Can Prop Trading Work Without Leverage? A Handful of Firms Are Finding Out

§ 01 Executive Snapshot

• What: A shift in the prop trading industry as firms explore stock trading without leverage.
• Who: The Trading Pit, Trade The Pool, Blueberry Funded, and FTMO.
• Why it matters: This transition could redefine revenue models in prop trading, impacting the viability of trading without leverage.

§ 02 Key Developments

• The prop trading industry has collectively distributed over $1 billion in payouts to traders, with FTMO reporting $450 million over its first decade.
• The Trading Pit's stock program currently accounts for less than 10% of its active traders and revenue but aims for stocks to represent over 30% in the future.
• Blueberry Funded reported $2.3 million in first-year payouts across all its products after expanding its evaluation program to include CFD stock trading challenges.

§ 03 Strategic Context

• The prop trading model has been historically centered around high leverage in FX and CFDs, leading to rapid turnover and significant payouts, which have been a key revenue driver.
• The industry is pivoting towards multi-asset offerings in response to regulatory pressures and the need for diversification after many firms shut down in 2024.

§ 04 Strategic Implications

• The immediate consequence is the potential for a market shift from FX dominance to stock trading, which may alter competitive dynamics among prop trading firms.
• Over the long term, the success of stock prop trading could depend on developing new business models that can sustain profitability without leverage.

§ 05 Risks & Constraints

• A significant risk is the change in economics of trading without leverage, which may not yield the same high returns as leveraged FX trading.
• Competition from established firms with robust infrastructure and trading models could hinder new entrants' success in the stock prop trading space.

§ 06 Watchlist / Forward Signals

• Watch for The Trading Pit's feedback incorporation and potential product expansions, which may indicate its ability to scale its stock challenges.
• The performance metrics of stock prop trading in the coming quarters will be crucial to assess its viability against traditional FX models.