Securities trading can be a lucrative, but also a capital-intensive process and the prevailing opinion among people unfamiliar with the markets tends to be that trading and investing requires a lot of capital.
For this reason, proprietary trading, or prop trading, has been on the rise in recent years. Prop firms allow their clients to access funding and boost their buying power in exchange for an account fee and a number of rules and limitations then are required to meet in order to pass the evaluation stage at a prop firm and obtain funding.
Malaysia, which is one of the hottest emerging financial markets in the world, has also experienced rising interest towards prop trading and many internationally recognized firms now offer their services to traders based in the country.
Proprietary trading is a relatively new practice on the global financial market and allows willing traders to access funding capital from a prop trading firm, in exchange for an account fee and a cut of the profits generated on their platform.
For example, suppose a trader would like to obtain a funded account with a nominal value of $10,000 and the prop firm of their choice charges a $150 fee for said account, in exchange for a 25% profit split. This means that the trader will have to pay the $150 fee for each attempt at the funding challenge, until they are able to successfully pass and access the funds, after which they will get to keep 75% of the profits generated using the account, while the firm keeps the remaining 25%.
This simple setup also means that traders can easily calculate their potential returns from a prop trading account and decide whether this is the right deal for them.
As we have briefly mentioned in the introduction, prop trading accounts also come with a set of rules and requirements that govern how a client is able to trade.
For example, some of the most common rules clients can come across at prop trading firms include the following:
These are the general terms that prospective traders can observe on the official websites of a majority of prop trading firms – operating both in Malaysia and globally.
While the prop trading market is largely unregulated both globally and in Malaysia, the same cannot be said for securities brokerage services, as such firms also hold client funds on their balances.
In Malaysia, the primary regulatory body tasked with overseeing the securities brokerage industry is the Securities Commission (SC), with the Bank Negara Malaysia licensing financial service providers in the country.
Firms seeking a license from the SC and BNM are required to comply with a number of rules, such as:
The process of licensing and reporting can be a laborious process for forex and stock brokerage firms, while prop trading firms are free of such requirements, as they do not deal in securities, nor do they hold client funds on their accounts. On the other hand, brokerage firms are required to maintain client funds in segregated accounts.
When it comes to paying for a funding challenge, traders in Malaysia can do so using several different channels.
The first, and the most basic, is paying using your Visa or Mastercard credit card issued by a local Malaysian bank, or using a wire transfer from said bank account.
On the other hand, online payment apps, such as PayPal and Wise, are also supported by numerous prop trading firms offering their services in the country.
For crypto enthusiasts, many prop firms also accept the likes of Bitcoin and Ethereum as valid funding options, which allows them to make fast and secure payments.
Paying for a funding challenge is not subject to additional processing fees, unless otherwise charged by the bank/payment app of your choice.
After signing up for a funding challenge, traders can access all the securities offered by the prop firm of your choice. Since prop firms do not deal in securities themselves, they typically partner with licensed brokerage firms to provide their trading platforms and available instruments to their clients.
The selection of tradable instruments can range from currency pairs and indices to commodities and crypto, with leverage also varying based on asset class.
Forex trading is the most popular route for prop traders, as it offers over a hundred different instruments with high liquidity and leverage.
While profit margins can be quite slim, most prop trading firms offer a leverage of up to 1:100 or more, which can help traders greatly boost their buying power and reach the profit targets more easily.
However, it is also worth noting that many prop firms can be heavily biased towards forex trading and traders may find the selection of alternatives somewhat limited, which can be an issue.
Major equity indices provide a useful alternative to currency pairs for prop traders, as they give them some exposure to major stock exchanges around the world.
This is particularly useful for traders that work with a prop firm that does not offer individual stocks on their list of tradable instruments.
Some of the most popular indices traded by prop traders include the US500, US30, GER40, JP225, and many other baseline stock indices that show the performance of some of the largest and most influential public companies traded all over the world.
The leverage applicable to indices is also generally quite high and most prop firms will allow a 1:50 leverage ratio.
Commodities, such as oil, gas, gold and silver, are some of the most actively traded instruments at prop firms. While the overall variety of tradable commodity CFD-s tends to be somewhat limited, they nonetheless provide valuable alternatives for traders to obtain leverage and trade more volatile markets at higher margins.
CFD-s on major commodities give traders the opportunity to access leverage up to 1:50 in most cases, which can boost their chances of reaching the profit target in a fairly short period of time.
Cryptocurrencies are some of the most volatile instruments prop traders have access to and while the available leverage is considerably lower than on the forex and commodities markets, trading BTC and ETH are nonetheless very popular.
Due to the inherent volatility of crypto assets, prop traders can use them to diversify their trades and boost their chances of reaching the profit target on their accounts.
However, this also means that violating the drawdown limits when trading crypto is also much more likely, which is why it is advisable to use crypto conservatively at prop trading platforms.
Overall, the number of cryptocurrencies offered by most prop trading firms range between 5-10 individual coins, with leverage up to 1:3.
In some cases, prop firms may also offer individual stocks to their clients – focusing primarily on stocks with the largest market capitalization, such as: Apple, Amazon, Tesla, Microsoft, and others.
However, it must be noted that stock-based prop trading firms are quite rare and the ones that are available typically lack when it comes to other asset classes.
Stock trading is one of the most effective ways for traders to diversify their strategies when currency pairs are not delivering sufficient returns over the evaluation period, as more volatile stocks offer more opportunities to reach the profit target.
Yes. Prop trading is legal in Malaysia and traders based in the country have access to a wide range of reputable international prop firms with different fees, terms and features.
Prop trading is subject to little to no regulatory scrutiny in Malaysia, as the practice does not involve the provision of securities brokerage services.
While it is possible to make profits using prop trading in Malaysia, the overall success depends on your strategy and ability to trade profitably within the boundaries set by the prop firm of your choice.
Prop trading firms in Malaysia typically offer a basket of different asset classes to their clients, which may include: currency pairs, commodities, stocks, indices and cryptocurrencies.
The overall selection of instruments, as well as the availability of leverage, depends on the individual prop firm in question.
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