With prop trading taking over the online trading space, many prospective clients come to PropTradeTech asking why they should start a firm and the benefits that these kinds of businesses can experience entering this exciting new space.
What is a forex prop firm?
Prop trading, short for proprietary trading, refers to the buying and selling of financial instruments by a company or firm using its own money, rather than on behalf of its clients. The goal of prop trading is to generate profits for the firm by taking advantage of market opportunities as they arise. Prop traders are typically very experienced and well-capitalized, and they often use sophisticated trading strategies to try to maximize their returns.
1. Growing Industry
Over the last few years, we have seen the traditional idea of a prop firm develop into a more specialized online trading product. Traders purchase an evaluation funding program from the forex prop firm and if they pass the criteria, can gain access to the firms’ funds.
Whilst breaking away from a traditional prop firm or forex brokerage product, prop trading of this nature has proved very popular in the trading community with online prop trader sales growing over 1000% in the last 3 years.
2. High Sales Conversion
Forex funding programs operate very differently to traditional brokers and other financial products , allowing them to benefit from higher sales conversion rates. The product that forex funding programs offer directly to traders is a paid trading evaluation. This is essentially a demo trading account with which the trader can provide their skills and as such does not involve direct counterparty risk or client deposits. These differences mean that funded account evaluations act more as an eCommerce style product rather than a retail brokerage trading account, and therefore the journey from site visitor to trader is reduced and complexity removed. This results in a higher conversion rate of sales and increased direct revenue for the owners of the prop firm.
3. More Opportunity with less competition
Much like the retail forex brokerage space in the early 2010s, we are seeing this space grow quite rapidly with the number of online evaluation style prop firms going from a handful 5 years ago to over 40 in 2022. Based on the industry data PropTradeTech has access to, we believe that 2023 will continue this trend as more firms enter the market and the popularity of forex funding programs spreads into more regions and demographics. As such, whilst it may seem that there is more competition than ever, you can still be early to the game and capitalize on a ground floor advantage.
4. Room for Innovation
With this still being the early days of evaluation prop firms in the forex industry, there is a lot of room for new ideas, technology, and products as opposed to more gridlocked or traditional areas of the industry such as forex brokers. Many new prop firms are starting with different variants on the original FTMO style two phase challenge. Things like subscription challenges, 1 phase evaluations, and many innovations are starting to be released, with even more potential to be unleashed into this space in 2023.
5. Community Driven Growth
Whereas most traditional brokers focus on direct marketing channels, we are seeing communities being at the center of driving prop traders. With community based driven growth still being in its infancy with communities springing up daily on platforms such as Discord or Telegram, there is still a lot of opportunity to capture traders’ attention by establishing a trading community that can act as an acquisition funnel for your prop trading firm.
Forex Prop Trading has undergone considerable growth in 2022 and based on the momentum we are seeing in new prop firm startups, we do not see this slowing down going into 2023. PropTradeTech aims to reduce time to market and help bridge the gap for new entrants into the prop space by covering all end-to-end business solutions for prop firms so that you can focus on bringing in successful traders.
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