Prop Trading in Germany for Beginners

As one of the most advanced economies in the world, Germany is home to a highly developed financial market. For this reason, the country is an interesting destination for prop trading firms to offer their services to the local audience of traders.

Funding challenges allow traders in Germany to boost their buying power and take advantage of the numerous opportunities that arise on the forex and commodities markets.

However, before diving deeper into the specific financial rules and regulations that govern prop and forex brokerage firms in the country, it is crucial to first understand what prop trading is, how it works and why it could be a great idea to try out a funding challenge.

What is Prop Trading?

Prop trading is a trading process where the traders do not use their own funds to buy and sell securities. Rather, they sign up for a funding challenge at a prop firm, which provides the required funds in exchange for an evaluation challenge to test the consistent results of a prospective client.

The accounts are offered in exchange for a fee and upon completion of the challenge, the traders can gain access to the funds, while the prop firm takes a 10-20% cut of the profits that are generated using the accounts.

Prop firms are very different from brokerages, as they do not deal in securities themselves and do not hold deposits on behalf of the clients. For this reason, the global prop trading industry is not strictly regulated. This also means that a trader based in Germany can easily access a prop firm based in Cyprus, or anywhere else in the world for that matter.

Prop trading rules

While prop firms themselves are largely unregulated, this does not mean that traders can easily score massive gains. Each prop trading firm upholds a number of limitations and rules, which traders need to follow in order to maintain access to their accounts.

Some of these rules that are commonly observed among prop trading firms are the following:

• Daily and maximum drawdown limit – the amount a trader can lose in a given day and over the course of the funding challenge, overall
• Profit target – the amount of profit a trader needs to generate in order to successfully pass the evaluation stage
• Minimum trading days – the minimum number of days when a trader must execute at least one trade on the market

These rules may vary considerably between different firms, as they often compete based on who can offer the most attractive terms to the clients.

The violation of any of the aforementioned rules will result in the loss of the funding challenge, a which point the trader must either close the account, or pay for the funding challenge and try again.

Forex Regulations in Germany

Due to the country’s highly esteemed reputation as a financial hub, German regulators take great care to ensure the safety of the end consumer when interacting with financial institutions.

Forex brokerage firms are heavily regulated in Germany and this comes in the form of paid-in minimum capital requirement, consistent reporting requirements, deposit insurance up to EUR 100,000, and much more.

The German financial system abides by the MiFID II protocol, which ensures the safety of investors and traders, as well as the transparency of all parties engaged in the provision of financial securities.

The local regulator, BaFin, is the primary authority for licensing and overseeing the operations of forex brokerage firms in the country. An important note for forex brokers, the maximum leverage available to forex traders is capped by the EU at 30:1.

As we can see, the forex brokerage regulations in Germany are much stricter than those of prop firms, which makes it easier for prop firms to offer their funding accounts to traders in the country.

Paying for a Funding Challenge in Germany

When it comes to paying the account fee for a funding challenge in Germany, traders have multiple options available to them.

As a rule, the account fee payment is free of commission charges. For more details, make sure to contact the support of the bank or online payment company of your choice, as well as the prop firm to view which payment options are supported in your region.

Credit Card

Any trader in Germany that signs up for a prop trading challenge can pay using the Visa or Mastercard credit card issued by the likes of Deutsche Bank, Commerzbank, Raiffeisen and others.

There are no hidden fees and additional charges when it comes to paying for a funding challenge and most prop firms accept euros both as a payment option and as account currency.

Crypto

Using crypto to pay for funding challenges is quite popular, as it is a safe and easy way to start your prop trading journey.

Typically, prop firms will accept Bitcoin, Ethereum and USDT and, in some cases, the selection of accepted cryptocurrencies may be even larger.

Online Payment Software

PayPal, Adyen, Klarna and other online payment software are also available at prop firms. However, it is advisable to check which specific companies a particular prop firm accepts in order to avoid any issues and risk losing your funds.

The transactions typically do not take long and withdrawing profits is also fairly simple in most cases. It is worth noting that most prop firms will have different processing times, which are listed on their official websites.

Instruments Available to German Prop Traders

Perhaps the most important aspect of prop trading, what traders can buy and sell can be crucial in determining the potential profitability of your experience with a firm.

While most firms are focused on forex trading, there are some exceptions and stock trading is also available at select proprietary trading firms.

Forex

As already mentioned, forex trading is the most popular among prop firms. From major currency pairs like EUR/USD, CHF/USD, GBP/JPY and others, to minors and exotics, most prop firms offer dozens of pairs to choose from at competitive spreads.

The spreads are pivotal in determining the viability of a particular forex pair and you can check the offered spreads on the official website of the prop firm of your choice.

Major pairs often offer 0 pip spreads, which makes them very popular for traders that use a high degree of leverage.

Stocks

The shares from the NYSE and Nasdaq are offered by a handful of prop firms, with a particular emphasis on stocks in the S&P 500 index, such as Apple, Microsoft, Amazon, Coca-Cola, etc.

However, it is very rare for a prop firm to offer a large selection of stocks in conjunction with forex, crypto, commodities and other instruments.

Therefore, traders who are more experienced with stock trading, as opposed to forex, will have a few alternatives they can sign up to from Germany.

Commodities

Crude and Brent oil, natural gas, and gold are three of the most popular commodities traded by prop traders. CFD-s on these commodities allow them to diversify their trades, which is particularly important during periods of uncertainty on other asset markets.

However, experienced prop traders may observe that the selection of commodities available for trading is usually rather limited. This is due to the inherent discrepancies in trading volume and liquidity of commodities on the global market.

Indices

Indices, such as the S&P 500, Dax-40, the DJIA and the Nasdaq-100 are among those often offered by prop firms. While they are not strictly limited to equity indices, most prop firms will offer only the major indices from the likes of NYSE, Nasdaq, Euronext and other exchanges.

Equity indices are particularly helpful for traders who use prop firms that do not have access to stock trading, as they give them the ability to gain exposure to the stock market as well.

Crypto

Bitcoin is undoubtedly the most popular cryptocurrency on the planet and the one prop traders like to use frequently as well. Due to its sheer volatility, daily trade setups can create many profitable opportunities for traders.

However, BTC is far from the only crypto offered by prop firms, as Ethereum, Litecoin, XRP and others are also available.

The selections of crypto can vary considerably between different prop trading firms, so it is wise to check what a firm has to offer in advance.

FAQ on Prop Trading in Germany

Is prop trading in Germany legal?

Yes. Prop trading is legal in Germany and traders can choose between a wide range of firms based all over the world – offering different funding terms, profit targets, drawdown limits and more.

The lack of regulation on the prop trading market makes it possible for prop firms to easily offer their services to clients based in Germany and beyond.

Are prop firms licensed in Germany?

Prop firms, unlike brokerage firms, do not deal in securities and do not hold clients’ funds as deposits, which is why they are not subject to regulation as brokerages.

While there are some investor protections in place in accordance with MiFID II, prop firms are generally known for their lax regulations.

Can I make money with prop trading in Germany?

The ability to generate profits using prop trading in Germany depends on the skills and experience of a particular trader.

Many prop firms will offer funded accounts with a face value in excess of $100,000, which provides traders with plenty of capital to generate consistent profits and lead to a fulfilling prop trading experience.