“The risk is incredibly hard to manage in the prop trading industry,” James Glyde, founder and CEO of PipFarm, told Finance Magnates while speaking on the sidelines of iFX EXPO International 2024, adding that it is because “it's assumed the traders will lose.”
“The Mechanics Are Different”
Although the prop trading industry emerged from the contracts for differences (CFDs) industry, there are differences between the two in terms of risk management, as Glyde pointed out: “In the CFD industry, we have a ton of data that says that most traders will lose in the long run. But in the prop trading industry, it's like a micro-trading session.”
“The mechanics of prop trading are completely different from a CFDs broker where you have a deposit and margin,” he continued, “you can either use that to transfer the risk to the liquidity provider, or you can accept the risk. So the mechanics are completely different, making the risk similar yet different.”
Glyde, interestingly, has experience in both prop trading and CFDs. He launched PipFarm in early 2024 after spending about a year as the Chief Operating Officer at the Swedish prop trading firm Nordic Funder. He entered the retail trading industry in late 2010 as an Institutional Sales Manager at TopFX and later moved to Spotware Systems, the developer of cTrader, as the Chief Commercial Officer, a role he held for six years.
“The business is young, but it's growing,” he said, mentioning his prop trading firm. “We're building the community; it's growing every day, and you know traders are flocking to us because we're offering something a little bit different.”
“We Decided to Look for Another Way”
Interestingly, PipFarm's offerings are also a bit different from those of other prop trading firms in the industry. It has taken an approach to managing risk through gamification, which is reflected in the sale of its add-on services.
“Most prop firms sell add-ons to their challenges, so you can buy your way into extra risk,” said Glyde. “The problem is you welcome the trader with almost no track record with you, and you're giving them access to the riskiest variation of your product.”
“We decided to look for another way,” he added. “Our approach is that when a trader sponsors a challenge and reaches some kind of milestone… we credit them with some experience points. When they accumulate these experience points, they earn a rank, they get promoted, and with each rank, they unlock more desirable features, like higher leverage and faster payouts.”
“We build this track record with the trader rather than just letting them buy their way into risk.”
Explaining the revenue structure, Glyde revealed that the “majority of PipFarm’s revenue does come from collecting fees.”
“At the moment, we don't have the largest book in the world,” he admitted, adding that “at the moment the risk has to be managed manually.” He further continued, “The priority is to transfer risk rather than to just profit from the market. So, to make the trading initiatives profitable, a larger book of clients is required.”
“Clearly, Something Is Needed”
Responding to the potential regulations on prop trading firms, he said: “I'm not opposed to regulation, but I'm also not necessarily for it,” continuing that “it always depends on the shape and the size.”
Finance Magnates exclusively reported earlier that the European Securities and Markets Authority (ESMA) ran an initial check on prop trading firms and discussed possible regulations in the industry. Further, the Czech National Bank commented that some prop firms “may be subject to MiFID.”
“Clearly, something is needed,” according to Glyde. “As a prop firm, there are two laws you need to follow: data protection laws and fair trading standards. However, there have been multiple cases when these basics were not followed.”
