Prop trading firms which provide traders with access to larger capital in exchange for a portion of the earnings have been gaining significant popularity in the forex and stock trading industries. These businesses serve a wide range of traders including swing, day, and scalpers. Swing trading complements prop firms’ structure despite the fact that many people think of them in terms of high-frequency trading and quick decision-making.
This article will explain how swing trading fits into prop firm trading models, its benefits, and the things traders need to know to be successful using this strategy.
What Is Swing Trading?
Let’s review what swing trading is before getting into how it operates in a prop firm.
Swing traders take positions for longer than a day but usually for a few weeks at a time. Swing traders profit from medium-term price swings as compared to scalpers who enter and exit positions in a matter of minutes or day traders who close all positions before the session concludes. In order to follow “swings” in the market they use technical and fundamental research to recognize trends and reversals.
And now for the big question: Can swing trading be successful in a prop company setting? Let’s check.
How Swing Trading Fits Prop Firm Models
Although it is not quite accurate, most people believe prop firms prefer high-frequency trading techniques. As long as swing traders follow the firm’s risk management guidelines, many prop firms will accept them. The following explains why swing trading makes sense in this situation:
Risk Management and Capital Allocation
Swing trading naturally fits in with the strict risk parameters of prop companies. Swing traders typically have lower commission fees and slippage since they execute fewer deals than scalpers or day traders. This makes it possible for them to follow organized risk control guidelines such as keeping a clear stop loss and avoiding excessive leverage.
The majority of prop firms have daily and total drawdown restrictions. In comparison to traders who overtrade, swing traders prefer to keep within these risk limitations better by holding deals for longer periods of time and avoiding excessive intraday uncertainty.
Time Efficiency and Less Emotional Stress
Day traders frequently have to deal with quick price swings which can be mentally challenging. However, swing trading gives traders the opportunity to take a step back, examine the markets more slowly, and escape the endless pressure to make snap decisions. Traders who have full-time jobs or who want a less stressful trading style will find this to be a good fit.
Prop firms benefit from having traders who make steady earnings despite not spending their entire day in front of their screens. Companies need traders who can manage money sensibly and avoid stress.
Market Conditions and Flexibility
Markets do not always reward trading for the short term. Scalpers and day traders find it challenging to make steady profits during erratic weeks. But by waiting for bigger moves and clearer setups, swing traders might find success in these circumstances.
Numerous prop firms provide a variety of asset types such as equities, commodities, currencies, and indexes. Rather than relying just on short-term intraday fluctuations, swing traders can profit from deeper market trends.
Consistent Returns Over Time
A prop firm’s primary objective is to make consistent profits. Because swing trading emphasizes quality trades over quantity, it fits in with this. A swing trader may only take two or three good setups per week but those settings frequently have a better risk-to-reward ratio than day traders who may make twenty trades a day.
Challenges Swing Traders Face in Prop Firms
Although swing trading provides benefits to prop firms, there are drawbacks as well. Some possible challenges to be aware of are as follows:
Profit Targets and Time Constraints
A lot of prop companies provide traders with monthly or even weekly profit goals to reach so they can grow their accounts or take winnings out. Swing trades take longer to execute therefore traders may find it difficult to meet aggressive targets quickly.
The answer? Find out companies that offer more flexible goals or that let traders work at a speed that works for their approach.
Overnight and Weekend Holding Restrictions
There are several prop firms that restrict trading over the weekend or overnight. This can be harmful because swing traders frequently hold their positions for several days.
But not every company is bound to these limitations. It is important to review the firm’s exact policies before joining as some permit overnight holding if certain risk criteria are satisfied.
Swaps and Holding Costs
Swing traders in forex must take swap fees into account because they might reduce profits if a position is held for an extended period of time. It is important to know how fees affect your bottom line because certain prop companies pay these expenses while others do not.
News Events and High-Impact Volatility
Swing traders occasionally maintain positions throughout significant economic events such as changes in interest rates or job announcements. This increases the risk even though it can result in significant victories. In order to avoid needless exposure to excessive volatility, some prop firms limit trading around key news.
