At the core of trading lie major liquidity providers. A standard practice among these providers is their reservation towards offering sky-high leverage.
Their caution stems from an intimate understanding of the inherent perils tethered to high leverage and offer a max of 1:50 leverage on most symbols. Thus, when a prop firm offers leverage that surpasses the offerings of the liquidity providers, it drops hints of possibly not connecting traders to the real markets.
This creates a synthetic trading environment where the broker transforms into a counterparty for the trader’s moves.
In such terrains, offering high leverage becomes feasible, primarily because these trades never reach the real market. Instead, the prop firm is silently wagering against the trader’s instincts.
Prop firms that dangle the carrot of excessive leverage might either be skirting around these regulatory barriers or might anchor their operations in regions with lax oversight.
A segment of prop firms might champion a unique operational blueprint. Here, they willingly embrace heightened risks (thanks to the high leverage) and, in exchange, levy steeper fees, commissions, or spreads.
While this doesn’t directly cast shadows on their market connections, it’s an operational hue traders should be wary of.
So, before diving into trading waters with a prop firm, especially one that boasts towering leverage, a diligent background check is paramount.