Industry, legal and operations
Proprietary trading
Trading a firm's own capital rather than client money. The traditional form employed traders in-house; the retail form assesses traders remotely and pays them a share of the results they produce.
Also called: Prop trading
GFN’s figure
GFN runs virtual evaluation programmes on simulated accounts. It is not a broker, financial institution or investment provider, and it does not accept customer investment deposits.
In detail
Proprietary trading,explained
The two models share a name and little else. A bank's proprietary desk deployed the bank's balance sheet; a retail prop firm sells an assessment and pays out against performance on a simulated account.
What both have in common is the alignment: the trader takes none of the capital risk and a share of the result, and the firm takes the rest of both.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Prop firm
A company that assesses traders and pays them a share of the results they produce, rather than a broker that executes orders for clients. Most modern retail firms run the assessment on simulated accounts.
Simulated funding
The model where a firm assesses and pays traders on simulated accounts rather than routing their orders to a market. Trading is simulated; payouts against qualifying performance are real money.
Funded account
The account a trader receives after passing an evaluation, or buys directly under an instant programme. At a simulated-funding firm it is a simulated account whose eligible gains can qualify for a real payout.
Broker
A firm that executes trades on a client's behalf and holds client funds to do so. It is a different business from a prop firm, with different obligations and a different relationship to the client.
Market maker
A participant that quotes both a bid and an ask continuously, profiting from the spread between them and carrying inventory risk in return. Market makers are what make an instrument tradeable in size at a predictable cost.
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