Details on the disadvantages of proprietary trading

Every method has both advantages and disadvantages. Here we will consider the main disadvantages of cooperation with prop-trading organizations.

1. The lack of legal regulation of the activity of prop-trading companies
Unlike the popular international brokers, the activity of most of the proprietary trading firms providing remote trading is practically unregulated at the legislative level. The lack of centralized control by regulatory committees reduces operating costs but increases the risk of losing clients' trading deposits in case of unfair practices. If you are planning to cooperate with a proprietary trading company, you should conduct a background check on the company and managers beforehand and study customer reviews. If you find problems with transactions or the movement of funds in trading accounts, it is better to refuse cooperation.

2. There is a risk of losing money
When placing funds on a deposit opened with a proprietary trading company, there is a risk of losing money as a result of fraud. This is due to the lack or minimal level of regulation by the state that issues licenses for financial services. Deposit only as much money as you can afford to lose. In large brokerage companies, client funds are usually insured, which is included in the list of requirements for obtaining a license. But the use of leverage and margin trading allows you to make tens of percent profit per month even from trading with an own small deposit.

3. High proprietary trading fees
Most trading companies charge customers for software, especially if you trade remotely. The monthly software fees can be as high as $200 or more. This is many times higher than the client fees of well-known brokerage firms.

4. Prop-trading is mainly day trading
Although prop trading offers high leverage, this usually applies only to intraday trading. Clients usually cannot apply leverage when moving positions to the next day. Moreover, most prop firms only support day trading strategies.

5. Private firms can steal your intellectual property
For professional traders with excellent trading strategies, there is a risk of back-office employees deciphering strategies and using the intellectual product for their purposes. Firms have been known to use clients' strategies and transfer them to computers using artificial intelligence.

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