Prop trading 2.0: the new era of proprietary trading companies

Author: Ivan Egorov

In this week's blog post, we will talk about prop trading. This concept has evolved significantly over the past few years, so we will compare the original prop trading with the latest version. We’ll see what the new 2.0 version of prop trading means, how it works, and why it might be an interesting concept for TFB clients.

What is prop trading? Then vs. now

Traditionally, prop or proprietary trading referred to legal entities, such as brokerage companies, banks, or hedge funds, trading their own capital for profit instead of relying on commissions and fees from trading with third-party investments. These companies would also engage with traders who would trade on the firm’s behalf. For traders, the risks were lower as they were utilising someone else’s capital, while they could still make a profit if their trading activity was successful.

However, prop trading has recently shifted to a new model where the firms organise challenges for traders. During these challenges, traders compete with each other, trying to perform at their best to move to the next stage. Each prop trading firm has its own evaluation criteria to ensure only the best traders pass the evaluation stage. Most successful traders who pass the evaluation get a chance to trade with proprietary trading firm funds on the real market to prove their success and earn some commissions.

The benefits of prop trading

Prop trading represents many opportunities for brokers. Let’s look at the key rewards of starting a prop trading business for the next generation.

  • Prop trading has been one of the largest brokerage trends of the past couple of years. Engaging in it allows brokers to keep up with the competition, stand out in the market, and diversify their service offerings.
  • More accessible regulator requirements are applied to prop trading firms than traditional brokerages, as prop trading firms operate with their own funds rather than using deposits from retail clients.
  • Powerful marketing instrument: a low barrier of entry attracts many traders to work with the prop trading firm.
  • Identifies the most successful traders who will generate profits for the broker and become Money Managers to attract even more customers.

What TFB can offer to prop traders of the next generation

Brokers looking to build a 2.0 prop trading firm must set up the infrastructure for the traders’ competitions and training. Trading platforms don’t provide some of the required functionality natively, so brokers have to seek solutions elsewhere.

Trade Processor, the liquidity bridge by TFB, enables you to do just that through emulating real market conditions, even in a demo environment. All orders in the sandbox are“executed” exactly as they would be if the trader placed an order on a live environment with real funds.

As a result, there is more accuracy in estimating how well the trader is performing, so brokers can be more confident in allowing traders to trade with their own funds in the future.

If you’re currently looking at setting up a prop trading firm, Tools for Brokers is happy to help you build an environment that will empower you to grow fast, manage risks effectively and increase volumes sustainably. Email us at for more information.

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