Forex trading is the act of speculating on the movement of exchange prices by buying one currency while simultaneously selling another. Forex stands for foreign exchange, and it is the world’s largest and most liquid market, with an average turnover of more than $7.5 trillion a day. While some misconstrue FX trading to crypto, it is pivotal to note both aren’t the same, but share ideology and attributes associated in enforcing its trade through foreign exchange interactions.
If you are interested in forex trading, you will need a prop account, which is a type of trading account that allows you to access the forex market and execute trades with leverage. A prop account is different from a standard account in that it offers lower spreads, higher leverage, and faster execution.
Prop trading, short for proprietary trading, is when a prop firm provides you with capital to trade on the foreign exchange market. In return, you share a percentage of your profits with the prop firm, usually ranging from 50% to 90%. This way, you can trade with more money than you have and potentially earn more profits.
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A spread is the difference between the bid and ask prices of a currency pair, and it represents the cost of trading. A lower spread means you pay less to enter and exit a trade, which can improve your profitability. A leverage is the ratio of your own funds to the borrowed funds that you use to trade.
A higher leverage means you can control a larger position with a smaller amount of money, which can amplify your returns as well as your risks. An execution is the speed and quality of filling your orders in the market. A faster execution means you can take advantage of price movements and avoid slippage, which is the difference between the expected price and the actual price of a trade.
A prop account is suitable for traders who have more experience and knowledge of the forex market, and who are willing to take higher risks for higher rewards. A professional account requires a higher minimum deposit than a standard account, and it may also have higher commissions or fees depending on the broker.
To open a prop account, you will need to find a reputable and regulated forex broker that offers this type of account. You will also need to provide some personal and financial information, such as your name, address, phone number, email, identity proof, income proof, trading experience, and risk tolerance. You may also need to pass a suitability test or quiz to prove your understanding of forex trading and its risks.
Once you have opened a prop account, you will be able to access the forex market through a trading platform, which is a software or web-based application that allows you to analyze the market, place orders, manage your positions, and monitor your performance. You will also be able to use various tools and features, such as charts, indicators, signals, news feeds, and educational resources.
Prop trading accounts are not for everyone. They come with certain rules and requirements that you have to follow, such as: Passing a trading challenge or evaluation. Most prop firms require you to prove your trading skills and strategy by reaching a profit target within a certain time frame and without violating any risk management rules. This can be stressful and challenging, especially if you have to pay a fee to join the challenge.
Following strict trading objectives. Once you get funded, you have to adhere to the prop firm’s trading objectives, such as maximum daily loss, maximum drawdown, minimum trading days, trade size, leverage, etc. If you breach any of these objectives, you may lose your funding or face penalties.
Trading only certain instruments and time frames. Some prop firms limit what you can trade and when you can trade. For example, some prop firms only allow you to trade forex majors and minors, while others may restrict you from holding trades over the weekend or during news events.
Sharing your profits and paying fees. As mentioned earlier, prop trading accounts involve sharing your profits with the prop firm. The profit split can vary depending on the prop firm and your account size. Some prop firms also charge monthly fees or commissions for using their platform and services.
Consequently, before applying for a prop trading account, you should do your research and compare different prop firms and their offerings. You should also consider your own trading style, goals, and risk tolerance. Prop trading accounts can be a great way to boost your trading capital and learn from professional traders, but they also come with risks and responsibilities that you should be aware of.
You should only trade with money that you can afford to lose, and you should always have a trading plan and strategy that suits your goals and risk profile. You should also keep learning and improving your skills and knowledge of the forex market and its factors.