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Prop trading is an industry that has grown in popularity in recent years. Experienced and beginner traders alike can acquire funded accounts with prop trading firms and trade using these funds while keeping most of the generated profits.
Crypto prop trading firms allow clients to trade crypto derivatives, such as CFDs and futures, which is a relatively new practice in the crypto market. This gives traders more options in the crypto market, changing the crypto investment landscape in the process.
The adoption of crypto prop trading has seen steady growth over the years and countries with favorable regulatory regimes for proprietary trading firms have witnessed the most activity.
As the global crypto market grows further and prop trading gains popularity, crypto prop trading firms are also likely to increase in relevance - attracting more and more prospective traders.
How do crypto prop trading firms work?
Crypto prop trading firms are companies that provide traders with funded accounts, allowing them to use these funds for trading in exchange for a few key concessions, such as:
- Profit targets and maximum drawdown limitations
- One-time or recurring account fees
Firms place these limitations and charge fees on their clients in order to generate revenue and maintain solvency.
Funded accounts are typically divided into different funding levels, with fees increasing as the face value of the account increases.
Crypto prop trading firms allow traders to use the funded accounts to buy and sell crypto CFDs and futures contracts, as opposed to real cryptocurrencies. This also allows traders to gain leverage and further boost the buying power of their trades - potentially increasing their payouts.
Prop trading firms are typically not subject to much regulation, which means that some of the top-rated firms offer their services to over 100 countries around the world.
Example: Crypto prop trading firms in Australia
Crypto derivatives are popular instruments among prop traders, as they allow them to use leverage and generate more profits. For example, top-rated Australian prop firms all offer some selection of crypto derivatives on major coins, such as Bitcoin and Ethereum, among others.
Australia is one of the most popular destinations for financial service companies and prop trading firms are no exception.
When selecting a crypto prop firm to trade with, make sure to review the spreads charged on each instrument to pick the one with the most affordable fees and acceptable terms.
Should you sign up at a crypto prop trading firm?
If you are considering to register with a crypto prop trading firm and gain access to a funded account, there are a few important factors you should consider beforehand:
- Fees - prop trading firms charge fees for each of the funded accounts, which can add up if you do not have an effective trading strategy. The more times you retry the funding challenge, fees can add up. However, in many cases, these account fees are refundable once you manage to beat the challenge
- Trading restrictions - while prop firms give traders the freedom to trade as they please, they do impose profit target and drawdown restrictions on them, which can make it difficult for traders, especially beginners, to maintain their accounts and stay within the limits
Crypto prop trading firms can be a double-edged sword. While cryptocurrencies are volatile assets and their frequent price fluctuations can create many profitable opportunities, it also increases the risk of major losses, which makes proper risk management all the more important.
Signing up at a crypto prop trading firm could be a good idea for multiple reasons:
- If you have an extensive knowledge of the crypto market and have a coherent and proven trading strategy
- If you prefer the choice between multiple-step and fast-track evaluation challenges
- If you are confident that you can trade within the profit target and drawdown limits
Conversely, if you are a complete beginner and do not have any experience with futures and CFD trading, prop trading might not be the best choice for you.