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“Prop Trading Can Outgrow Traditional FX and CFD Industry”: An Interview with OANDA’s Head

Can Prop Trading outgrow the traditional FX and CFD industry? According to Crystal Lok, OANDA’s Head of Emerging Markets, the answer is yes. In the interview with Finance Magnates, Lok said that she believes the prop firm industry has the potential to outgrow the traditional FX/CFD industry. Why? “because it is more accessible, has lower barriers to entry, such as upfront fixed fees, and involves limited downside risk.”

OANDA Steps Into Prop Trading

OANDA is a well-known brokerage brand in the forex and contracts for differences (CFDs) industry, based in NYC. It entered the Prop Trading space last January with the launch of OANDA Labs Trader. Crystal Lok revealed that OANDA’s decision to launch prop trading followed a survey conducted in September 2023.

As she said, “We discovered that interest in this type of trading is really high amongst experienced traders in what OANDA defines as the ‘emerging markets’ segment.” Lok added and confirmed that “significant interest” for its prop services came from traders in the ASEAN region, which is a bloc of ten Southeast Asian countries.

Improving the Trading Experience

Responding to community feedback, OANDA has relaxed some of its trading challenge conditions, such as the minimum number of trading days, to make its platform more trader-friendly. Lok revealed in the interview, “Our Prop Trading environment uses virtual capital to generate real-money profits, creating live market conditions that ensure the validity and value of the trading activities.”

The demand for Prop Trading has boomed over the last few years. While there are many platforms offering prop trading, only a handful of known brokerage brands have entered this space.

Besides OANDA, other known brokerages offering Prop Trading are Axi and Hantec Markets. IC Markets, headquartered in Australia, also entered the Prop Trading sector and soft-launched its services recently. However, these are nearly all the known brokerage names in this new and rising industry.

Regulatory Challenges and Opportunities in Prop Trading

Prop Trading is still not currently regulated. As prop traders do not invest their capital in trading, regulations for the regular brokerage industry do not apply to them. This does not mean the industry will remain unregulated indefinitely.

“We see regulation in this space as inevitable, and firms that are unprepared will be caught unprepared.” said OANDA’s Lok.

Meanwhile, the industry faced an alleged massive crackdown from a tech provider, MetaQuotes, which shook many businesses. The developer of two popular trading platforms, MetaTrader 4 and MetaTrader 5 stopped Prop Trading platforms from using its platform to onboard US-based traders. Although licensing requirements for MetaTrader are strict, several brokers ‘gray labeled’ their MetaTrader license to prop firms.

Prop Trading Will “Consolidate Among Larger Players”

The alleged crackdown resulted in the termination of several brokerages’ services to Prop Trading platforms overnight, disrupting the services of these platforms.

“Despite rising participation from traders in prop activity, a number of brokers have ceased their services to multiple prop firms, and this has led to concern from traders,” Lok said. “There have also been significant interruptions to payments to successful prop traders, as certain prop firms were fully reliant on third-party contractor payment platforms, some of which did not actually understand the business they were supporting.”

Crystal Lok also added that because of these issues and the likelihood of more government rules in the future, it’s possible that only the bigger, more stable prop firms will continue to operate, while smaller ones might struggle to keep up.

Future of Prop Trading

As the prop industry continues to attract interest and evolve, it faces a landscape of opportunity coupled with significant challenges. With regulatory changes anticipated and a surge in participation from global traders, the industry’s future looks promising yet complex. 

The potential for Prop Trading to outgrow traditional FX and CFD markets hinges on how well these firms can adapt to upcoming regulations and maintain stable, innovative trading environments. 

This transition may lead to a consolidation in the industry, favoring well-prepared, larger firms that can navigate the shifting regulatory and operational terrain. As the sector continues to mature, its ability to offer accessible, low-risk investment opportunities could indeed redefine its role in the broader financial markets.