"Regulators Will Show Interest in Prop Trading Firms:" The Trading Pit's Cyprus CEO

<p>Prop trading has become the latest trend in the trading industry. Many prop trading firms have emerged in recent years and are marketing themselves heavily. The business model of these firms is interesting: they provide capital to expert traders to trade and then split the profits.</p><p>The Trading Pit is one such <a href="https://www.financemagnates.com/institutional-forex/new-prop-trading-firm-tradiac-offers-redemption-to-remote-traders/">prop trading</a> firm that launched at the beginning of last year and has made a buzz lately with its marketing campaign. It provides up to $5 million in capital to traders and shares 80 percent of its profits.
</p><p>"It's a very exciting time for us as we are growing very fast," <a href="https://www.financemagnates.com/executives/daniela-egli-departs-skilling-joins-the-trading-pit-as-ceo/">Daniela Egli</a>, the CEO of Cyprus at The Trading Pit, commented to Finance Magnates.</p><p><a href="https://www.financemagnates.com/forex/the-trading-pit-gets-10m-in-funding-from-illimar-mattus-pinorena-capital/">The Trading Pit</a> is headquartered in Liechtenstein and has offices in Spain and Cyprus.</p><p>How Does "The Trading Pit" Onboard Clients?
</p><p>Prop trading firms, like The Trading Pit, give traders their own capital to invest. So, their evaluation process to find expert traders is also rigorous. For The Trading Pit, the company takes an evaluation fee between $99 and $999, which depends on the demo trading account balance provided. Traders first need to prove their skills on the demo account before receiving capital to trade in the real markets as can be seen from Egli's explanation.</p><p>"We really lower the bar for anyone who knows how to trade, and they can just trade easily with us. They just need to register, pay the fee to take part in the evaluation process, and they're ready to go. They can currently trade on futures and CFDs. We are also considering adding real cryptocurrencies."</p><p>"We have about 40,000 traders registered with us right now and it's growing, and we're very happy to see our traders being successful because their success is our success as well, and looking to grow very fast."</p><p>Currently, most of the client base of The Trading Pit is based in Europe, but the company aims to expand its geographical reach, especially in emerging markets.</p><p>However, fast growth is also challenging, and we see this through Egli's comment where she added.</p><p>"We have a lot of interest from traders joining us. So our team is growing fast; our hiring needs to grow by the day, and to keep up with hiring all the team members that we need to hire takes time. It's challenging finding the right candidates. That's definitely a challenge because we need to ensure that our operations are efficient and offer excellent service."</p><p>Trading CFDs Is Risky, Often Making a Loss</p><p>When it comes to retail trading, most traders lose money. <a href="https://www.financemagnates.com/cryptocurrency/the-fca-is-introducing-new-guidelines-on-promoting-high-risk-investments/">Regulators</a> in the United Kingdom and European Union even mandated retail brokers to display a banner on their website about the percentage of loss-making traders.</p><p>However, as the prop trading firms provide the capital to the traders, they are entirely exposed to the risk, not the traders. Though the skills of the traders are rigorously vetted, the risk of trading losses cannot be omitted completely, which is clearly explained here by Egli.</p><p>"The risk is all on our side. We take decisions on how to manage these risks." </p><p>"Of course, there is a risk for the client for the traders to incur losses. And that's why it's important for us to have a very good filtering system to make sure that only traders that are quite good are able to pass into the scaling plan so that we minimize our risk as a company.”</p><p>"We profile the clients, and we make decisions on whether we copy their trades to the live environment or not.</p><p>"And, of course, there will be times when there will be losses. But, we've managed to contain the overall risk, which doesn't create any issues for us as a company."</p><p>She further revealed that, despite all the risk management, the company has a "maximum drawdown currently set at 10 percent. So the traders cannot lose more than 10 percent of the initial capital."</p><p>Still an Unregulated Industry
</p><p>Prop trading firms are not brokers. They do not handle client money or directly offer trading services to clients. In fact, these companies risk their own capital. Thus, regulations meant for brokers do not apply to these companies. This is confirmed below where Egli ended her remarks.</p><p>"We expect that at some points regulators want to somehow impose some restrictions, but at the moment, there's no need for regulation because most of the activity happens on demo accounts."</p><p>"And also, if you think about the regulation and the fact that regulation is generally there to <a href="https://www.financemagnates.com/forex/regulation/regulatory-changes-in-cfd-trading-what-traders-need-to-know/">protect the retail traders </a>from losing their own money. Considering the business model where our clients never have to deposit capital to trade, there is no need for this protection; the regulators are looking to offer that, right? So it's gonna be interesting to see how this will evolve in time. I'm sure that we will see some discussions with regulators in the future about this."
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This article was written by Arnab Shome at www.financemagnates.com.