In the world of cryptocurrency trading, choosing the right platform is crucial. Many traders are familiar with centralized exchanges (CEX) such as Binance, Kraken, and Coinbase. However, a rising alternative, crypto prop firms, is offering a more tailored approach to trading, particularly for those looking to maximize profits and enhance their trading skills. In this article, we’ll explore the differences between crypto prop firms and CEX, and why prop firms are emerging as a better option for traders.

 

Table of Content

1. What are Crypto Prop Firms?
2. What is a Centralized Exchange (CEX)?
3. Key Differences Between Crypto Prop Firms and CEX
4. Why Choose a Crypto Prop Firm Over a CEX?
5. How to Choose Between a CEX and a Crypto Prop Firm
6. How to Choose the Right CEX or Prop Firm
7. Conclusion: Why Crypto Prop Firms are a Better Alternative

 

What are Crypto Prop Firms?

Crypto prop firms, or proprietary trading firms, allow traders to use the firm’s capital to trade crypto assets. Unlike traditional crypto exchanges, where you trade using your own funds, prop firms provide a portion of their capital to traders who meet certain criteria, often through an evaluation process. In return, profits are shared between the trader and the firm.

How Do Prop Firms Work?

When you join a crypto prop firm, you undergo a qualification process where you demonstrate your trading ability. Once you pass, the firm funds your account, allowing you to trade using their capital. Profits are usually split in favor of the trader, typically 70/30 or 80/20. The idea is that traders can focus solely on their performance without worrying about risking their personal funds.

 

What is a Centralized Exchange (CEX)?

A centralized exchange (CEX) is a platform where you can buy, sell, and trade cryptocurrencies using your own money. Exchanges like Binance, Kraken, and Coinbase are some of the biggest players in the space. They offer easy access to the crypto market, providing a variety of trading pairs and liquidity.

How Do CEXs Work?

On a CEX, users deposit their funds into their accounts and trade directly from there. The exchange holds the assets in its custody, meaning users do not own the private keys to their wallets. CEXs act as intermediaries, matching buy and sell orders, and charging fees for each transaction.

 

Key Differences Between Crypto Prop Firms and CEX

1. Ownership of Funds

• CEX: When trading on a centralized exchange, you use your own capital. You deposit funds into the exchange and are responsible for your gains and losses.
• Crypto Prop Firms: Here, you trade with the firm’s capital. You do not risk your personal money, which can be a significant advantage for traders who want to scale their trading activities without risking their savings.

2. Capital Allocation

• CEX: You can only trade as much as you can afford. If you want to increase your trading capital, you need to deposit more funds.
• Crypto Prop Firms: Prop firms provide access to substantial capital, allowing you to trade larger positions and potentially earn higher profits without having to put down more of your own money.

3. Profit Sharing

• CEX: Any profit you make on a CEX is entirely yours, but so are the losses. Your profitability depends on how much risk you’re willing to take with your personal funds.
• Crypto Prop Firms: While profits are shared between you and the firm, the risk is distributed as well. You get to trade a larger account, and even though profits are split, the potential to make significant gains without risking your own capital is a major plus.

4. Risk Management

• CEX: Trading on a CEX can be risky, especially for beginners, since you’re risking your own money. The volatility of the crypto market can lead to substantial losses.
• Crypto Prop Firms: Prop firms typically offer training, mentorship, and strict risk management rules. Their goal is to help you become a more disciplined and profitable trader, making them a safer option for those looking to grow their skills while minimizing personal financial risk.

5. Leverage

• CEX: Leverage is available on many centralized exchanges, allowing you to trade with borrowed funds. However, this comes with high risks and can result in liquidation if the market moves against you. For example, Binance offers leverage up to 125x, which can amplify both gains and losses.
• Crypto Prop Firms: Prop firms also offer leverage, but the benefit is that you’re using the firm’s capital, not your own. This makes trading with leverage less stressful, as you’re not risking your own funds in the process.

 

Why Choose a Crypto Prop Firm Over a CEX?

1. No Need for Personal Capital

One of the biggest advantages of crypto prop firms like Avatar Prop Fund is that you can trade without using your own money. Whether you’re just starting out or are an experienced trader looking to scale, prop firms provide access to significant capital without requiring you to fund your own account, making them an excellent option for traders at any level.

2. Risk Management and Education

Crypto prop firms often come with resources like educational programs, mentorship, and advanced trading tools to improve your skills. At Avatar Prop Fund, for example, traders are provided with robust risk management guidelines, ensuring that a few bad trades won’t wipe out their accounts. This is in stark contrast to CEXs (Centralized Exchanges), where the risk is entirely on you.

3. Profit Potential

Although profits are shared with the firm, prop firms give you access to larger trading capital, allowing you to potentially earn much more. Avatar Prop Fund offers competitive profit splits, with some models providing up to an 80/20 share, ensuring that skilled traders can maximize their earnings while taking advantage of the firm’s capital.

4. Accountability and Discipline

Trading with a prop firm encourages discipline and accountability. Firms like Avatar Prop Fund have rigorous evaluation processes and enforce risk management rules that keep traders from deviating from proven strategies. This can help you avoid emotional decisions or reckless trades that may lead to significant losses, fostering long-term trading success.

 

How to Choose Between a CEX and a Crypto Prop Firm

When to Choose a CEX

If you prefer complete control over your funds and you’re comfortable with the risks involved, a CEX may be the right option for you. They offer greater flexibility in trading pairs, and you can withdraw your assets at any time. For those who want to buy and hold cryptocurrencies or execute high-frequency trades, CEXs can be more convenient.

Some of the top CEXs include:

• Binance – Known for its wide variety of crypto pairs and high liquidity.
• Kraken – Offers both spot and futures trading with advanced security features.
• Coinbase – Popular for its user-friendly interface, making it a great option for beginners.

When to Choose a Crypto Prop Firm

If you’re aiming to maximize profits, trade larger amounts of capital, or enhance your skills within a structured environment, a crypto prop firm could be the right choice. Unlike traditional exchanges, prop firms provide the capital, support, and risk management necessary to help you grow as a trader without putting your personal finances at risk.

For example, Avatar Prop Fund not only offers substantial capital for trading but also provides resources like mentorship and advanced trading tools. This ensures you’re constantly improving your performance while trading with greater flexibility. Whether you’re a seasoned trader or just starting out, prop firms like Avatar Prop Fund give you the foundation needed to succeed in the crypto market.

 

How to Choose the Right CEX or Prop Firm

1. Reputation and Security

For both CEXs and prop firms, reputation is key. Ensure the platform you choose has strong security measures in place and a solid reputation within the trading community.

2. Trading Fees

Look into the fee structure of both CEXs and prop firms. CEXs charge fees for trades, deposits, and withdrawals, while prop firms might have fees related to profit sharing or access to advanced tools.

3. Liquidity

Liquidity is crucial when trading large amounts. CEXs like Binance and Kraken offer high liquidity, but some smaller prop firms may also provide deep liquidity pools through partnerships with other platforms.

4. Leverage

If you’re looking to use leverage in your trades, compare the maximum leverage offered by the CEX or prop firm. CEXs like Binance offer up to 125x leverage, but with prop firms, you’re often using larger amounts of capital from the start.

 

Conclusion: Why Crypto Prop Firms are a Better Alternative

Crypto prop firms provide a unique opportunity for traders to grow their skills and profits without risking personal capital. While CEXs offer convenience and control, they require you to risk your own funds, and the potential for profit is often capped by how much you can afford to trade. Prop firms, on the other hand, give you access to substantial capital, professional guidance, and a disciplined trading environment, making them the ideal choice for traders looking to elevate their performance. If you’re ready to take your trading to the next level, consider joining Avatar Prop Fund. With access to significant capital, top-tier educational resources, and robust risk management, Avatar Prop Fund is designed to help you grow as a successful trader. Start trading with confidence today!

Open an Account