Brokers

Exploring the Broader Applications of Prop Trading Solutions for Brokers

Prop trading solutions can be a valuable addition for brokers who want to evaluate and manage the performance of money managers and signal providers.

Trader Funded Firms (TFFs) are built around one core idea: finding, evaluating, and funding skilled traders. For that, they use trader challenges and contests of proprietary trading (prop trading) solutions. These solutions offer multi-step evaluation challenges, funded accounts, profit sharing, and performance tracking and monitoring. However, the pool of traders is relatively small, around 10 million worldwide. And with the growing popularity of TFFs, everyone wants a piece of this finite group. Retaining promising traders, even those who fall short in the initial challenges, therefore, might be a strategic advantage.

The current TFF model involves setting up a demo account for traders to pass and get onboarded. If they fail, they exit the system. But as Greg Rubin, Head of Axi Select, a prop trading program by Axi, a well-known online Forex and CFD trading brokerage, says, “it’s unsustainable.” He argues that TFFs rely too much on registration fees. Moreover, it leaves potentially talented but not-quite-perfect traders with few options beyond retaking the challenge or generic educational courses. 

This rather short customer journey presents a unique opportunity for brokers—to use prop trading challenges to create a more guided customer journey. Unlike TFFs, who basically offer the same thing and sometimes have limited financial expertise, brokers can onboard traders who have not succeeded in the challenges as regular clients with deposits rather than sell them challenges. They can give them a chance to follow successful “funded” traders via social trading services. This not only creates a trader-focused environment that’s sustainable but also puts the focus back on the trader—retaining them as customers while educating them, developing their skills, and ensuring fair profit-sharing arrangements.

Jesse Waiganjo“When it comes to investment systems like Social Trading and PAMM, brokers can use prop trading platforms as a way to acquire and grow their pools of signal providers or money managers. I believe this brings a great symbiosis between the different solutions, thus enhancing the business in a larger front other than the traditional sense of how a prop trading firm should work,” said Jesse Waiganjo, Business Development Manager at Brokeree Solutions.

 

Moreover, prop trading solutions can be a valuable addition for brokers who want to evaluate and manage the performance of money managers and signal providers. By providing various challenges, brokers can attract traders with different trading strategies and risk profiles so they can assess the profitability and risk of each strategy and make informed decisions about which money managers and signal providers to work with.

Another benefit is the ability to set constraints and implement automated risk management. Brokers can use automated risk management tools to monitor trading activities in real-time. They can set up custom alerts and notifications based on specific parameters such as maximum drawdown, leverage, and position size. When these parameters are breached, the system can automatically trigger an alert, and the broker can take immediate action to stop the loss. This ensures money managers and signal providers operate within a predefined risk framework and do not take excessive risks that could result in large losses.

Anton Sokolov“The idea of using trader challenges to verify money managers has been floating around in the industry. However, companies have to be mindful when crafting challenges as traders who are trading via shared investment accounts have to work with a different risk management strategy than traders who have many other traders copying their positions. Brands that create challenges tailored specifically for their clientele will see much better long-term results and improved brand loyalty,” commented Anton Sokolov, Marketing Manager at Brokeree Solutions.

In conclusion, using prop trading challenges in brokerages is a great opportunity to create a more guided and sustainable customer journey for traders. These solutions allow brokers to retain and develop capable traders and effectively evaluate and manage money managers and signal providers. With major players in the prop trading industry like FTMO entering the retail brokerage space, it’s clear, this is just the beginning. As the industry evolves, prop trading solutions might just be the thing brokers need  to offer a full and competitive trading experience.

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