iFX EXPO International 2023: PropTradeTech CPO talks MyForexFunds saga, Eightcap partnership

The event may have ended, but FinanceFeeds continues to bring you powerful stories from CEOs, executives, and entrepreneurs from the most influential players.

FinanceFeeds Editor-in-Chief Nikolai Isayev sat down for an exclusive interview with Marcus Featherston, who is Director and Chief Product Officer at PropTradeTech.

Nikolai Isayev started off the conversation by asking Marcus Featherston about the flexibility of their solution in accommodating different proprietary trading firms’ needs and strategies.

Marcus explained that they designed their technology to be highly flexible and adaptable to various business models. Their system is modular and configurable, allowing them to customize it for firms focused on different asset classes, such as futures, options, equities, or FX. This adaptability is essential because proprietary trading firms have unique operating models. Over the years, they have successfully built a system that caters to a wide range of clients, whether they operate in a single asset class or across multiple ones. The key is finding the right modules and configurations to support each client’s specific business model.

Nikolai then inquired about how PropTradeTech’s platform addresses risk management for proprietary trading firms, considering the varying risk profiles and strategies of different firms.

Marcus said that risk management in the proprietary trading space is distinct from retail brokerage due to the high volume and frequency of trades. While retail brokers can handle risk on a per-trade basis with ease, proprietary trading firms require a risk management system that can handle large volumes of trades without disrupting trading flow. Their system is designed to keep an eye on trades, analyze them, and implement sophisticated rules to manage traders’ risk effectively.

Our next question was about how PropTradeTech’s solution integrates with MetaTrader brokers and whether they also offer proprietary trading platforms to their clients.

Marcus clarified that their solution includes a real-time data layer that continuously analyzes data from the broker and presents it to traders in real time. This data layer is compatible with nearly any MetaTrader broker, offering flexibility to their clients. They are not tied to a specific broker, as many clients have their relationships and liquidity providers, and they prefer not to be limited to a single broker solution. As long as the broker uses the MetaTrader platform, PropTradeTech can integrate with them.

Additionally, they provide technology solutions that allow their clients to choose their trading platform. Some clients prefer MetaTrader, while others have developed their proprietary trading platforms. As such, PropTradeTech offers the flexibility for clients to select the trading platform that aligns with their business preferences.

Moving onto the macro side, the interview shifted to discuss the remarkable growth of the proprietary trading industry over the past few years.

Marcus attributed this growth to several factors. He highlighted the community-driven nature of the prop trading space, which appeals to traders seeking a sense of community. Additionally, he noted that the prop trading industry attracts a younger demographic, with the average prop trader being between 25 to 30 years old, compared to the average brokerage client, who is 35 to 40 years old.

In terms of ideology, Marcus pointed out that prop trading offers individuals the opportunity to become career traders. Rather than investing a small sum like $500 into a brokerage account, they can use that capital for evaluation within the prop trading model. This approach allows traders to potentially generate consistent returns from a much larger pool of capital.

Nikolai also inquired about the choice of partner broker Eightcap for trade execution in PropTradeTech’s operations, considering Eightcap’s reputation and regulations.

Marcus explained that Eightcap was selected primarily because of its strong execution infrastructure tailored for proprietary trading firms. He elaborated on the uniqueness of this space, where many brokers prioritize their demo infrastructure, crucial for evaluations. However, not all brokers invest in making their demo servers resemble real execution venues. Eightcap, on the other hand, has worked with numerous prop trading firms over the years and has refined its infrastructure to meet the specific needs of this sector, making them an ideal choice.

Marcus also mentioned that Eightcap’s regulation in multiple jurisdictions and its connections with tier-one liquidity providers were important considerations. Working with regulated partners aligns with PropTradeTech’s approach to execution and brokerage activities.

The conversation delved into the risk management strategies employed by PropTradeTech, focusing on data-driven approaches, exposure management, risk modeling, trader profiling, and automation.

Marcus emphasized that the most effective risk management strategy is avoiding risks altogether. While they utilize various tools and data models for ongoing risk management, the goal is to minimize exposure to risky situations from the start. He acknowledged that the prop trading space attracts various types of traders, including toxic ones seeking quick gains, traders trying to hedge between prop firms, or those following the same signal across multiple accounts.

Marcus highlighted a unique advantage of PropTradeTech: the ability to draw from an anonymized pool of data collected from their diverse client base. This data allows them to identify and mitigate risks associated with problematic traders.

He also mentioned that the prop trading industry has seen rapid growth, with some providers competing on price and offering larger drawdowns to attract traders. However, PropTradeTech maintains strict risk management standards. They have overseen over 50,000 evaluations, giving them insights into what works and what doesn’t when it comes to risk parameters.

Marcus stressed the importance of setting reasonable risk parameters and not indulging in excessively high drawdowns or risky rules. They offer consulting services to help prop firms design their challenges effectively, aiming to promote good risk management practices from the beginning. PropTradeTech operates on a partnership model where the success of their clients is intertwined with their own, and they prioritize sharing their experiences to help others avoid mistakes and build successful prop trading businesses.

Speaking of PropTradeTech’s approach to valuation models and whether they offer multi-phase models, Featherston confirmed that they offer both one-step and two-step challenges for evaluating traders.

While one-step challenges have become more popular for their simplicity, two-step challenges remain a valuable option for assessing trader skills. He emphasized their flexibility, explaining that they don’t impose strict rules on their client firms but provide suggestions and consulting support. PropTradeTech tailors its approach to meet the specific needs of its clients, offering a range of challenge types based on what best suits them.

Nikolai Isayev raised a question about the recent lawsuit filed by the CFTC against MyForex Fund, a prominent prop trading firm in the United States. He inquired about Featherston’s perspective on how regulations in the prop trading space might evolve, considering this case.

Marcus regarded the situation as intriguing and saw it as a long-term opportunity. He mentioned that PropTradeTech’s operating practices stand in stark contrast to those of MyForex Fund, especially in light of the practices highlighted in the CFTC filing, such as altering price feeds and operating an onshore broker. PropTradeTech has always maintained a clear stance against such practices. Fetherston highlighted their use of regulated counterparty brokers like Eightcap as they believe that regulators need to intervene and establish guidelines for the industry.

Marcus’ response sparked our curiosity, leading us to inquire further about the importance of learning from past experiences and how PropTradeTech’s extensive industry knowledge enables them to prepare their customers for potential challenges and risks. He mentioned the ongoing growth, improvement, and formalization of this niche from a regulatory standpoint.

Marcus found it interesting that many of the people they work with, especially the younger generation leading prop firms, come from backgrounds such as e-commerce, education, or affiliate marketing. They may not possess an in-depth understanding of regulation, liquidity, or the intricacies of trading. He also drew attention to the importance of being prepared for market shifts and noted that such shifts are not crises but opportunities. They have the potential to eliminate bad actors from the industry, allowing legitimate and responsible businesses to prosper in the long run. Fetherston concluded by stating that making quick profits for a few months is not a sustainable strategy.