One of the most important questions to consider when starting your career in day trading is whether to trade in a proprietary trading company (support company) or through a standard retail brokerage account. While I have worked my entire business career in a proprietary business company, I will present the pros and cons of each approach as I see it.
The advantages of trading with a retail account
First, let’s start by looking at the advantage of using a standard retail brokerage account to trade daily stocks. By standard retail brokerage account, I am talking about brokers like Fidelity, E * Trade, Thinkorswim, TD Ameritrade, etc. You may even already have an account with one of these brokers for your personal portfolio or retirement plan.
This brings us to the first advantage of the retail brokerage route: the ease of opening an account and getting started. You can complete the application, transfer your deposit and start trading almost instantly. Unlike a prop business, you don’t need to be hired and you don’t need to get a license before you start operating.
The second advantage of intraday trading through a retail brokerage account is that you can keep 100% of your net trading profit (after commissions, of course). An accessory trading company generally takes an agreed percentage of its trading profits, and this profit split will vary from company to company. With the caveat that it is impossible to analyze the deal a utility company offers you just by looking at the profit split without considering the costs of commission, training, technology, etc., the typical split percentage ranges from 50% to 50%. 90%.
The final benefit of using a retail broker for day trading is that it gives you more flexibility in how you approach trading. If you are a developing merchant in an accessories company, you are expected to be in the office (or its remote setting) from opening to closing to improve as a merchant. Screen time and experience are key to accelerating your progress along the learning curve. As a retailer, you are not accountable to anyone. If you’re unsure about making the commitment necessary to join a prop business, trading a retail account could be a good test of your dedication.
The advantages of trading in a proprietary trading company
Now let’s discuss the benefits of operating in a proprietary business company. The first and most obvious advantage is that utility companies often offer high-quality training to their students from profitable traders. Now some prop companies have better traders and better training than other companies (just like any other industry), so be sure to ask questions about the training program before joining any company. But generally speaking, utility companies specialize in intraday trading, so it makes sense for them to provide better training than a retail brokerage giant that aims to please everyone.
Another advantage that is often overlooked in dealing with a prop business is access to company capital. In trading, it takes money to make money and the easiest way to gain access to large amounts of capital is to prove yourself to a supporting company. If a prop business is keeping 30% of your profit (via your agreed-upon percentage split) and they see that you are doing well with a small capital base, then their best bet is to provide you with more capital so that you can get it. (And therefore yourself!) More money. Compare that scenario to trading a retail account, where the broker will never decide to give you some of your money for free, no matter how well you are doing!
One of the main reasons I have been so successful so quickly was that progressively greater amounts of capital were awarded to me as I proved myself as a dealer for my prop business. I went from trading a small account with $ 50,000 in purchasing power to a very large account with many millions in purchasing power relatively quickly. If I had chosen to trade with a retail account instead of joining a prop company, I would still be stuck trying to grow my account organically.
Another benefit of trading in a utility company is access to the company’s technology resources. This includes expensive hardware, custom software, and lightning-fast direct connections to major exchanges. Intraday trading has been likened to a computer arms race, and trading with standard retail software on your home modem is like bringing a squirt gun to a duel. I’m not the most technically inclined guy in the world, so having an IT department taking care of my technology needs allows me to focus 100% on my operations.
The verdict: which is better?
While each setup has its own benefits and drawbacks, I believe that operating an accessory business is the way to go if you really want to become a profitable operator on a consistent basis. The combination of excellent training, access to capital, and technology advantages that are not available to retailers cannot be matched by a typical retail setup. If you are committed to success as a merchant, I recommend working for a prop business.