Trading At A Prop Firm Vs A Retail Account: Which Is Better?

One of the most important questions to consider when starting your day trading career is whether to trade at a proprietary trading firm (prop firm) or through a standard retail brokerage account. While I’ve worked my entire trading career at a proprietary trading firm, I’m going to present the pros and cons of each approach as I see them.

The Advantages Of Trading A Retail Account
First, let’s begin by analyzing the advantage of using a standard retail brokerage account to day trade stocks. By standard retail brokerage account, I’m talking about brokers such as 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 in opening an account and getting started. You can fill out the application, wire your deposit in, and begin trading nearly instantly. Unlike a prop firm, you don’t have to get hired and you don’t have to get licensed before you can begin trading.

The second advantage to day trading through a retail brokerage account is that you get to keep 100% of your net trading profits (after commissions of course). A prop trading firm typically takes an agreed-upon percentage of your trading profits, and this profit split will vary from firm to firm. With the caveat that it’s impossible to analyze the deal a prop firm is offering you by solely looking at the profit split without considering commission costs, training, technology, and so on, the typical split percentage ranges from 50%-90%.

The final advantage to using a retail broker to day trade is that it gives you more flexibility in how you approach trading. If you’re a developing trader at a prop firm, you’ll be expected to be in the office (or your remote setup) from the open until the close in order to improve as a trader. Experience and screen time are key to accelerating your progress along the learning curve. As a retail trader, you answer to nobody. If you’re unsure about making the commitment necessary to join a prop firm, trading a retail account could be a good test of your dedication.

The Advantages Of Trading At A Proprietary Trading Firm
Now let’s discuss the advantages for trading at a proprietary trading firm. The first and most obvious advantage is that prop firms typically offer high-quality training to their trainees from profitable traders. Now, some prop firms have better traders and better training than other firms (like any other industry), so be sure to ask questions about the training program before joining any firm. But in general, prop firms specialize in day trading so it makes sense that they’ll provide better training than a retail brokerage behemoth that aims to please everyone.

Another often-overlooked advantage to trading at a prop firm is access to the firm’s capital. In trading, it takes money to make money and the easiest way to gain access to large sums of capital is to prove yourself to a prop firm. If a prop firm is keeping 30% of your profits (via your agreed-upon percentage split) and they see you doing well on a small base of capital, it’s in their best interest to give you more capital so that you can make them (and thus yourself!) more money. Contrast that scenario with trading a retail account, in which the brokerage will never decide to give you some of their money for free, no matter how well you’re doing!

One of the main reasons why I’ve been so successful so quickly was that I was given progressively larger amounts of capital as I proved myself as a trader to my prop firm. I went from trading a small account with $50,000 in buying power to a very large account with many millions in buying power relatively quickly. If I had chosen to trade a retail account instead of joining a prop firm, I would still be stuck trying to grow my account organically.

Another benefit to trading at a prop firm is access to the firm’s technological resources. This includes expensive hardware, custom software, and lightning-fast direct connections to the major exchanges. Day trading has been compared to a computer arms race, and trading using standard retail software on your home modem is like bringing a water pistol to a duel. I’m not the most technically inclined guy in the world, so having an IT department handle my technology needs allows me to focus 100% on my trading.

The Verdict: Which Is Better?
While each setup has its own benefits and drawbacks, I think trading at a prop firm is the way to go if you’re serious about becoming a consistently profitable trader. The combination of excellent training, access to capital, and technological advantages not available to retail traders can’t be matched by a typical retail setup. If you’re committed to succeeding as a trader, I recommend working at a prop firm.