Do Prop Firms Really Pay?
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Yes, reputable prop trading firms typically do pay their traders. These firms have transparent payout structures and profit-sharing agreements, and traders receive compensation based on their trading performance. However, traders must do their due diligence and research before joining any prop firm to ensure its legitimacy and reliability.
There are tales about traders who started trading formally with certain prop firms after registering and paying the evaluation fee, only to have their profits withheld for different reasons. This has caused some prop firms' legitimacy to come under scrutiny, prompting many traders to ask these two critical questions: Are prop firms legitimate? Do prop firms actually pay? While there are legitimate prop firms, it is up to the trader to research a prop before registering. This article will answer the query, "Do prop firms really pay?" Continue reading.
Do prop firms actually pay their traders?
Alas, few prop traders get into successful prop firms that actually pay. Reputable and legitimate prop companies pay their traders, but only under specific conditions or criteria for payout. The amount that traders receive is contingent upon their trading strategy, the state of the market, and their familiarity with the payment structure of the Prop firm.
The profit share ratio at proprietary trading firms can vary significantly depending on the firm's policies, trading strategies, and individual trader agreements. However, here are some general examples:
50/50 Split: Here, traders receive 50% of the profits generated from their trading activities, and the firm retains the other 50%.
70/30 Split: Traders get 70% of the profits, and the firm keeps 30%. This is often seen in firms that provide more capital and resources to traders.
Tiered Structures: Promote companies with profit-sharing plans that are tier-based on achievement. For example, a trader might be qualified for a larger profit share percentage if they meet certain performance goals or profit thresholds.
Flat Fees: Some firms may offer traders a flat fee per trade or a monthly stipend in addition to or in place of profit sharing.
Note: Performance-based bonuses are extra earnings that a lot of companies give out in response to each trader's performance, which varies depending on things like profitability, risk tolerance, and consistent trading.
For instance, FTMO demands that traders pay transaction fees and that they are eligible to withdraw 80% of any profits they make. With the option to make an on-demand payout after 14 calendar days from the first trade placed on the account, the profit split on an FTMO account is done monthly. Anytime between 14 and 60 days after the start of trading, and as long as there is a profit from the simulated trading on the FTMO Account, the profit split can be modified up to three times for each withdrawal. After verifying the invoice, the payouts are processed in a matter of one to two business days. You can receive your profits through cryptocurrencies, Skrill, or a regular bank wire transfer, and there are no fees or commissions associated with withdrawals.
How much can a prop trader make?
However, it's challenging to provide a specific figure as the amount of a prop trade can range from a few thousand dollars to several million dollars annually, depending on the factors mentioned in the previous section. Thus, the answer to the question of whether or not people truly profit from prop firms is in the affirmative. A base salary is typically paid to traders by most prop trading firms either monthly or annually.
According to recent research on prop trader earnings in the US as of April 2024, the average base salary hovers around $101,533, with the possibility of significant boosts through bonuses and profit-sharing. To simplify the wage breakdown, this equates to approximately $48.81 per hour, totaling around $1,952 per week or $8,461 monthly.
Normal trader: $245,341/year
Senior trader: $315,499/year
Lead trader: $187,968/year
Earlier research as of February 2024 shows that the annual salary of prop traders fluctuates from $130k - $239k.
What are the factors affecting prop firm payouts?
Factors affecting prop firm payouts should be anything that will prevent the firm from paying a trader. For instance, if the new prop trader fails the evaluation phase, the prop firm reserves the right to retain the application fee and not pay the trader back. Traders must pass by meeting certain performance metrics, such as consistent trading results, favorable risk-reward ratios, or minimum profit thresholds. Below are the top factors affecting prop firm payouts.
Prop firm rules
Payouts in prop firms are often governed by specific rules set by the firm, such as profit-sharing agreements or performance targets that traders must meet to receive payouts. These rules may vary widely between firms and can significantly impact how much traders earn.Market conditions
The performance of financial markets directly influences prop firm payouts. In bullish markets, traders may generate higher profits and thus receive larger payouts, whereas, in bearish or volatile markets, profits may be harder to come by, leading to smaller payouts or even losses for traders.Trader skill
The skill and experience of individual traders play a crucial role in determining payouts. Highly skilled traders who consistently make profitable trades are likely to receive larger payouts, while less experienced or less successful traders may see smaller payouts or even penalties for losses.Risk management policies
Proprietary trading firms frequently implement rigorous risk management procedures to safeguard their investments and secure the enduring viability of their operations. These protocols may entail setting limits on daily or weekly losses for traders, potentially curbing their appetite for risk-taking during transactions and impacting potential payouts.
What to do if a prop firm doesn't pay out money?
If a prop firm fails to pay out money as agreed, your first step should be to review any contracts or agreements you have with them. Try to find out if you in any way breached the contract, then try to resolve the issue directly with the firm, communicating your concerns clearly and providing any necessary documentation. If this doesn't work, you may need to seek legal advice or escalate the matter to regulatory authorities, depending on the jurisdiction and the nature of the agreement.
Expert opinion
My first experience as a prop trader would have made me support those who say that prop firms do not pay, as the first prop platform I signed up with did not allow me to withdraw the profits I had made. Upon discovering that I might have been trading on an unapproved platform, I looked up the leading prop firms and started over. Since I was paid this time, I suggest potential traders sign up with reputable prop firms.
My advice: Before signing up with a prop trader, ensure they are regulated by top financial commissions and that traders possess a strong knowledge of the trading industry. Also, since the primary metric for prop traders' compensation is their ability to generate profits, you must be prepared to consistently make profitable trades and contribute positively to the firm's overall performance. As a prop trader, ensure that your trading strategies maintain an appropriate risk-reward balance and adhere to the firm's risk management policies. Prop traders must comply with the rules and guidelines set by their firm and stay informed about market trends, economic indicators, and other factors that could impact their trading strategies. Prop traders should keep accurate records of their trades and performance metrics, as this data is used to evaluate their contribution to the firm's profitability and determine their compensation.
Final thoughts
Prop trading, like any trading endeavor, carries inherent risks, and success isn't guaranteed; some traders may incur losses. Prop traders' earnings fluctuate based on market conditions and individual performance, necessitating skill, discipline, and effort for sustainable income.
Before registering, ensure the firm is regulated and clarifies any unclear terms and conditions. Lack of independent reviews or testimonials warrants reconsideration. Thoroughly research forex prop firms, favoring established ones with transparent policies and positive feedback from actual traders.
FAQs
Do prop traders make good money?
Prop traders can potentially earn significant profits, but success varies widely based on market conditions, trading strategies, and individual skill.
How profitable is prop trading?
The profitability of prop trading fluctuates; while some traders achieve substantial gains, others may experience losses due to market volatility and other factors.
Is it hard to become a prop trader?
Becoming a prop trader can be challenging due to the competitive nature of the industry, requiring a combination of knowledge, skill, discipline, and risk management.
How do prop firms pay their traders?
Prop firms typically compensate traders through profit-sharing arrangements, where traders receive a percentage of the profits they generate while the firm retains a portion as a fee for providing capital, infrastructure, and support.
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Team that worked on the article
Peter Emmanuel Chijioke is a professional personal finance, Forex, crypto, blockchain, NFT, and Web3 writer and a contributor to the Traders Union website. As a computer science graduate with a robust background in programming, machine learning, and blockchain technology, he possesses a comprehensive understanding of software, technologies, cryptocurrency, and Forex trading.
Having skills in blockchain technology and over 7 years of experience in crafting technical articles on trading, software, and personal finance, he brings a unique blend of theoretical knowledge and practical expertise to the table. His skill set encompasses a diverse range of personal finance technologies and industries, making him a valuable asset to any team or project focused on innovative solutions, personal finance, and investing technologies.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).
A wire transfer is a method of electronic funds transfer in which money is sent from one bank or financial institution to another, typically across international or domestic boundaries. It involves the sender providing their bank with specific instructions, including the recipient's bank details and the amount to be transferred, and the funds are then electronically moved from the sender's account to the recipient's account.
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Xetra is a German Stock Exchange trading system that the Frankfurt Stock Exchange operates. Deutsche Börse is the parent company of the Frankfurt Stock Exchange.
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