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The traditional model of trading sees the investor working with a self-funded broker trading account. They are responsible for managing their trading schedule, activities and outcomes, and work completely autonomously.
Recently, a newer model of trading is gaining in popularity. This is known as proprietary trading, or prop trading for short, and offers traders attractive advantages. In exchange, traders must agree to a more controlled trading environment.
For those who’ve been wondering what the fuss over prop trading is about, and how different it is from traditional broker trading, this article has got you covered. We’ll explain everything you need to know about both forms of trading, so you can decide which one is better for you.
Overview of Broker Trading
Broker trading is the form of trading that perhaps most traders are familiar with. It simply involves signing for a trading account with a reputable online broker to trade the markets you’re interested in.
Broker trading accounts are self-funded, and the trader is responsible for keeping the account in good standing. This involves ensuring the required level of funds is maintained at all times – including, most importantly, a margin call (if leverage is used).
Additionally, the trader must manage their own trading budget, and is limited to working with the account size they have, no matter how small or large.
Broker trading is highly independent, with the trader having the freedom to determine their trading activities and schedule. This includes selecting their own trading targets, and amount of loss they are willing to bear.
To sum up, broker traders are solely responsible for their own trading outcomes, and there’s a lot of freedom to experiment and find and develop their own trading style. However, broker trading may pose a barrier to success – as we’ll discuss later on in the article.
Overview of Prop Trading
In prop trading, one unique feature is that traders do not need to trade using their own funds. Instead, they are provided with funds from a prop trading firm like Vantage Elite to trade with.
In return, prop traders get to keep a portion of the trading profits – this varies depending on which prop trading firm you pick, account type or level, and etc. Vantage Elite prop traders receive 80% of their trading profits, one of the highest payouts in the industry.
Of course, there’s more to prop training than simply having free money to trade – and potentially profit from.
First, traders must prove they have the necessary skills and mindset to succeed as a prop trader, by passing a rigorous prop trading challenge. This is often done using simulated funds with live market conditions, and there are strict rules that must be observed.
During the Vantage Elite Challenge Phase, traders are required to manage an account of up to $200,000 in simulated funds. Traders must achieve a profit target of 10% or 20%—depending on the account type selected—while ensuring they do not exceed the daily or total loss limits.
The Challenge Phase is followed by an Evaluation Phase, designed to test the consistency of the trader. In this phase, the profit target is halved, making it easier to achieve. However, the loss limits remain the same.
During the Challenge or Evaluation Phases, failing to achieve the profit or exceeding the loss limit will mean failing the challenge.
If the trader makes it through both phases, they will qualify to become an Elite Trader. This allows the prop trader to trade in live market conditions, with no profit target to meet. Elite Traders are entitled to receive 80% of the trading profits they generate, which they may encash at any time.
However, exceeding the loss limits will result in account closure, so traders must still maintain proper risk management and sound trading strategies.
As you can imagine, the strict rules in prop trading mean this style of training may not be suitable for all traders, especially those who prefer more room to experiment.
But if a prop trader can excel under these conditions, they may well find themselves on the fast track to a career as a full time trader.
This is due to one very important advantage that prop trading confers – which we’ll discuss next.
The Key Difference Between Broker and Prop Trading
It’s a fact that the larger capital you have to trade with, the larger your returns can be. Trading with a small account undeniably limits your returns. You also cannot take positions that are too large, as losses can pose a significant setback to your trading goal.
Conversely, a larger trading budget makes it easier to reap meaningful profits and enable your account to grow at a faster rate. And provided proper risk management is practised, losing trades are less impactful to your account balance.
Now, one of the biggest barriers faced by many broker traders is the lack of capital. This is because they are limited to whatever amount they can set aside for trading, which may come from their income or savings.
With a smaller trading account, growing your trading capital will be slow at the start. It would take considerable time, effort and discipline to get to where you want to be.
Prop trading removes this barrier through the provision of funded accounts, often at six figures, or a range that most average traders find difficult to come up with on their own. Hence, prop trading offers traders a way to jumpstart their trading careers, potentially accelerating their returns.
Comparison of Brokers and Prop Trading Firms
While having access to a funded account may seem attractive to some, it does not automatically make prop trading the superior choice. It’s important to compare both forms of trading in their entirety.
| Broker trading | Prop trading |
| Trade using your own funds | Trade using provided funds |
| Keep 100% of trading profits | Receive a portion of trading profits |
| Set your own profit targets and loss limits | Have to meet profit targets while avoiding loss limits |
| Freedom to experiment with different styles of trading | The need to avoid exceeding loss limits may rule out high-risk strategies |
| Account closure may arise if funds are not maintained | Exceeding loss limits will lead to account closure |
The Benefits of Broker Trading
As outlined in the table above, broker trading offers more freedom and flexibility. Traders are allowed to determine their own profit targets, and do not have a loss limit imposed on them. This leaves room for higher risk, which may allow more strategies.
Of course, a reasonable loss limit must still be established, with proper risk management implemented. This is to avoid overly large losses that are difficult to swallow, leading to revenge trading in a misguided attempt to recoup losses or turn a losing position around.
Because broker trading is self-funded, traders get to keep 100% of any profits they generate, less applicable fees and charges. The risk of account is comparatively low, as long as funding requirements are maintained.
The Benefits of Prop Trading
For prop trading, the most obvious benefit is the ability to trade with a funded account, which removes a major barrier for many traders, as discussed previously. But there are also more benefits in store for a dedicated prop trader.
While prop trading is bound by more rules, this isn’t automatically a disadvantage. Think of the profit targets and loss limits as guideposts that create a structured environment to trading.
This elicits a disciplined approach from the prop trader, who may find such controlled conditions beneficial in developing good trading habits, helping them to build a solid foundation while honing skills and strategies that work.
Prop traders do have to share their profits with the prop firm, but this is a worthy sacrifice considering the myriad benefits enjoyed. Besides, leading programmes like Vantage Elite offer a profit sharing of 80%, which means our prop traders keep a large majority of their profits.
Conclusion: Is broker trading or prop trading better for you?
Hopefully we’ve given you enough details to determine whether broker trading or prop trading is more suitable for you.
No matter which you choose, it’s important to sign up with a reputable trading firm that is truly invested in your success. Afterall, trading can be a lifelong endeavour if you find the right partner that provides the platform, tools and support you need.
For those thinking of trying out prop trading, know that you can trade funded accounts of up to $200,000 with Vantage Elite. Enjoy 80% profit sharing and low loss limits with our prop trading programme designed to kickstart your trading career.
Think you have what it takes to qualify as our Elite Trader? Sign up for our prop trading challenge now!
