The fundamental problem most props face is that they make money from challenges and have to pay out from challenges.
Like a broker that warehouses all trades, if the market moves against them, then it can be RIP for the firm.
So when FX-Edge announced it had launched prop liquidity, it seemed like it had solved the industry’s main paint point. By allowing props to hedge out funded account flow, they removed the risk of a firm blowing up.
How do they do that? We spoke to Match-Trade CEO Michael Karczewski to find out.
DK: You recently launched prop liquidity. A lot of props are struggling with hedging and risk management, so could you explain how it actually works?
MK: Sure, it’s one of the most interesting projects I’ve engaged in recently. We spent quite a lot of time thinking about how to make liquidity work better for prop firms. The problem was pretty straightforward – while Match-Trader had become a really popular platform choice among props, none of them were using our liquidity. The traditional model just wasn’t suitable for them.
Our solution turned out to be surprisingly simple, yet it transformed how prop trading works. What did we do in practice? We moved away from the required margin deposit and instead implemented a one-time fee for each account in the funding phase. This means prop firms don’t have to keep millions tied up with the liquidity provider, while completely transferring their risk.
D: Every prop firm offers different challenge conditions, whether it’s max drawdown, varying profit splits, and blocking or allowing news trading. How do you manage those different terms as an LP?
MK: That’s a great question that we actually thought about for quite some time ourselves. We found the answer in the very technology we already provide to prop firms. Rather than trying to force everything into a single hedge account, we’ve created a much more flexible approach.
Each prop will have as many hedge accounts with us as they have traders in the funded phase. What makes this work is our Prop Module in the CRM, which individually monitors each account. This ensures the funded-phase conditions exactly mirror whatever challenge conditions that specific trader purchased. The real advantage of this approach is that we can verify in real-time whether a trader has breached any rules or when they qualify for profit payouts.
DK: Do you already have clients using this system? Also isn’t this an operational nightmare to deal with?
MK: The official launch took place at the Forex Expo in Dubai, and we’re currently onboarding our first clients. The early feedback has been encouraging. It seems we’ve addressed a pain point that’s been frustrating the industry for some time.
The operational side is actually much simpler than it appears. We’ve designed this with automation at its core, and most processes run without manual intervention. Additionally, by using only our own technology stack throughout the entire workflow, we can react incredibly quickly and scale processes to handle a much larger number of clients.
DK: You’re charging a fixed fee while potentially facing unlimited risk on your side. We’ve seen some incidents in the liquidity space lately that show just how risky it can be compared to retail business. How does that work?
MK: You’ve touched on something really important here. The risk profile in liquidity provision is fundamentally different from the retail brokerage space. We’re dealing with much more concentrated risk and operating on much thinner margins.
As a liquidity provider, we’ve built our approach around recognizing these realities. What gives us confidence is our experience – we’ve been offering liquidity for nearly a decade now, and our group’s balance sheet is currently the strongest it’s ever been, which provides a solid foundation.
Also, we recently shared some information about our internal risk management tool called HawkEye. Its effectiveness in detecting and mitigating risk from abusive trading has been incredibly useful for us. This technology gives us much greater flexibility in how we approach risk management overall, which is crucial for this type of offering.
DK: I’m curious about how you determine what to charge? How do you set that fixed fee for each account? What factors is it based on?
MK: Everything starts during client onboarding, when we carefully analyze all the challenge types a prop firm offers. Based on a given challenge’s parameters and historical statistics, we can determine what fee will allow us to manage the associated risk.
Essentially, we’re using an approach similar to insurance modeling, and there’s a pretty clear relationship we’ve observed. The easier the challenge conditions, the higher the risk for us – hence a higher fee. On the flip side, if a challenge has stricter parameters, it’s generally easier for us to manage, which means we can charge less for such an account.
We’ve designed the system to be proportional. The fee is expressed as a percentage, so if a given challenge type includes multiple funded account sizes, the fee will be charged proportionally to the account size.
DK: If prop firms haven’t used liquidity services until now and they seem to be doing well, why would they suddenly change their minds and start hedging their funded phase?
I think we first need to consider whether props weren’t hedging because they preferred to b-book the funded phase, or if they simply couldn’t find liquidity solutions that fit their business model.
Judging by the interest in our new offering, I believe it was more about a lack of suitable options. It’s actually quite similar to what we see with typical CFD brokers. Most of them do operate on a b-book model, but even those brokers still need an LP.
What’s particularly compelling for props is that hedging the funded phase helps them manage profitability more effectively. Looking at data from numerous firms, we found that the biggest swings in their overall model profitability typically come from the funded phase.
There’s also the matter of alignment. By hedging the funded phase, props can remove a fundamental conflict of interest and get back to what they should ideally be doing – verifying traders and allowing the best ones to earn in the market.
DL: Do you have any practical recommendations for props interested in hedging?
MK: From our perspective, prop firms don’t necessarily need to move their entire operation to our liquidity all at once. The most practical approach would be to start by connecting only specific challenges – especially those with the largest account balances. These accounts typically present the most significant risk for prop firms, while smaller accounts with lower risk profiles can still be safely internalized.
It’s also worth addressing the difficulty of identifying which individual traders should be hedged. This is precisely why we advise prop firms to hedge entire challenge types rather than trying to select specific traders. Making incorrect decisions when cherry-picking which traders to hedge can leave you in a worse position than simply internalizing everything.
DK: And last but not least, why should prop firms trust FX-Edge with their liquidity needs?
MK: As for liquidity and managing the risk, this is fundamentally our bread and butter at FX-Edge. We’ve developed specialized know-how, built an exceptional team, and invested in advanced tools specifically designed for this purpose. And most importantly, we understand that prop trading as a business requires patience and a long-term perspective.
