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A few months ago we looked at retention in the broker space. The basic point there was that a liability is not crystalised until a client asks for a withdrawal.
Designing features to keep money ‘in’ is thus a good product idea. Note that this is true for every business, not just this industry.
Asset managers don’t want you to redeem your funds. Your broadband provider doesn’t want you to switch to a different company. Recently I cancelled a credit card and the process was significantly more cumbersome than it had been to sign up. You get the point.
The problem for a lot of prop firms has been that newer firms don’t have huge balance sheets and so lots of payouts could result in them going insolvent.
This is all covered really well in an interview that Justin Hertzberg from FPFX did a couple of months ago. Incidentally, if you are interested in this industry, I recommend watching this as it covers a lot of the problems that firms face and gives a good overview of how things work.
Anyway, the basic point remains that props have to do retention stuff to keep clients engaged, just like any other business.
And one of my favourite features that has emerged to do this is something broker-backed props are doing.
Who did it first? I don’t know, but both Atmos and ThinkCapital now have a feature where, if a trader passes their challenge and gets a payout, they can then get that payout as a deposit into an account with the broker.
To top that off, they get a bonus on the amount they receive. Plus they can also be set up as a copy trading partner, meaning other clients at the broker can copy the trades of a successful trader. Chef’s kiss.
This latter point about copy trading may sound minor but it has the potential to be great marketing.
We spoke recently to Brokeree about how brokers often don’t make the most of copy trading. Integrating it with a prop offering could work well. The reason I say that is the payout certificates props offer are great marketing tools.
For example, one prop firm that I spoke to about six months ago, noted that doing a fast payout and providing a ‘proof’ with a certificate, meant the recipient was so happy that they started posting about it on Discord and X. The result was new challenge purchases that exceeded the payout by about 40%.
If you could have a ‘funded trader’ as someone whose account you can copy, that is potentially an attractive new marketing channel to get new clients and/or increase retention among existing clients.
Whatever the case, the need to do this sort of retention reflects a problem for props we looked at a couple of weeks ago, namely the managing of trade flow on funded accounts.
Unless there is technology set up to manage risk around people that pass funded accounts, there is more pressure to improve client retention.
This makes me wonder if companies like Funderpro may actually be correct in structuring its offering so that the funded stage is just a real money account.
Given that broker-backed props are setting things up so that you can transfer funds to a broker account, it seems plausible they could also just have the funded account stage as a live offering.
The potential problem there is that the account balance would eat up an insane amount of capital. For example, Funderpro’s largest account is $200k. That is a huge amount of money to stump up for one account.
However, as noted before in Prop Weekly, the ‘real’ account size is really just the maximum drawdown. For the Funderpro $200k account, for example, the max drawdown is $20k.
The question then is, could you structure things so that the funded trader sees an account balance of $200k, but in reality they only have $20k in their account?
That way you could have the live account and make it easier to manage risk, but also means it eats up way less capital.
Could you do it? I don’t know. One for your tech team.
