what is the difference between prop firms and retail broekrs?

levalencia · Dec 16, 2012

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?

Traveler · Dec 16, 2012

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.

dealmaker · Dec 17, 2012

Quote from Traveler:

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.

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...

levalencia · Dec 17, 2012

Quote from dealmaker:

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...

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

dealmaker · Dec 18, 2012

Quote from levalencia:

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

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.

levalencia · Dec 18, 2012

Quote from dealmaker:

Depends on your style as a trader and what you are going to do i.e. day or swing trade plus point and click or automated trading. If you are going to day trade, especially automated then there is a difference however keep in mind some prop firms may also do this thus it would behoove you to do some research if you go the prop route.
Execution prices are a mega, huge difference, this is a minus some game i.e. you lose plus commission and win minus commission.

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.