Trading in a support company vs. a retail account: which is better?
One of the most important questions to consider when starting your day trading career is whether you should trade on a proprietary trading company (proprietary business) or through a standard retail brokerage account. While I have worked my entire trading career at a proprietary trading company, I am going to present the pros and cons of each approach as I see them.
The advantages of trading with a retail account
First, let’s start by looking at the advantage of using a standard retail brokerage account for day trading in stocks. By standard retail brokerage account, I mean 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 company, you do not need to be hired or licensed before you can start operating.
The second advantage of day trading through a retail brokerage account is that you get to keep 100% of your net trading profits (after commissions, of course). A commercial prop company usually takes an agreed percentage of your commercial profits, and this division of profits will vary from company to company. With the caveat that it is impossible to analyze the deal offered to you by a prop company by looking solely at the profit split without considering commission costs, training, technology, etc., the typical split percentage ranges from 50% to 90%.
The final advantage 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 trader at a support company, you are expected to be in the office (or your remote setup) from opening to closing to improve as a trader. Experience and screen time are key to accelerating your progress through the learning curve. As a retailer, you answer to no one. If you’re not sure whether to make the commitment to join a prop company, trading with a retail account could be a good test of your dedication.
The advantages of trading in your own trading company
Now let’s talk about the advantages of operating in a proprietary trading company. The first and most obvious advantage is that support companies often offer high-quality training to their trainees from profitable traders. Now some prop companies have better tradesmen 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 in general, support firms specialize in day trading, so it makes sense that they would provide better training than a retail brokerage giant that aims to please everyone.
Another often overlooked advantage of operating a support company is access to company 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 company. If a prop company keeps 30% of your profits (via the agreed percentage split) and they see that you’re doing well with a small capital base, it’s in their best interest to give you more capital so you can make them (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’re doing!
One of the main reasons I became so successful so quickly was that I was given increasing amounts of capital as I proved myself as a trader for my supporting company. I went from operating 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 operating in a support company is access to the company’s technological resources. This includes expensive hardware, custom software, and lightning-fast direct connections to major exchanges. Day trading has been likened to a computer arms race, and trading using off-the-shelf retail software on your home modem is like bringing a water pistol to a duel. I’m not the most technically inclined person in the world, so having an IT department that handles my technology needs allows me to focus 100% on my operations.
The verdict: Which is better?
While each setup has its own pros and cons, I think trading a support company is the way to go if you really want to become a profitable trader on a consistent basis. The combination of excellent training, access to capital, and technological advantages not available to retailers cannot be matched by a typical retail setup. If you are committed to being successful as a trader, I highly recommend working at a support firm.