the answer is because some strategies and some edges are very small(in terms of cents of profit in potential) and that means you need to buy a lot of shares to make a decent return, 4-1 retail leverage sometimes is not enough
Does that small edge or trade at a Prop firm overcome the higher commish cost that a Prop firm charges??? It seems like a lot of small trades for cents/pennies at a time will also add to very high commish cost and make trader "Net Unprofitable" ????
The key is, this is buying power not capital - there's a big difference. I think what you meant to say is that the trader has access to more leverage than retail. His own capital never changed (unless obviously he's making money down the road and growing the account over time), but the firm may have added some capital, plus their access to more leverage than the retail guy could get. But like anything - it's a double edged sword....it can work well, and it can burn you.
Trading at a prop firm doesn't give you an edge...it's the trader who either has it or doesn't. If that was the case, there would be WAY more successful lasting traders in these shops, and generally they don't have this. In fact from what I hear, alot of the stock shops can't retain as much as in the past. From my experience the commish is way lower than retail...so that can be a bonus working in this place. That and access to buying power if you don't have enough of your own. Also, it's much better than not trading at all, if you didn't have the means.
25k gets 1 million vs 250k lightning fast platforms vs platforms that freeze during order influx Comm rates blow away retail etc, etc.... I wish I knew about prop shops earlier in my career but I was late to the party. Meow
It makes sense for a career minded person to work with a prop firm. Think about the business model: the prop firm assumes more risk (ie capital), so they are vested in the successful trader and promoting successful trading. Their margin is more dependent on profitable trading. They assume risk, so they also deserve a greater share of the profits. And the capital investment into successful trading is greater as well. On the other hand, the retail firm has much less/no risk, and it dependent on fees/commissions for profit. They just need seats filled and accounts churned to make money. Profitable trading is less of a percentage of margin in retail. It is a bonus, not a priority. And the difference is proven by the innumerable horror stories posted here and other sites about shady Retail firms, refusing to return capital, training schemes, not paying traders on time, changing llcs, etc ... All retail firms are not shady, but they are rampant. I guess if one is a seasoned trader, with a successful trading style and track record and a decent knot of cash, they might benefit from retail (higher payout), but I bet even they have to make rigid demands with these retail firms. I mean degenerate gamblers are everywhere, so if you are independently wealthy and just want to sit down and mash keys for fun, and have money to burn, or are an established trader, retail is the way to go. Just have a good lawyer. But for many, I feel prop trading is the best path to make trading a professional career. Keep reading posts and you can make your own judgments.