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In the self-hating and guilt-ridden world of CFD brokers, many providers have taken a strong dislike to prop trading. This is despite the fact that many providers also offer prop trading.
At the same time, lots of CFD broker executives – to my mind anyway – often seem to have something like an inferiority complex with listed derivatives. Futures and options in the US are ‘legit’, CFDs are scuzzy. That’s how it seems like some people’s brains work to me, anyway.
What’s funny is that, over in the US, bigger firms have leant into prop trading a lot more than their equivalent peers across the Atlantic. Plus500 US, for example, has set up Topstep as an IB and also provides it with technology services.
The most notable example of this is the Kraken group of companies. Kraken itself operates the crypto prop firm Breakout, helping it get round restrictions on crypto derivatives in the UK and Europe.
It also owns futures trading firm NinjaTrader, which has emerged as a key provider to the prop trading space. Currently the company lists 18 different futures prop trading firms on a dedicated prop section on its website.
The futures broker also uses its Tradovate brand to promote prop trading.
There are a couple of obvious reasons to do this. Firstly, it helps prop firms get more leads and publicity. Companies like NinjaTrader likely have a per-account fee relationship with prop firms. So if the firms get more sign ups, it means NinjaTrader gets more money.
It’s also a simple way of promoting their own B2B services. NinjaTrader appears to be leaning a lot more into building out white labels and similar offerings to other providers. Prop firms are the easiest option to grow this business line.
But this week prop firm Tradeify also announced that it would be launching as an introducing broker. The company is partnering with NinjaTrader to do that.
This new brand, which has the strangely camp and ‘zoomer-maxxed’ brand name ‘Slay Markets’, lets you open an account with NinjaTrader. It also says that you can transfer payouts from your funded account to a live one with NinjaTrader using Slay Markets.
The latter strategy is not new as a number of CFD providers have done this for a long time already. For example, Taurex and ThinkMarkets have both offered a service where you can transfer a payout into their brokerage platforms.
I would imagine that the number of people who actually get to this point is fairly low. You have to think that only a small fraction of people get a payout anyway. Then you have to factor in that only a small group of those people will want to take a payout and use it to fund a live account.
Consequently, I would say this is more about cross-selling and marketing outside of funded accounts. There are already brokers globally who use prop trading as a way to do indirect marketing. They run it to get leads and then monetise that business via a regular broker offering. ATFX have said that they get cross-selling of about 10% with their prop offering, for example.
The same principle applies here. Tradeify can use its prop offering to do marketing with loose restrictions. They can then, for example, do email campaigns with those leads to market Slay Markets.
The money they earn from this is arguably superior to what they’d get in the prop because they do not have to worry about managing risk or payouts. IBs in the US can also monetise on the lifetime value of the customer, not affiliate fees. They can also set commissions to increase revenues, although Slay Markets does not look like it will do this.
The other point to keep in mind here is that NinjaTrader runs like a b-book CFD broker. It offers extremely high leverage via low intraday margins. For example, right now you could open a position on the S&P with NinjaTrader that has leverage equivalent to approximately 750:1. This is then monetised by high autoliquidation fees that can be 50% or even 100% of minimum margin.
Whether it works is hard to say but Slay Markets basically seems like an avenue to attract new customers and use this business model to make money. This is why NinjaTrader are happy to partner with prop firms like Tradeify in general – they get money from the partnership and free marketing for their brokerage.
Another interesting question is whether partnerships like this also bode well for the future of the industry in the US. The NFA and other derivatives bodies in the US seem to operate kind of like the mafia. If you don’t pay protection money to them, they will come and destroy you. This is why retail FX was targeted so aggressively, in my opinion. Note that this has been going on for over a century, so it’s not new – it’s why cash-settled futures were banned from 1915 – 1982, for example.
However, if you do pay them, then you tend to get a freer ride. This is why they are happy to do prediction markets, for example, even though it goes against the same moralistic arguments they make about why OTC products are so bad.
Anyway, that is a long-winded way of saying that if props can do things like this and keep the US regulators happy, it may mean you see the industry able to survive longer term. If the regulators get nothing, they are incentivized to kill the sector. If they are benefitting from it, they aren’t.
