|Prop trading vs copy trading|
Proprietary trading (prop trading) is a service provided by national companies and commercial banks. In this type of trading, large companies allow a number of traders to use their funds to trade in financial markets, so that these traders can make a profit for the company. Prop trading can be done in the stock markets, securities, commodities, forex or other financial instruments. Copy trading, on the other hand, is about trading similarly to professional traders, using social trading platforms. In this article, we will explain the differences between prop trading and copy trading and the characteristics of each.
What is prop trading?
Proprietary trading occurs when a financial institution, broker, investment bank, hedge fund, or other source of liquidity decides to use the company's capital to make profit by participating in the financial markets. These trades are usually done for profit only, and are carried out using market derivatives or other complex financial instruments.
Prop trading advantages
Prop trading has many benefits for financial companies, such as gaining profit. When a broker or an investment bank trades on behalf of its clients, they earn their income through commissions and spreads. Whereas companies can provide prop trading to their users and make profit from trading. The profit from receiving commissions and spreads is less than the profit made via prop trading.
The second advantage that Prop Trading offers is that it enables the investing company to invest in a variety of assets. This can both make it easier for the company's users to trade with the company's capital, and make it easier for the company to trade with the assets at hand when liquidity is depleted.
The last advantage that Prop Trading offers is that this financial company can become an effective market maker, because various assets can increase the liquidity of this company.
An example of the prop trading desk
To maintain the positive effect of prop trading, the trading table in which prop trades are conducted is separated from other trades conducted in the broker. This trading desk was created to provide a platform for the company to make money, and there is no connection between it and other transactions.
However, as mentioned above, prop trading tables can also act as a market maker. This situation arises when a user wants to trade an asset with high liquidity. Since there are not enough sellers or buyers in this market, Prop Trading Desk can enter the trade as a seller or buyer, and fill the other side of the trade.
Advantages of Prop Trading for company’s clients
Clients can trade in the Prop Trading service, using the capital of other companies, and take their from the made fortune. The main advantage of this type of trading is that traders can trade with more than the amount they deposited. The only thing traders need to do to use this service is to abide by the rules set by the broker. In this case, users can withdraw their share after reaching a certain level of profit.
What is copy trading
Copy trading allows investors to automatically copy transactions made by professional traders. Unlike mirror trading, in copy trading, investors can follow specific strategies. Therefore, any action, whether setting T/P and S/L or opening trades in the source account, is also reflected in the investors' account.
Investors can, if they wish, disconnect from the source account and end the copy trading process. Traders can also close/open trades at current market prices whenever they want. Signal providers are usually paid on a monthly basis. In addition, well-known traders may receive up to 100% of the spreads received as trading costs.
Advantages of copy trading
Copy trading allows novice traders to make money from trading in financial markets even though they do not have sufficient knowledge about them. Following the trading strategies and signals of other traders is also beneficial for investors in this regard, because it does not completely eliminate the need for research and study of financial markets for them.
Investors can also learn from the trading process and find out about trading ideas of professional traders. This advantage of copy trading works like Forex training classes. Using this trading method, especially for novice traders, can be useful in the long run.
Automating the copy trading process can save time. You can select a trader, then the trading platform will automatically copy the trades in your portfolio. This can save time, and therefore be useful for investors who do not have time to trade.
Many copy trading platforms, such as ZuluTrade and eToro, not only allow investors to copy trades directly, but also allow them to customize trading parameters. This means that investors can specify their trading volume, or trade only on a portion of the traded volume. This feature allows users to copy trade based on their own risk and capital management criteria.
Another advantage that copy trading offers is the diversification of the trading account. Diversification of the portfolio is one of the things that professional investors should consider. Using copy trading, investors can select traders who trade in different markets and use different assets. This can ensure that the portfolio diversity is well maintained and that the security of your capital does not depend on a single trading strategy.
Prop trading and copy trading in Aron Groups Broker
Aron Groups Broker now allows clients to use both prop trading and copy trading services. The ZuluTrade platform is one of the most up-to-date and popular social trading platforms, which allows users to do copy trading. This forex broker has made it possible for its clients to learn about the trading ideas of traders around the world and to copy trading using this trading platform.
Aron Groups Broker has also launched a new service called Aron Prop in collaboration with world-renowned financial companies. In Aron Prop service, traders can trade in large volumes by depositing a small amount. The only thing traders need to do to use these services is to follow the rules set by the company.
Written by: Mohsen Mohseni (Aron Groups).