The rise of the global financial markets has meant that more and more individuals and companies enter the market every year – seeking to build and protect their wealth from inflation.
In tandem to this boost in financial market demand, certain alternatives have also emerged.
One such alternative has been proprietary, or prop trading, which has been growing in popularity significantly over the past few years.
Traders based in Singapore may be wondering what prop trading entails and if it is worth trying, particularly in a country that is known for being one of the largest financial hubs in the world.
First and foremost, we must understand what prop trading is and why it could be a good idea to try, especially if you have limited trading capital of your own.
Proprietary trading refers to the process of trading using a funded account provided by a second party (the prop firm).
Prop firms offer different funding levels to prospective clients in exchange for a fee and certain trading rules and restrictions. For example, a trader may acquire a funding challenge that will give them $50,000 in buying power, but they must trade a minimum number of days specified by the firm, pay a cut of the profits they generate and comply with the drawdown, profit target and consistency rules set by the firm.
Once the trader has managed to successfully complete the funding challenge, they can use the funds for trading and withdraw profits once they have earned some.
As we have already mentioned, prop trading firms offer their funded accounts in exchange for a fee and compliance with certain rules and restrictions. The most common prop trading rules are the following:
These rules are in place to protect the solvency of the prop firm, while also filtering the traders that are able to remain profitable under such stringent conditions.
The rules are the primary challenge of the prop trading experience and beating them grants traders with a considerably improved buying power. The fees charged for each prop trading account are typically a minor fraction of the face value of the account.
The Monetary Authority of Singapore, or MAS, is the primary regulatory body that oversees and regulates the financial markets of the country.
Whether we are discussing forex brokerages, stock brokerages or other securities dealers, the MAS is the primary authority and compliance with the rules set out by the MAS are mandatory and cover the following areas:
The licensing of forex brokerage firms in particular is governed in accordance with the Securities and Futures Act and the Payment Services Act, which lay out the regulatory requirements of brokerage firms dealing in securities in Singapore.
Such regulations mean that registering a prop trading firm is considerably easier and faster than that of a brokerage firm, as prop firms do not deal in securities and do not hold client funds on their accounts, which is why prop trading is generally unregulated in most jurisdictions, with Singapore not being an exception in this regard.
When paying the funding challenge fee, clients can choose between different funding options provided by the prop firm. Most firms will accept bank payments, such as wire transfers and credit cards, payments using online apps like PayPal, Wise, GrabPay, etc.
Crypto payments are also supported by many prop firms. However, the selection of cryptocurrencies tends to be limited to Bitcoin, Ethereum and USDT.
There are generally no additional fees when it comes to buying a funding challenge and, in many cases, the fee is fully refunded once the trader successfully passes the evaluation stage and gets funded.
Overall, it is advisable to check the funding options available at your prop firm in advance to avoid any complications and potential loss of funds. Payment using SGD may be supported by certain prop firms, but the primary account currencies are usually limited to USD, EUR and GBP in most cases.
An incredibly important aspect of the prop trading experience is the selection of instruments you can trade to reach your goals, complete the evaluation program and get funded.
Typically, prop firms will offer a mix of different instruments to allow for flexible trading strategies on their platforms. This may include a combination of forex, commodities, indices, crypto and sometimes stocks as well.
The leverage available will differ considerably depending on the instruments you choose to trade. For example, forex leverage can reach as high as 1:100, while leverage on crypto trading is typically limited to 1:2.
Forex trading is ubiquitous at prop firms, as it is the primary asset class offered by a vast majority of firms.
Major and minor pairs alike offer traders a highly liquid market and an opportunity to boost their accounts using leverage.
Pairs including the Singaporean dollar are also available at most prop firms, which is a welcome inclusion for traders based in the country.
Overall, forex trading is one of the cornerstones of proprietary trading and most firms compete on the number of FX pairs they can offer and the spreads that are charged on them.
Stock trading is quite rare when it comes to prop firms, as stock markets are home to many qualities that do not meet the liquidity criteria of most prop trading firms.
Therefore, the rare firms that do offer stock trading, tend to pick some of the most popular tickers, such as AAPL, TSLA, MSFT, AMZN, and others.
For this reason, traders who may be looking for lesser known stock and ETFs for prop trading purposes may be left disappointed by the lack of diversity in the stock offerings of most prop trading firms.
The two types of commodities typically offered by prop trading firms are metals and energies, such as gold, silver, oil and gas.
These are generally some of the most popular commodities tradable on the market, which also gives them a higher degree of liquidity, which makes them ideal for prop trading, as most prop trading is done on tight margins and on short time frames.
When it comes to other commodities, such as those from the agricultural sector, they tend to be very rare among prop trading firms.
Bitcoin and Ethereum are two of the most popular instruments on prop firms that rival even the likes of gold, major FX pairs and other instruments.
However, the selection of tradable cryptocurrencies at prop firms tends to be somewhat limited and firms usually offer 10 or less coins to their clients.
The spread also tends to be considerably wider than forex and other instruments available on prop trading platforms.
On the other hand, the inherent volatility of the crypto market gives traders more potentially profitable opportunities to take advantage of, meet the profit target and beat the funding challenge.
Equity indices from major stock exchanges around the world can be traded at prop firms in Singapore. The US500, US100, GER40, JP225 and other indices give traders the ability to diversify into the equity markets, which can be especially convenient when dealing with a prop firm that does not offer stocks as a separate asset class.
Indices tend to charge a higher spread than forex pairs, but serve as important vehicles for traders to introduce a slightly more volatile instrument to their strategies than major forex pairs.
Yes. Prop trading is legal in Singapore and many international prop firms have access to the Singaporean market. Traders based in the country can choose between one of the dozens of firms that offer their services to clients in Singapore.
Prop trading firms do not deal in securities and they do not hold client funds on their accounts, which is why prop trading firms are not subject to the same regulatory scrutiny as brokerage firms. For this reason, setting up a prop firm can be quite simple and offering funded accounts to an international audience of traders readily available to most reputable firms.
Prop trading firms in Singapore offer a mix of different asset classes to their clients, which may include the likes of: currency pairs, indices, commodities like energies and metals, cryptocurrencies and stocks.
The selection of tradable instruments may vary considerably depending on the specific prop firm that you sign up with.
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