Start a prop firm in 5 days with cTrader today!
Typically we start the week with more broker stuff and finish it with props.
This time I figured we’d do the reverse because there was a prop event in London over the weekend and I have a bad memory.
As I don’t want to forget everything that happened, I thought I’d give a brief overview of the first London Prop Trading Expo. So let’s get to it.
- Optimism
The first point to note is the huge contrast between UK brokers and props in terms of ‘general vibes’, for lack of a better descriptor.
There is a relentless negativity about the market in the UK among brokers, which fits with the wider decline we are seeing in the country.
Prop really feels like the opposite. Everyone I spoke to at the event seems optimistic. Even on the regulatory front – which I think is naive – no one seemed that worried.
Overall I get the feeling this is a lot like the brokerage industry was 15 or 20 years ago. Brokers seem to have lost the kind of ‘banter’ type fun that you hear about from the past. It’s 100% there with a lot of the props.
- Younger crowd
Part of the reason for that may be the audience as well. I have not been to many retail events but the ones I have been to seem to attract an older crowd.
That fits more with the broker’s ideal target client – someone who is likely to be in the 35 – 50 age range, has a decent income and also has some idea of what they are doing.
There were definitely some people like that in the crowd but the audience definitely skewed towards a younger crowd overall, with a decent number of roadmen as well.
All three of the retail crowd that I spoke to were under 30 and one of them was still a student.
- Lots of brokers
I met at least five different broker execs when I was there and these are all people working for companies which do not have a prop offering yet.
In most cases I think it was just to get a sense of what’s going on with prop, what the product is, and who is buying it. So anyone who says they are indifferent to this product is probably not being honest with you.
Another interesting factor is the switch between the two industries. One senior executive has moved into the space and I met a couple of other people who were in more junior rules at brokers, that had moved to work for props.
- Risk is a never ending problem
It seems like almost every prop faces the problem of managing flow and no one has really come up with an optimal solution for how to do it.
There are a few consultants and providers who have pushed into the space but it seems like it’s an open question on how to do it.
Ultimately everyone wants that to happen because it then reduces the conflict of interest between clients and prop. Plus it makes things a lot less stressful for management.
- Darwinian processes
A more random observation is how big of a deal the MetaQuotes decision to pull access to the platform was 18 months ago.
It does seem like that moment wiped out a lot more companies than I’d realised and there was still a lot of bitterness about it.
At the same time, a lot of people noted that different firms who managed to survive that period were able to build up enough cash reserves and build a good reputation that it created something like a ‘winner takes all’ moment.
That’s not to say there aren’t new firms coming to market but I think that was a defining moment – more than I’d appreciated – in determining who the big players are in the sector.
- Start up costs are high
On that point, two people I met are starting props – one from the broker space and another from a large broker dealer, whose oil employees don’t take kindly to being called ‘c*nts’.
In theory, you can still do this at a very low rate. However, in practise the costs are likely to be high.
On what many people are saying was the best panel of the day, Justin Hertzberg – the founder of FPFX – recommended that anyone starting a prop have between $500k to $1m as something akin to a capital requirement.
That is not far from what you’d have to put up to get a UK or EU license – so it’s a lot!
- Regulation
Almost everyone I spoke to was pro regulation, whether it’s to get more protection for clients, clean up the industry, or some combination of factors.
For some companies it may be the case that regulation helps them. For example, if you are one of the large firms, you will be able to handle the huge added costs that are likely to be imposed if regulations do come into play.
But if you are a new entrant or smaller player, you won’t be able to.
My view is that regulation will be a disaster if we are talking the UK, Europe, the US, or really anywhere else that did a copy paste of the ESMA rules.
I spoke to one prop owner about it, whose firm has been in contact with the FCA. His argument was that if they go overboard, everyone will just go offshore and then they won’t have solved the problem at all. Consequently the FCA wouldn’t do anything too extreme to the industry.
Well brother, I got some bad news for ya….
