Trading on the financial market has been a popular method of gaining wealth for quite some time. People trade a wide range of instruments on the markets – from forex and commodities to stocks and crypto.
Proprietary trading, or prop trading, has emerged as an attractive method of trading using a funded account provided by a proprietary firm, which comes with certain restrictions and rules, as well as a fee.
Prop trading has been growing in popularity in recent years, which is why it is important for any prospective trader to know how it works and if there are any specific considerations regarding prop trading in France and whether local regulations can be an issue for such firms.
Before we dive deeper into the prop trading environment in France, let us first briefly explain what prop trading is and how it works.
Prop trading is the practice that involves two parties – the trader and the firm. The firm offers funded accounts to traders in exchange for a fee and a funding challenge, which comes with certain rules and restrictions regarding how the trader can go about trading and what performance targets they need to reach in order to beat the challenge and gain access to the funded account.
Typically, the fee charged for a particular account can be fully refundable once the trader successfully passes the funding challenge.
The rules upheld by a prop firm present the primary challenge in getting funded, as they limit the daily and overall losses that a trader can incur, while also setting a profit target for the period, which both constrains their trading strategies and makes them time sensitive.
The requirements of prop trading firms may vary considerably between different firms. However, certain rules tend to be common, which includes a profit target, drawdown limitations and minimum trading day requirements.
Furthermore, the prop firm takes a cut of the profits generated by the traders who get funded, with the profit split varying depending on the specific funding challenge chosen by the trader.
Each of these rules serve a specific purpose and aim to reward only the traders that are able to meet the requirements in order to get funded:
These rules ensure that only the traders that are able to comply will be funded, as thousands of traders may sign up for funding challenges at once. This also helps ensure the solvency of the prop firm by limiting the pool of funded users.
Similarly to every EU member state, France is also a member of the MiFID II protocol, as well as the ESMA, which oversee the financial markets across the union, as well as the rules and regulations that govern the transparency of brokerage firms, investor relations and KYC/AML measures to ensure the safety of client funds.
The national regulator overseeing the licensing and regulation of brokerage firms on the local level in France is the AMF. Among the functions of the AMF are the following:
This also means that the forex, stock and commodities brokerage firms in France are subject to considerably more regulatory scrutiny as opposed to prop trading firms, which do not deal in securities, nor do they hold client funds on their balances.
Furthermore, a EUR 100,000 deposit insurance is in place to ensure the safety of investor/trader funds in the case of any solvency issues on the part of the brokerage firm.
Paying the funding challenge fee can be done using several different payment channels, which includes bank transfers, credit card payments, online apps and cryptocurrency.
The funding challenge fees are typically only a small fraction of the face value of a funded account. For example, a funded account with a face value of $100,000 could cost less than $500 in many cases.
Bank payments are the most straightforward when it comes to processing time and ease. Any Visa or Mastercard credit card issued by a French bank will be accepted by prop trading firms and there are no hidden fees associated with prop firm payments.
Wire transfers are also available and transfer times may vary depending on the bank.
PayPal, Revolut, Wise, Apple Pay, Google Pay and other payment apps are solid alternatives that are typically accepted by most prop trading firms.
However, the specific lineup of third-party apps accepted by a particular firm may vary, which is why it is important to check the supported payment methods in advance to avoid any complications.
Crypto trading presents an attractive alternative to other asset classes for prop traders. The inherent volatility of crypto opens many potentially profitable opportunities, which can make it easier to reach the profit target set by a particular prop firm.
Typically, prop firms offer a handful of cryptocurrencies for trading, such as Bitcoin, Ethereum, Litecoin, etc.
Crypto transactions are some of the fastest ways to pay for a funding challenge in France. However, it is important to check which cryptocurrencies and blockchains are supported by the prop trading firm of your choice.
Most prop trading companies offer a mix of different asset classes to their clients and this is true for firms operating in France as well. Traders can access forex pairs, commodities, indices, crypto and, in some cases, stocks as well.
While the overall number of instruments may be limited compared to brokerage firms, prop traders nonetheless have access to over 100 tradable instruments at a time.
MetaTrader 4 and 5 are two of the go-to trading platforms offered by prop firms through third-party brokerage companies. The trading platform used by a particular prop firm will be listed on their official website so prospective clients can check in advance.
Currency pairs, such as the EUR/USD pair, are the most heavily traded instruments at prop firms. Forex trading gives clients access to a highly liquid market, where they can enter and exit trades within seconds.
The spread on forex is also typically quite low, particularly for major pairs, which can be a double-edged sword for traders. While on one hand, major pairs are more stable and less likely to lose traders a lot of money and blow up their accounts, they also have very tight profit margins, which can be an issue when a trader needs to reach the profit target set by their firm.
The use of leverage helps traders boost their returns and most prop firms will offer a FX leverage within the 50-100 range.
Perhaps the second most popular instrument traded by prop traders is crypto, with Bitcoin and Ethereum attracting a particularly high volume of trades.
Crypto can be a great way for prop traders to add some volatility to their strategies and boost potential returns from their trades. However, while a lucky crypto upswing can help traders reach their profit targets quickly, consistency rules are often in place that limit the profit exposure of a single position when compared to the overall trading activity during the evaluation period.
For this reason, prop traders are advised to trade conservatively when it comes to crypto, as overreliance on this asset class can also lead to them losing the challenge.
Major stock indices are also offered by prop trading firms. The likes of US500, US30, FR40, GER40 and others are quite popular for traders that would like to gain some exposure to the stock market. Indices are especially popular among prop trading firms that do not offer stocks as a separate asset class on their platforms.
The spreads on indices tend to be higher than forex spreads, but are generally quite affordable nonetheless.
Oil and gas, as well as gold and silver, are among some of the most traded instruments on prop trading platforms. Commodities CFD-s represent a more volatile alternative for prop traders to access and diversify, which also increases their chances of reaching the profit target in time.
Furthermore, the leverage available to CFD-s traders is also higher, which makes them even more attractive to traders that wish to beat the funding challenge as soon as possible.
Stocks are a rare offering when it comes to prop trading and only a handful of prop firms offer shares of U.S-listed companies to their clients.
It is worth noting that even the firms that do offer stock trading, tend to limit their offerings to only the largest and most liquid stocks on the market, such as the likes of: Apple, Meta, Amazon, Tesla, Coca-Cola, etc.
The commissions on stock trades also tend to be higher and it is important to compare the fees charged by different prop firms to choose the best possible option.
Yes. Prop trading is legal in France and is subject to limited regulatory scrutiny. Prop trading, as opposed to brokerage services, does not require traders to make a deposit at the prop firm, which is why prop firms are not subject to the same regulations and licensing requirements.
Traders who sign up at a prop firm can trade several different asset classes, which includes: forex, commodities, cryptocurrencies, indices and, occasionally, stocks as well.
The fees and spreads on each instrument may vary considerably, with major forex pairs, such as EUR/USD, offering the lowest spread.
Prop trading in France can be profitable, as long as the strategy of the trader is able to deliver returns without violating the drawdown limits and other rules set by the prop firm.
Most prop firms also require traders to reach the profit target, which is typically between 5 and 10%.
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