what is the difference between prop firms and retail broekrs?

Discussion in 'Professional Trading' started by levalencia, Dec 16, 2012.

  1. I know prop firms give more leverage, and also its easy when you are a starter because of the pdt rule, you can start with 2.5k and you have 25K buying power.

    But what are other differences?

    I have researched a lot and if I would have money I think I would start with interactive brokers because the fees are low, and the smart routing technology seems nice to me.

    Because I dont have 25K yet, I can start with 2.5K with TM Global Capital which has good reviews. But my question is really, how is it possible to give that leverage? If I am a very good trader, lets suppose that, and I make 2K in the first month with a payout of 99, in other words would mean that with a starting capital of 2.5K I earned 2K, which seems strange for me as a newbie.

    How can they do that leverage? and what other differences are there?
  2. The difference is at a prop firm you are not a customer, you are an unpaid employee or a LLC member, therefore you are not subject to retail rules but are subject to exchange rules, hence the requirement for licensing. As a non-retail trader, the firm can extend leverage to you in any amount they want. And since you are not a customer, the regular protections of SIPC and Too Big to Fail do not apply.
  3. Another major difference is at brokerages your oder goes to them 1st ( funds verification) before its routed to the floor, ECN etc. where as at true prop firms it goes directly to the floor, ECN etc...
  4. is this a big difference? I meant in speed and execution prices?

    I ask this, because I still see some retail brokers use DAS, like speedtrade and suretrade use das
  5. Speed is your friend but becomes even more pronounced when you day trade.
    Execution prices are a major difference, this is a minus some game i.e. you lose plus commission and win minus commission. Over time, minimal differences in execution price become huge differences.
  6. I will do daytrade 80% of the time and 20% swings.

    2nd Another question I have which is hard to believe for me, is how prop firms business model works, eg: I have 10K, that means I will have 100K intraday buying power, If I am a good trader and I make 10% at the end of the month, that will mean I can make 10K at the end of the month, in other words with a 10K capital, I made 10K, which honestly is hard to believe as a new trader that this can be done.