Decoding the World of Prop Crypto: A Comprehensive Guide
8 minutes read
9. 2. 2024
Are you hoping to understand how crypto prop trading firms work but are overwhelmed?
Are you still asking yourself the question…
Crypto prop trading enables higher starting capital, reduced counterparty risk, and the ability to generate greater profits
Crypto prop traders must undergo an evaluation stage, which serves as a valuable educational tool
Breakout is the first crypto prop trading platform to bring transparent perpetual futures liquidity to the industry
Crypto prop trading can be a mystifying prospect for some, due to a lack of information and the unique process traders must undergo before they get started at a crypto prop trading firm. With this guide, we’ll demystify the space and discuss the benefits of crypto prop trading.
Cryptocurrency prop trading – or proprietary trading – is the latest variation of a long-standing practice that sees financial institutions give starting capital to proven traders and then allow them to implement their trading strategies while sharing in the profits of their success.
Between 2022 and 2023, the number of internet searches related to ‘prop trading’ rose 900% as traders sought to reap the benefits of increased starting capital and little to no risk of losing their funds.
Let’s take a look at how crypto prop trading works, and why it’s gaining so much traction among traders in 2024.
In recent years, trading has shifted, with crypto prop trading firms offering a new avenue for traders to explore. Prop trading has historically been confined to forex and commodities markets, but is now emerging as a viable proposition to trade crypto.
Unlike typical crypto traders who rely on their own capital, prop traders operate with house money provided by their chosen prop trading firm. This approach not only enables traders to access necessary capital but also mitigates the risk associated with using one’s funds. With foundational knowledge and clearly defined risk management protocols, traders are held accountable while retaining between 80-90% of the profits, fostering a mutually beneficial arrangement for both traders and the prop firm.
For a proprietary trading firm, funding traders enables an alternative approach to revenue generation which can prove more profitable than simply collecting fees. These prop firms enable multi-asset trading, leveraging the crypto market to offer a trader a diverse range of trading styles. From Bitcoin to other available cryptocurrencies, a trader has the flexibility to explore various other assets based on their style and preference.
Crypto prop firms grant traders starting capital and the ability to generate higher profits than they otherwise would have the opportunity to earn. The perfect opportunity to test a trader’s ability.
Moreover, a prop firm may allow a trader to hold positions overnight, enabling them to capitalize on market fluctuations and maximize profit. With high-leverage options available, traders can scale their positions according to their risk appetite and, hopefully leading to more gains earned.
A crypto prop firm typically requires new traders to go through an evaluation process where they must prove their ability to implement sound trading strategies in a demo environment. If successful, they progress to the funded stage with notional capital up to $100,000.
In addition to financial incentives, crypto prop trading firms foster a vibrant trading community where traders can collaborate, share insights, and navigate the challenges of the market together. Through access to advanced tools and strategies, traders can manage their accounts, execute trades, and stay informed about trade news in real time.
In essence, crypto prop trading represents a new opportunity, offering traders an alternative to commodities and other traditional markets, while empowering them to trade at their own pace and leverage the dynamic opportunities with crypto to profit.
Our crypto trading environment sources liquidity from one of the
best Tier 1 centralized exchanges. We believe this is a
first-of-its-kind implementation of Tier 1 exchange liquidity for an
evaluation-based crypto product.
The main benefit of a prop firm is the opportunity to trade with someone else’s funds. Given that a reported 95-97% of crypto day traders end up losing their cash, the prospect of a prop firm funding a trader’s account is an attractive proposition. This reduces personal financial loss, allowing them to manage and operate with a safety net and potentially secure greater gains.
For new traders who usually spend a significant amount on a broker, platform fees, and other related costs before they even get started, the evaluation process acts as a valuable educational tool that lets them see if they have what it takes before they deposit their own money to a crypto exchange.
Aspiring traders can leverage the evaluation process to assess their skills before committing any significant capital.This pre-trading assessment not only minimizes financial risk but also provides valuable insights into one’s trading prowess and readiness for the market.
Moreover, prop trading companies impose clearly defined risk-management rules, ensuring that traders develop healthy trading habits and adhere to professional standards. By enforcing risk-management protocols, these firms instill discipline and accountability in traders, promoting a culture of responsible and sustainable trading practices.
In contrast to trading platforms in traditional markets, trading in the cryptocurrency space offers distinct advantages. Beyond exposure to a diverse array of assets, traders benefit from the volatile nature of these markets. Price fluctuations create ample opportunities to trade, allowing traders to capitalize on market volatility and maximize account gains.
Additionally, the crypto market operates 24/7, presenting a significant advantage for any trader. Unlike markets with fixed trading hours like commodities, crypto markets allow traders to execute at any time, providing flexibility and accessibility that cater to diverse trading instruments.
In summary, the benefits of crypto prop trading are multifaceted. From reduced financial loss and enhanced educational opportunities to exposure to a dynamic market environment, crypto prop trading offers a compelling proposition for traders seeking to navigate the world of cryptocurrencies. By harnessing the advantages of prop trading within the crypto space, traders can unlock new avenues for profit and growth in this ever-evolving market landscape.
Prop trading appeared to take a hit after the 2008 financial crisis when former Fed chair Paul Volcker enforced a rule (the Volcker rule) that forbade banks from engaging in prop trading or owning hedge funds. However, this regulatory change left a gap in the market, which brokerage and other trading platforms swiftly capitalized on. Despite the initial setback, the prop trading industry continued to thrive, adapting to new regulations and market conditions. Now in 2024, there is a diverse range of these firms investing in markets.
Recently, Breakout has become the first crypto-specific proprietary trading firm to bring transparent perpetual futures liquidity to prop trading from a Tier 1 centralized exchange. Breakout’s platform offers a comprehensive suite of trading features akin to those found on Tier-1 centralized exchanges like leveraged trading. Crypto prop traders can make use of this leverage, with options like 5x leverage trading for available cryptocurrencies such as Bitcoin and Ethereum, and 2x leverage trading for other altcoins. This is a great opportunity for seasoned traders to take advantage of this new exciting space right before the bull market.
The rise of crypto prop trading is exemplified by Breakout’s recent shift to becoming a crypto-only prop trading firm. A pivot driven by the realization that 91% of Breakout’s clientele exclusively engage in crypto trades, prompting the discontinuation of forex, commodities, and indices trading options offered before. This realignment proves the growing dominance of crypto assets and the desire for crypto payouts.
In the first quarter of 2023, daily crypto trading volume averaged $189 billion. While this figure represents only a fraction of the global forex and stock trading volumes, it shows the exponential growth of blockchain technology as the fastest-growing asset class globally. With cryptocurrencies poised for further expansion, crypto prop trading is primed to play an increasingly pivotal role in financial markets, offering traders unprecedented opportunities for profit generation and market participation.
As crypto gains prominence beyond its niche beginnings, widespread adoption remains a distant goal, leaving room for growth and a scarcity of experts in the field. This gap presents a significant opportunity for capable crypto enthusiasts to leverage their knowledge in the realm of crypto trading.
In contrast to traditional day trading, crypto prop trading offers a unique proposition by mitigating common risks.Traders need only to purchase a trading evaluation (as opposed to depositing their own funds with an exchange), thus reducing personal financial exposure, while benefiting from access to educational tools and advanced tech. These resources will empower traders to navigate the crypto economy with greater confidence and efficacy.
The burgeoning interest in crypto prop trading underscores the need to embrace a new paradigm in trading practices. This shift aims to minimize risk, enhance accountability, and foster the development of healthier and more profitable trading habits. Whether novice or experienced, traders can benefit from the evolving landscape of crypto prop trading.
With the rise of the crypto prop firm, there is a new opportunity for traders to capitalize on the dynamic nature of the market. By leveraging old skills and expertise in this evolving field, traders can position themselves for success in 2024 and beyond. As the market continues to mature, crypto prop trading emerges as a promising avenue for traders to navigate the complexities of the digital asset space and achieve their financial goals. Breakout has a competitive advantage in this space, providing users with all they need to navigate these markets effectively. With access to capital, educational resources to overcome challenges, a community, and more, traders couldn’t be in a better position.
Breakout’s crypto environment closely simulates live markets, featuring dynamic conditions mirroring real-time changes in spreads and order book depth.
