Compass for Prop Trading / Trader Funded Firms (TFF)
Compass Benefits for Prop Trading Firms
- Reduce the successful audition rate via Compass Pricing and Flow Imbalance FI
- Given the Prop space is non regulated, higher skews can be implemented
- Reduce the profitability of certain client styles of trading via Liquidity Reduction LR
- More acute LR settings may be applied
- Remove arbitrage as a strategy via bank grade pricing
- Flexible execution rules to provide the match the right trading conditions to the type of flow:
- treat regulatory jurisdictions differently
- timezone
- Different rules for Channel/EA/Mobile
- Order Size / Notional
- Counterparty
- MetaQuotes Groups
- Tie classifier to execution behaviour
- Longer last look on some of the scalper styled flow, with price improvement off.
- Prop Firm specific classifications
- Operates with a variety of Platforms. Not tied to MetaQuotes. MatchTrader, C-Trader
The combination of the above techniques can halve the successful audition rate without any change to the marketable audition criteria.
Regulation
- Recent regulator attention / reviews
- Mahi already has a lot of experience operating in regulated environments. Can act as the experienced shepherd for these situations as the industry becomes more regulated e.g.
- regional variation in pricing models / FI skew size
- liquidity reduction => strong narrative + judicial
Problems with simplistic Demo/Simulated Environments
- If you have a lot of coordinated trading or clients trading at the same time, artificially filling at the top of book would be a behaviour that would not be replicated in a realistic trading environment. In real trading successive fills would be worse for the clients as the liquidity is consumed. Use Liquidity Reduction to provide a more realistic fill experience even in a demo environment.
Competition Abuse
- Similar to some types of swap abuse, sometimes users can open multiple accounts and take equal and opposite positions to randomly game a position that passes the audition criteria. Use our tools to spot correlated accounts and crack down on uncompetitive behaviour.
Prop Firm Risks
Diversify Platform Support
So MQ's beef with prop firms is because all the flow is demo it avoids some of the license fees:
Notably, 95% of the accounts are demo, thereby avoiding charges associated with live MQ licenses. Moreover, MQ is wary of potential complaints in app stores, aiming to protect their iOS app and prevent confusion among end-users.
MatchTrade kicked off SurgeTrader recently. It is now platformless. A fairly high risk any prop firm platform faces.
Prop Firm Opportunities
As some prop firm participants fail there can be some value to be had picking up accounts with cheap acquisition costs.
Overview of Prop Firm Model
- Audition fees
if they ‘lose’ 10% of their initial capital or suffer a 5% daily draw down on the previous days balance, account is closed and fee forfeit
Income from proprietary trading activities is rare, primarily because the business model operates under the assumption that evaluation fees will cover the rare instances of profit withdrawals.
- Pay extra to get a lower profit target or increase allowable drawdown
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