Start a prop firm with cTrader today
A perennial problem in every morally ambig…I mean cool industry is how do you market without marketing.
For example, Russia banned alcohol advertising in 2012. Beer brands realised they could just advertise non-alcoholic beer and it would be a way to get around it.
Since tobacco brands began being persecuted by overly zealous health officials, they came up with lots of fun workarounds. For example, Camel ran an adventure event for 20 years called Camel Trophy and also had a clothing brand.
In the CFD space, there are many methods akin to this. You offer stocks, not CFDs. You have an education website, not your broker one. You use an IB, not direct marketing. And so on.
Can prop be another method of doing this?
One of the things we’ve looked at before is if there is cross selling between props and brokers.
As there is no publicly available data here, it’s hard to say whether or not this is a ‘thing’. However, from speaking to some executives in the know, this is apparently happening.
But it’s also happening in ways that I should have anticipated but didn’t expect.
My general view was this would be a simple crossover. If you have a prop brand and it operates using a broker, there is a simple move from one product to the other.
Either someone is on your platform and they like it, so they make the leap to trading live money. Alternatively they just see your brand and like it, so they decide to start trading ‘for real’ and move over to your brokerage business to do so.
The thing is this is more of a happy by-product, rather than something you are really desperate to do because you still make money from prop.
There is another way of looking at this though, which is a combo of regulatory arbitrage and low value marketing cross sell.
To use a comparison, if you are offering stocks in the UK as your main marketing product, you are almost certainly not considering them to be a good money maker for you. They could even be loss-leading.
Instead you just think of them as a way to get people into your platform. There is more mass market appeal and, perhaps more importantly, the regulatory restrictions on marketing are looser.
Now imagine you start to think of prop in the same way.
Rather than thinking of it as a product you make money from, you think of it purely as a marketing tool that can help with regulatory restrictions and get people on to your platform.
On that basis, you don’t actually care if it makes money. You could have it flat or even a small loss maker.
This could work in almost every market globally because, as far as I can tell, there is nowhere in the world that currently has meaningful restrictions on the prop product. All you have to do is get phone numbers and start the sales grind.
If this happens then the results could be catastrophic for pure play props.
Imagine being in any industry and you start to have a huge group of competitors who don’t care if they make money. All they want to do is break even or even see small losses.
For example, let’s say you charge $500 for a challenge and keep 30% of that as your net income.
Now you can have a broker come in and charge $350 for the exact same challenge with the exact same conditions, because all they care about is getting people on to their platform.
Consequently breaking even on prop would be free marketing for them, so long as they can convert a big enough chunk of those people to broker clients.
We hear that this is already happening a bit. If it were to start happening a lot then props would likely be cooked.
