The online prop firm space has exploded over the last few years, with traders all around the world having access to large trading accounts and earning more profits from the markets than ever before.
The bulk of prop firms have focused on forex trading and the currency markets, however, there are now a number of stock trading prop firms focused on providing great opportunities to traders that specialize in trading stocks.
Stock trading prop firms provide stock traders with large volumes of trading capital for the trader to use buying and selling stocks - in exchange for a profit split. The firms will usually keep 50%-20% of the profits obtained by the stock trader each month - which is beneficial for both parties.
In this article we’ll take a deeper look into stock trading prop firms, the rise of this kind of model, the benefits of working with a prop firm instead of a broker and the best firm you can use for obtaining your stock trading capital. So, let’s get into it…
Stock Trading Prop Firms - What Are They?
Stock trading prop firms are a great resource for traders to leverage. They, in essence, are firms looking for profitable stock traders to trade their capital for them.
These firms have very deep pockets and ultimately are looking to generate some great returns consistently on their money.
Instead of employing traders in a local shop and limiting the number of traders as a lot of firms do, online prop firms will allow any trader around the world to trade a percentage of their capital.
When the trader makes profits at the end of the month, the profits are split between the firm and the trader.
Considering prop firms are offering anywhere from $20,000 to $10,000,000 in some cases, even just a 50% profit share will result in the trader netting much larger profits than they would obtain just trading their own capital.
The Rise of Online Prop Firms
If you’ve been around in the trading industry for a while, you may have not heard of prop firms until more recently.
There have always been physical prop firms with trading floors dotted around the financial centers of the world, but the online prop firm model didn’t really come to fruition until just a few years ago.
The prop firm industry grew massively throughout the COVID-19 pandemic as people had more time to trade and social media was being more heavily used. Allowing for prop firms to expand rapidly throughout the industry.
The stock trading prop firms have come into play even later - with the majority of the prop firms in the industry revolving around forex and a few commodities only!
Now, there are more stock trading prop firms popping up and more forex-focused prop firms are creating stock trading offerings for their clients.
Why Use a Stock Trading Prop Firm Instead Of A Broker?
You may be thinking that you’ve already been working with a brokerage so there is no need to work with a prop firm to trade stocks.
However, this is usually untrue as there are vast benefits when trading with a prop firm!
These benefits include:
- No risk to you as the trader, as you’re not trading your own capital.
- Your capital can be withdrawn from your brokerage account and invested elsewhere.
- Increased buying power (leverage) within the markets.
- Low cost of entry compared to a broker's minimum deposit.
- Capital scaling is possible, meaning you can soon be trading much larger amounts of capital.
- You will have a community of like-minded traders around you.
- Industry-leading trading conditions.
These are the main benefits of trading with a stock trading prop firm rather than a broker but it’s worth mentioning that there are so many more.
In fact, due to the risk parameters set by prop firms, most traders report making better trading decisions and actually becoming more profitable by working with prop firms as they’re almost forced to manage their risk and trade their plan!
What Makes a Good Stock Trading Prop Firm?
When choosing a prop firm to work with, there are a lot of variables that you need to consider. Not all prop firms will have the trader’s best interest at heart, and you must ensure that your values align with the values of the firm you’re working with.
So, when choosing a prop firm, ensure you consider the following:
- Reputation
Reputation plays a huge factor in which prop firms you should be working with. Other traders will have done exactly what you’re looking to do and they can be a really useful resource to lean on and learn from when deciding which firm is best for you.
We’d recommend checking third-party sites like TrustPilot to establish which prop firms have the best reputations!
2. Support For Traders
The level of support offered by a prop firm is very important. Whether this is educational support materials, a trading floor or even just outstanding customer support, you want to be confident that the company can support you in every way they possibly can.
This should enable you to have peace of mind whilst you’re trading and hopefully obtain better results.
3. Leverage/Buying Power
As with any market, leverage is incredibly important and stock trading is no different. The amount of buying power a firm is willing to give you will greatly influence the amount of profit you can withdraw from the markets.
With that being said, be cautious with firms that offer a huge amount of buying power as they may be trying to force traders into losing their shirts by offering them too much risk.
4. Capital Scaling
Ideally, a prop firm should be offering you a chance to increase your capital under management with them as you consistently prove your profitability.
If the firm does not offer this, you might be better off elsewhere as the difference in capital under management over the next few years could be huge if you work with a firm that rewards your consistent profits.
The Best Stock Trading Prop Firm - Trade The Pool
Trade The Pool is currently the world’s leading stock trading prop firm. They’re actually an offshoot of The5ers brand - one of the most established and reputable forex prop firms in the industry, being one of the largest players since 2016.
Trade The Pool offers over 12,000 stocks and ETFs for traders to make use of, including penny stocks - providing a huge range of trading opportunities for stock traders.
They allow swing trading, pre and after-market trading and
provide the ability to short any penny stock with no extra fee on “hard to
borrow”.
How does it work?
- Choose between 4 tiers, from $20,000 to $260,000 buying power
- Pass the evaluation by reaching the program goal
- Get funded and keep up to 80% of the profit
If you’re looking to become a funded stock trader, this is the firm for you!
In Summary - What Are Stock Trading Prop Firms?
In conclusion, stock trading prop firms are a vehicle for stock traders to have access to large volumes of capital and make much larger profits in the markets without taking on any additional risk themselves.
Currently, Trade The Pool is the most reputable stock trading prop firm in the industry, so it’s worth checking them out.
