Top Tools to Use in Prop Trading

The key tools used in prop trading

Prop traders are required to consistently turn a profit using the capital of the firm they work for, with their ongoing funding from the firm hinting on the success of their performance. To be able to do so, they need to utilize a wide variety of tools and use the most cutting-edge technology and software, in order to monitor a large number of markets in real-time, analyze huge amounts of data with precision, and execute trades rapidly.

We’ll be looking at four types of tools prop traders use:

• Data and market analysis tools;

• Trading platforms;

• Risk management tools;

• Other tools.

Data and market analysis tools

To stay on top of the massive amounts of information produced by constantly moving markets, prop traders must use advanced technology dedicated to analyzing market data.

• Real-time market data. Prop traders subscribe to market data feeds which provide a steady stream of up-to-date news and real-time price information. Market data feeds provide a wealth of information about market conditions including market data from exchanges, pricing data, order data, news and analysis and more. The information allows traders to stay on top of the market and make informed trading decisions.

• Historical market data. Prop traders will use historical market data to develop their strategies and backtest them, and also identify recurring patterns and trends in price movements. Analyzing historical data also helps to develop their market understanding and make current decisions based on market behavior in the past. Traders might subscribe to data providers such as Bloomberg Terminal or FactSet, which provide historical data.

• Technical analysis tools. Prop traders study past market data to forecast future price movements, using technical analysis. Tools like TradingView, MultiCharts, or eSignal offer advanced charting features, allowing traders to analyze price movements and patterns. Technical analysis tools usually include charting features, pattern recognition, real-time data integration and drawing tools to identify key price levels and trend structures.

• Fundamental analysis tools. Prop traders use fundamental analysis to evaluate the financial health and potential growth of companies, industries, and economies. They can use financial statements, economic indicators like GDP and employment numbers, earnings reports, news services, research reports from financial analysts, and more, to maintain a comprehensive understanding of various financial markets.

Trading platforms

Prop traders use the most cutting-edge, specialized trading platforms to rapidly execute buy and sell orders, perform technical and fundamental analysis using real-time data, manage risk, and manage their portfolio. Some of the most popular platforms they use include:

MetaTrader 4 (MT4)

MetaTrader 4, or MT4 for short, is a popular online trading platform developed by MetaQuotes in 2005. It features a simple user interface that gives traders access to advanced technical analysis and flexible trading systems for trading across a range of markets. MT4 is highly favored due to its customizability and ability to automate trading by implementing algorithms for opening and closing positions based on pre-set parameters. It’s also considered a stable and accessible platform, with encrypted security measures built in.

The platform has received some criticism for not being accessible to individual traders and more suited toward businesses and brokerages – which is why it’s a favorite amongst prop traders. A certain degree of programming skills is required to fully customize MT4 and utilize it to its fullest potential, so it is well suited to the high levels of expertise and technological prowess that come with being a prop trader.

MetaTrader 5 (MT5)

In spite of its name, MetaTrader 5 (MT5) is not supposed to function as a new and improved version of MT4. Although it was also created by MetaQuotes Software and released in 2010, MT4 and MT5 have very different functionalities. MT5 features additional order execution methods and risk management capabilities. Technical and fundamental analysis is also more robust, with a larger number of timeframes, technical indicators, an economic calendar, financial news alerts, and built in community features.

Though both MT4 and MT5 are popular trading platforms for traders, prop traders focused primarily on forex tend to favor MT4 for its specialized features. To learn more details about the differences between MT4 and MT5, read our comparison: MT4 vs MT5: Which Forex Trading Platform is Better?

NinjaTrader

NinjaTrader is a trading platform released in 2003 that provides active traders with lots of technical analysis tools. It’s favored for its excellent charting tools, real-time analysis, customizable technical indicators, and inclusion of thousands of third-party apps and add-ons. Ninjatrader, which also offers automation services (with a premium account), is favored for its customizability, large selection of bar and chart types, and ability to execute a wide array of order types.

Prop traders are drawn to NinjaTrader because its ability to connect to third party apps means that it’s simple for most prop trading firms to connect their interfaces to NinjaTrader’s platform. It’s also the most popular choice for those engaging in day trading of stocks. The platform is feature-rich enough to provide countless ways to develop strategies but simple enough that even a novice prop trader could navigate the app after a few hours of use.

CQG

CQG QTrader features comprehensive analytics using industry-leading market data, state-of-the-art charting in an array of styles, portfolio and instrument monitors offering a broad view of markets through its connection to over 75 market sources and 40 exchanges.

CQG is described as the professional trader’s go-to platform and is developed by one of most advanced charting applications in the industry. Prop traders favor this app for its ability to view the market broadly and connect information from a vast number of sources.

Risk management tools

Risk management is crucial for prop traders in mitigating potential losses and protecting themselves from engaging in emotional trading or overtrading. Here's how they use specific risk management tools to effectively manage risk:

• Stop-loss orders. Stop-loss orders are designed to limit potential losses on a trade by automatically triggering a sell order when the asset's price reaches a pre-specified level. Prop traders set stop-loss orders at predetermined price levels that align with their risk tolerance.

• Trailing stop loss orders. Trailing stop-loss orders are dynamic stop-loss orders that automatically adjust as the price of the asset moves in the trader's favor. They are designed to lock in profits while allowing for potential further positive movement. Prop traders use them to protect profits when trading in a trending market.

• Position sizing tools. Position sizing tools help traders to determine the appropriate amount of capital to allocate to a specific trade, taking into consideration their risk tolerance and the potential impact on their overall portfolio. Prop traders often use position sizing tools to calculate the optimal position size based on factors like the size of their trading account, risk per trade, and stop-loss distance. This ensures that no single trade disproportionately affects their portfolio.

Other tools

There are a handful of other tools that prop traders have at their disposal to maximize their trading performance. Some of these are:

• Trading simulators. Trading simulators allow traders to simulate a real trading environment using virtual capital to practice using their untested strategies on, under real-world market conditions. Most trading platforms used by prop traders feature trading simulators, and prop firms usually provide their traders with access to trading simulators or demo accounts. Simulators may be used in the training of new prop traders, and can also be used for testing strategies, practicing risk management, refining algorithms, and evaluating their performance.

• Trading journals. These journals usually document each trade, detailing entry and exit points, reasoning behind decisions, and emotional states during trades. By analyzing these records, traders gain insights into their strengths, weaknesses, and areas for improvement. Most trading platforms have built in tools to allow you to access the same data that a trading journal is used to keep, but some prop traders may opt for third-party trading journal software.

• Educational resources. Aside from the education provided by working for a prop firm, and the built-in tools in trading platforms that allow traders to continuously learn, prop traders may also use additional educational tools. These include online courses and webinars, books on trading and finance, financial news and analysis, trading forums and communities, seminars, conferences, and more.

Best Prop trading firms

1

9.4/10

Go to broker

Your capital is at risk.

Minimum deposit:

$1

Review

Topstep is a leading proprietary trading firm offering traders the opportunity to trade futures contracts. With a unique two-step evaluation process, traders can prove their skills on a simulated account before potentially receiving funding for live trading.
Topstep offers three account sizes: $50,000, $100,000, and $150,000. Regular pricing starts from $165/month, with frequent discounts available. Traders can leverage up to 1:100 and access diverse futures markets, including stocks, commodities, crypto, bonds, and metals. Commissions and fees charged on the Trading Combine (simulation account) align with those on a live funded account, helping traders develop skills for real markets.
Topstep supports traders with educational resources, including free group coaching, to enhance their chances of success.

Pros/Cons

•Real trading accounts are financed by a broker, there is no need to invest your funds in trading.

•The company provides a wide range of free training materials, including free group coaching.

•You can contact the support team using several convenient methods.

•The broker offers a referral program for extra income.

•The company doesn’t offer bonuses, automated trading, or other passive income options.

•The support service works only on weekdays during set hours.

Study Review

2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

€155

Review

FTMO is a prop trading firm offering experienced traders the chance to manage a funded account of up to $200,000 with a wide range of instruments including Forex, stocks, indices, commodities, and cryptocurrencies. To qualify, traders must pass a two-step evaluation process.
Beginners may start with a Free Trial account which has the same trading conditions as the challenge ones. Long-term traders are free to use a Swing Account that has no restrictions on holding positions over the weekend or trading during macroeconomic releases. The company offers trading with the most popular platforms – MT 4/5, cTrader, and DXtrade. The leverage is up to 1:100.
Additionally, FTMO is recognized for its educational resources and continuous support.

Pros/Cons

•Quite low testing cost is €155.

•Classic platforms such as MT4, MT5, and Ctrader are familiar to many traders. For these platforms, hundreds of indicators, scripts, and advisers have been developed.

•The starting reward is 80%.

•Diversification of tariff plans. Candidates can choose a demo deposit from 10 thousand to 200 thousand US dollars. There are tariff plans that span from standard to aggressive trading.

•Leverage is up to 1:100.

•Strict requirements for the test period. The allowable maximum loss is 10% of the deposit amount. The target profit is 10%, for which 1 month is provided.

•There is no information about how the company is funded.

Study Review

3

9.1/10

Go to broker

Your capital is at risk.

Minimum deposit:

$119

Review

Funded Trading Plus clients trade CFDs on currency pairs, indices, precious metals, energies, and cryptocurrencies. There are 18 programs with one- and two-phase challenges, or without evaluation. These programs also differ in initial fees, profit targets, maximum total drawdown, and other criteria. Traders can receive from $5,000 to $200,000 under management upon successfully passing the challenge or immediately if they choose the program without evaluation. Scaling up to $2,500,000 is available. The profit split is 80%/20% at the start and 90%/10% or even 100%/0% later. Traders work on MetaTrader 4 and MetaTrader 5. Leverage is up to 1:30.

Pros/Cons

•Wide choice of programs with universal parameters and acceptable requirements;

•One-time initial fee, refundable for programs with one- and two-phase challenges. No monthly subscription;

•Simple and understandable conditions, no hidden obligations, and profitable trading split;

•The prop firm partners with Eightcap and ThinkMarkets. It offers spreads from 0 pips and low trading fees;

•A demo account with $100,000 in virtual funds is available for exploring the trading process and instruments;

•24/7 technical support is provided via four communication channels;

•Deposits and withdrawals are made with Visa, Mastercard, bank transfers, and crypto wallets without fees.

•The Master program without evaluation is very expensive — a non-refundable initial fee of $4,500 is required for the balance of $100,000;

•Funded Trading Plus offers only CFDs without real assets or futures;

•The firm’s website contains much information, but some important nuances, like the reset fee, are not provided.

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