Can I Trust Prop Trading Firms?

What is prop trading?

Proprietary trading, also known as prop trading, is a form of trading activity in which a financial firm invests its own capital to earn direct market gains. Unlike traditional trading, where a firm earns a commission by trading on behalf of clients, prop traders profit from the market activity. They buy and sell various financial instruments such as stocks, bonds, commodities, currencies, and others, with the goal of making profits for the firm.

One of the biggest advantages of prop trading is that traders have access to more capital and are surrounded by experienced traders. This environment allows traders to learn from the best and make informed trading decisions. Additionally, prop traders often have access to no-risk accounts, meaning they can learn the ropes of trading without risking their own capital.

How do proprietary traders get paid?

Proprietary traders, or prop traders, are typically compensated based on a profit-sharing model. In other words, they receive a portion of the profits they generate for the firm. The exact amount of compensation can vary depending on the firm and the individual trader's performance. Prop trading firms also charge traders various fees, such as desk fees, technology fees, and clearing fees, which can impact their overall earnings.

One of the most crucial strategies for prop traders is to diversify their portfolio by trading with multiple prop firms. Experienced prop traders recommend joining as many trustworthy firms as possible to avoid putting all their eggs in one basket. If one firm encounters trouble or turns out to be a scammer, having accounts with other firms can prevent the trader from losing all their money.

Note that trading with prop firms does not mean that you should give up trading on your own account. In fact, seasoned traders recommend having a personal trading account that you fund with your own capital as your main account. In addition, trade with at least two prop firms to spread out your risk. Withdraw funds from your prop firm accounts monthly to avoid losing them if the firm encounters issues or turns out to be fraudulent. Additionally, adding the withdrawn funds to your personal account can help grow your own capital.

Why do firms engage in proprietary trading?

Firms engage in proprietary trading as a means of benefiting from perceived competitive advantages and maximizing their profits. Proprietary trading allows financial institutions to use their own capital instead of clients' funds, which means they can take on greater levels of risk without having to answer to clients. This freedom allows prop traders to pursue unique trading strategies and make potentially large profits, without the constraints of traditional client-based trading.

How to choose the best prop firm?

As you search for the perfect prop firm, consider these six crucial factors suggested by our experts:

Distribution of profits: Consider firms that offer generous profit-sharing arrangements. Though the prop firm does take on risks by providing capital, as a trader, you deserve a significant portion of the profits you generate through your efforts and decision-making.

Growth potential: Examine the opportunities each firm offers for successful traders to manage larger sums of capital as they meet profit targets. Also, consider how challenging it is to reach those higher levels and whether the firm increases profit splits for traders who achieve their targets.

Trading constraints: Prop firms use various tools to limit the risks traders take on with their capital. However, some firms may impose excessive restrictions, hindering your ability to make profits. Choose a firm that enforces reasonable limits while still allowing traders the freedom to take calculated risks.

Cost-effectiveness: Assess each firm's pricing and the value they provide. A low-cost firm may not necessarily offer the best trading platforms or customer support, so weigh the benefits against the costs. Also, consider whether you prefer a one-time payment or ongoing monthly fees.

Profit targets: Most prop firms set profit targets within the 8-10% range, but lower targets can reduce stress and make it easier to advance through the firm's account levels. Evaluate each firm's profit targets and the impact they may have on your trading experience.

Available financial instruments: Consider prop firms that provide numerous trading options within specific asset classes. Additionally, ensure that the firm allows you to trade the specific financial instruments you're interested in, such as a diverse range of currency pairs in Forex trading.

Are prop firms safe?

Proprietary trading is indeed legal. The confusion surrounding its legality arises from the Volcker Rule, enacted after the 2008 financial crisis. This rule prohibits banks from having prop trading desks to prevent them from making high-risk trades using depositor funds. However, this ban applies only to banks, not to independent prop trading firms.

Prop trading is a legitimate business model. While making money as a prop trader can be challenging, it is possible for skilled traders to pass evaluations, invest a firm's capital, and share in the profits. It's essential to research and choose a reputable prop firm, as some may create more obstacles for their traders to succeed than others.

Best prop trading accounts 2024

The following are some of the best prop trading accounts in 2023, as suggested by our experts:

1

9.4/10

Go to broker

Your capital is at risk.

Minimum deposit:

$1

Review

Topstep is an international proprietary trading company registered in the USA. The company has been providing financial services since 2012 and offers exclusive trading terms for clients from different countries. Topstep provides financing of real trading accounts of its clients if they prove the skill to make trades and manage risks on a simulation account. Traders can trade CME Group futures. Trading on real accounts is carried out through the ECN broker Equiti Capital.

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 an international proprietary trading company created in the Czech Republic in 2014. The platform brings traders into its fold and after traders successfully pass a two-step testing regime, FTMO transfers 400 thousand dollars to the trader’s account. Transactions are monitored by FTMO to grow the deposit. There is a payment of 80% at the first stage of real trading. The 90% Profit Split is available only to those FTMO Traders that have reached Scaling Plan. The company works in full accordance with European financial legislation and is under the local regulator.

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.

Study Review