Power of Proprietary Trading
Just like how you handle your money, same way financial institutions like stock brokers also handle their own funds. They have primarily two options to manage their money…
(i) Hire traders on their payrolls
(ii) Collaborate and tie up with skilled individuals
Turns out that partnerships with people like us is more beneficial for them. Scale Up Financial as an entity handle proprietary funds of Tier-2 Stock Broking institutions. Having developed our own NIFTY Options strategy for stock brokers’ proprietary funds, we help them generate extra returns on the limits available.
FAQs
What is Prop Trading?
Prop Trading or Pro Trading is short form of Proprietary Trading in stock broking industry. Proprietary means “own”. Many stock brokers have their own funds. brokers hire employees to trade on their behalf and/or they tie up with skilled derivatives experts known as Arbitrageurs. Trading done by such employees or arbitrageurs are referred to as Proprietary Trading.
Okay, but what’s in it for me?
If you have any surplus on which you want to earn a steady/less volatile rate of returns that is much higher than fixed deposits/debt mutual funds, you can consider this product as investment option.
What are the risks involved?
There are two main risks in this investment:
- Strategy Risk – If the derivative strategy fails and incurs a loss, returns will get impacted. We ensure this does not happen by using our team’s experience of over 25 years in the market. We take covered positions to earn steady rate of returns and continuously hedge the unwanted market/systemic risks.
- Default Risk – If the broker goes bankrupt, there could be delay in getting your deposit back. Even though this risk exists on paper, brokers are well regulated by SEBI and have stringent norms to operate. At our end, we also do due diligence by analysing broker’s financial statements to ensure that a default is a highly improbable event.
Tell me more...
The arbitrageur gets registered with the stockbroker by giving regulatory exams & completing any other formalities put forward by the broker. Arbitrageur places an agreed amount as security deposit with the stock broker to guard the broker against any losses that the trades may incur. Broker provides trading limits to arbitrageur on the back of this deposit.
How is it different from investment done in my trading account with a broker?
Client accounts are different from Pro accounts in many ways. SEBI has stringent regulations and limits on how much limits can be provided by a broker to client. Presently, it is less than 100% of portfolio value. However, in proprietary account the limits available for trading in derivatives is much more than 100%. This benefits the arbitrageur as more limits are available on the same deposit amount thereby making higher profits. More importantly, since higher limits are available, risk levels can be reduced to earn the same level of returns. In effect, the risk-adjusted returns can be much higher through Pro account.
What is Scale Up Financial’s role in this?
Scale Up Financial is a registered arbitrageur with few stock brokers. Scale Up’s team has rich expertise in derivative strategies with a unique delta hedging concept. The time-tested market neutral strategy added to the extra limits available in Pro account makes for a very effective investment product.