Day Trading with a Proprietary Funded Account

by Meir Barak | based on content from the Market Whisperer Рday trading book

When it comes to opening a stock trading account, day traders have two options: open a personal trading account with a broker or day trading with a proprietary (or “prop”) account by applying for a “funded account” with an investment firm.
Any broker can set you up with your own trading account, but proprietary funded accounts are available only from special investment firms with their own trading desks. These firms provide trading education and capital to their prop traders in exchange for a share of the trading profits.

Day Trading with a Proprietary Funded Account Reduces Risk for Day Traders

So what is the best choice for new day traders? The answer depends on your location, your trading experience, your risk tolerance, and the amount of money you have to begin trading.
When you open your own trading account, you get to keep all of the profits, but you also assume all of the risk. In addition, if you are a resident of the United States, you will be required to deposit a minimum of $25,000 in your personal day trading account, and your margin will be limited to 4:1. By contrast, with a proprietary funded account, the investment firm provides all the capital and assumes all of the risk.

How to Choose Your Proprietary Funded Account Firm

At the beginning of your trading career, the most important part is knowledge. Investment firms are sensitive to losing their money. Therefore, they like to know that you come with the right education before you start trading their money. They will usually refer you to an education provider, such as Tradenet, that will provide you with basic and advanced education in addition to ongoing support in a trading room, where you will trade with more experienced traders.
The following 10 questions will help you choose the best proprietary funded account provider:

  1. What courses are offered? At what price?
  2. Is there any monthly cost you need to pay after you join?
  3. Is live trading room support offered?
  4. What trading platform will you use? (A good trading platform could be the difference between losing and winning.)
  5. How much money will you be trading with? (The higher your account value, the better your chances of success.)
  6. How much money are you allowed to lose? Per trade? Daily? Total?
  7. Are you limited to the number of shares you can purchase per trade?
  8. Are you allowed to hold overnight positions?
  9. How much of your profits will you keep for yourself? (Payouts usually range from 50% to 90%.)
  10. How often can you take your share of the profits? Monthly? Quarterly?

Trading with a proprietary funded account is the preferred choice of many traders. It reduces the risk and provides education and support. However, if you have the knowledge, experience, and a large amount of capital, you can consider opening a brokerage account for which you will not have to share your profits.