is a fixed cost regardless of your trading frequency or success.

In contrast, prop trading firms may require you to share a percentage of your profits, usually ranging from 10% to 20%. These firms might also ask for an initial capital deposit. However, they often provide the capital you trade with, which can scale according to your performance without any added commission costs.

Educational and Technological Support

Brokers typically offer trading tools and platforms necessary for executing trades but may lack in-depth educational resources.

You might have access to market data and basic tutorials, but for more comprehensive training and mentorship, you may need to look elsewhere.

Prop trading firms often prioritize education, offering structured training programs, videos, and tutorials designed to develop your trading skills. These firms may also provide cutting-edge technology and access to support staff for operational and strategic assistance.

The Importance of Research and Tools

The availability and quality of research and trading tools can make a significant difference in your trading efficiency.

Brokers typically grant access to various market research tools and reports, which are essential for making informed trading decisions.

Prop trading firms tend to equip their traders with advanced proprietary software and comprehensive databases, allowing for extensive data analysis. The tools and platforms provided are crucial for executing sophisticated trading strategies, which can be a substantial advantage.

Risk and Skill Considerations in Trading

Before diving into the specifics of either brokers or proprietary (prop) trading firms, it’s critical to understand that success in trading hinges on your risk management strategies and your continual development of trading skills. Both elements play a vital role in your trading journey, and mastery of these can influence whether you lean towards a broker or a prop firm setup.

Risk Management Strategies

Risk management is the cornerstone of successful trading, regardless of whether you decide to trade with a broker or join a prop trading firm. It involves setting parameters on trades to mitigate potential losses.

Specific strategies to consider include setting stop-loss orders, maintaining a clear risk-reward ratio, and diversifying your trading portfolio. Discipline in adhering to these strategies is essential for maintaining focus and consistency in your trading activities.

Building and Enhancing Trading Skills

Trading skills are a blend of education, practical experience, and psychological fortitude.

To improve your skills:

  • Continuous Learning: Stay updated with market trends and analysis. Invest in training and education to refine your strategies.
  • Simulation Challenge: Before going live, take on simulation challenges. These will test your skills in risk-taking and decision-making in a controlled environment.
  • Emotional Control: Develop a keen sense of your emotional landscape. Trading requires a level-headed approach, often challenging your discipline and focus under pressure.
Broker vs Prop Trading Firm - Prop Firm Hero (2024)


Which is better a broker or prop firm? ›

In Conclusion – Should You Be Trading With A Broker Or A Prop Firm? In summary, both prop firms and brokerages have their benefits and their drawbacks. Largely speaking, the best option is to use both to your advantage. The best thing you can do as a profitable trader is to work with a real money prop firm.

Which is the most trusted prop firm? ›

Best Prop Trading Firms 2024 - Reviewed by Experts
  1. Topstep: A Leader in Trading Innovation. ...
  2. The 5%ers: Forex Trading with a Twist. ...
  3. Earn2Trade: Empowering Aspiring Traders. ...
  4. SurgeTrader: A Gateway to Diverse Trading Assets. ...
  5. FTMO: Stringent Yet Rewarding. ...
  6. E8 Funding: Innovative and Flexible.
Feb 2, 2024

Is FTMO its own broker? ›

In a separate process, FTMO also trades on its own account (outside of the FTMO platform) with real financial means. While performing its own trades, FTMO may also use trading data obtained from its clients' FTMO Accounts.

Is FTMO the best prop firm? ›

FTMO Investment Options

One of the main reasons why FTMO is a good prop firm is their investment options. They offer traders the opportunity to trade with their own capital, as well as access to additional capital from FTMO.

Do prop firms really pay out? ›

There is nothing inherently scammy about the business model of prop firms. But how do they make money then? For starters, prop firms, of course, do not give money to just anyone who asks. Typically, they have a multi-stage evaluation process to make sure the traders they employ know what they are doing.

Which prop firm has the lowest fees? ›

Best cheap forex prop firms
  • FTMO: evaluations starting at $399.
  • TopStepTrader: Challenges starting at $375.
  • T4tCapital: Flexible evaluation options starting at $299.
  • Funded Trading Plus: Starting at $25.
  • Earn2Trade: $99 Mini challenge.
  • True Trading Group: $49 evaluation with a $25,000 virtual account.
Feb 27, 2024

Which prop firm is the easiest to pass? ›

Apex Trader Funding is the best futures prop trading firm on this list for a variety of reasons, but most notably because it boasts the highest pass rate for its evaluation program out of all the futures prop firms on this list. It is also by far the most friendly option for beginner futures traders.

What broker does FTMO use? ›

MetaTrader is the most widely used program among forex traders, and that applies to FTMO traders as well. The program's environment is intuitive and straightforward, however, its modifiability gives modders space to make it even better and user-friendly.

What prop firm has the fastest payout? ›

Funding Traders offers some of the fastest, most flexible payout terms in the industry. As a funded trader yourself, this industry-leading prop firm empowers you to maximize profits and get paid faster.

Why is FTMO so expensive? ›

The fee covers the costs related to the FTMO Challenge provided by FTMO such as the designing, development, and operation of the FTMO platform (the technical infrastructure behind the provided educational services and applications).

How many FTMO traders fail? ›

The FTMO challenge has a reputation for being extremely difficult to pass. Across FTMO's various account levels, it is estimated that only around 10% of traders are able to successfully complete the evaluation and become a funded trader. This means approximately 90% of those who attempt the challenge end up failing.

What states is FTMO banned in? ›

In the case of the United States of America, FTMO does not accept clients in Louisiana, South Carolina, Montana, Arkansas, and Delaware. FTMO also does not accept clients – legal persons, who are company trusts.

What is the biggest FTMO payout? ›

Dariusz from the USA exceeded everyone's expectations and made his dreams come true. As our FTMO Trader with a maximum allocation, he beat the previous record payout of $500,180 thanks to his profit of $1,206,225, the biggest payout in the industry!

How does FTMO pay you? ›

You can receive your profits by a regular bank wire transfer, Skrill or cryptocurrencies. We don't charge any commissions for withdrawals.

Do people make money from FTMO? ›

FTMO Account

Therefore, the Trader never gains access to a real "live account" or "margin account" etc. However, the FTMO Trader will receive a real financial reward for his trading on the FTMO Account, as long as his trading is profitable and there is no violation of the contractual conditions.

Is working with a prop firm worth it? ›

Is working with a prop firm worth it? There are many unique advantages that make working with a prop firm worth it. These include access to unique software and information, trading with the firm's capital, and cashing in a large portion of your winnings.

Do you need a broker with a prop firm? ›

Proprietary firms allow you to access the trading capital and do the trading yourself, which includes a significant amount of funding. On the other hand, brokers act as an intermediary between prop firms and traders. They mainly focus on facilitating trades between traders and the market.

What are the disadvantages of prop firms? ›

👎 Prop Trading Cons
  • Proprietary Firms Are Less Regulated Than Retail Brokers: Most prop trading firms that provide remote trading are not regulated at all. ...
  • Risk of Losing Money: ...
  • Proprietary Trading Fees are High: ...
  • Prop Trading is Mostly Day Trading: ...
  • Proprietary Firms Can Steal Your Intellectual Property:
Nov 15, 2023

Are prop firms and brokers the same? ›

Brokers typically handle client funds, execute trades, and provide various trading services. In contrast, prop trading firms solely trade with their own funds, eliminating the need to manage client accounts or handle customer deposits.


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