re Prop Firms Worth It in 2024, March (2024)

There’s no simple “yes” or “no” answer to whether prop firms are worth it because it depends on many factors. Which prop firm? Which broker do they use? What are their trading restrictions? How much must traders pay in fees?

There’s also the matter of the traders themselves—not everyone will benefit from a prop trading firm, depending on where they are in their trading journey.

Let’s explore the world of prop trading.

What is Prop Trading?

There are several categories of prop firms, and I’m going to focus on the following category:

Proprietary trading firms, or “prop firms,” are financial firms that allow traders to use the firm’s capital for trading in exchange for a percentage of the trading profits.

Prop firms are located worldwide, in the U.S., U.K., E.U. nations, and the Middle East. For example, Top Step, SurgeTrader, Funder Trading, and E8 are in the U.S., and Ascendx is in London, UK. SabioTrade is based in Ireland, while FundedNext is based in the UAE. One of the very first prop firms in existence, FTMO, founded in 2005, is based in the Czech Republic, an E.U. nation.

How Does Prop Trading Work?

The best prop firms give traders capital a live account and let them keep 80-90% of their profits, depending on the firm. However, first, the trader must pass an evaluation.

The Evaluation Process

The prop firm tests the trader’s profitability on a demo account with targets to meet before going live. What are the evaluation targets? They can include:

  1. Profit target.

The trader must grow the account by a specified percentage of the initial demo balance.

  1. Maximum drawdown.
  • The prop firm stops the evaluation process if the account is down by a certain percentage from the initial deposit. 8-10% is a typical maximum allowable drawdown.
  • Prop firms generally include balances from closed and open trades in maximum drawdown.
  1. Maximum daily loss limit.
  • Suppose the account is down by a certain percentage or dollar amount within the day. In that case, the prop firm prevents the trader from continuing that day.
  • The limit normally includes the value of closed and open trades.
  1. Minimum and maximum number of trading days.

Some prop firms want to see traders hit the profit target within a specified range of days to demonstrate consistency.

  1. Maximum winning day.

The best day cannot exceed a certain percentage of the profit target to ensure reaching the profit target through a series of winning days, which increases the likelihood of repeating their results.

What Happens After the Evaluation Process?

After passing the evaluation, the trader gets a live account with a pre-determined balance. Prop firms generally continue the same risk management rules from the evaluation phase when in the live phase.

Payout Policy

Prop firms have policies setting the terms for paying out profits. Typically, they allow traders to choose the frequency of payouts and pay traders within a few days of a payout request.

Which Markets Can I Trade with Prop Firms?

Many prop firms allow a range of markets, including Forex, metals, equities, and crypto. Some prop firms specialize in futures only.

What are the Prop Trading Costs?

The evaluation fee is usually the only cost. It ranges from a couple hundred to a couple of thousand dollars. Prop firms charge more if the trader wants a higher starting balance with the live account. Most prop firms allow traders to make multiple attempts without paying the fee again.

Some prop firms charge an additional monthly fee during the live account stage.

How Much Money Can I Make in Prop Firms?

Traders Receive a Percentage of the Profits (Often 80-90%)

A few prop firms will start traders at a lower percentage and then increase it as they show continued profitability.

Traders Can Make an Unlimited Amount Through Prop Trading

Successful traders can receive payouts in the tens and hundreds of thousands of dollars, sometimes more. For example, FTMO’s highest payout to a single trader is $1.2m at the time of writing.

Realistically, the profits depend on the initial balance, ranging from $10k to $200k. Most prop firms vary the entrance fee depending on the trader's starting balance.

Can I Lose Money in Prop Trading?

The only money a trader can lose is the entrance fee. Otherwise, the prop firm carries all the risk. This is one of the biggest advantages of trading a prop trading.

Pros and Cons: What are the Potential Risks and Rewards of Trading with a Prop Firm?

Pros: Rewards

  1. Profit earning potential. The biggest reason traders consider a prop firm is access to more capital and keeping a high percentage of the profits.
  2. The structure a prop firm gives. Profit targets and risk management rules help traders succeed because they provide an external structure they cannot ignore.
  3. Support. Prop firms offer online education and even performance coaches for one-on-one support. Many prop firms let their traders help each other. It’s easy to network with other traders online, but I only talk to successful traders in a prop firm.

Cons: Risks

  1. Trading restrictions. Some prop firms apply restrictions that may not suit everyone’s trading style. For example, some do not allow open positions on weekends or during big news events. Check that the rules are consistent. For example, I know one prop firm that allows weekend trades in the evaluation phase but not with the live account.
  2. The evaluation fee. This is usually the only financial cost.
  3. Broker restrictions. Traders must use the prop firm’s broker. This does not have to be a negative issue if the broker is good. Less reputable prop firms use brokers with poor execution or arrange an increased spread from which they take a payout from the broker, negatively affecting performance.
  4. The psychology of a larger balance. Some traders are psychologically unprepared to handle a larger balance size on a live account.

Should I Use a Prop Firm or Higher Leverage?

Some jurisdictions, e.g., the U.S., the E.U., UK, Canada, and others, have maximum leverage levels. Using a prop firm is better if I can’t get higher leverage. Some traders are comfortable accessing higher leverage if it means giving up strong regulation. Still, I do not like the idea of compromising regulation.

Bottom Line

Prop firms are an excellent source of accessing further capital to increase profit potential. Passing a prop firm’s evaluation means reaching a profit target while staying within its risk management rules. Prop firms require traders to use their brokers, which can be positive or negative depending on the broker. The support and regulations can be excellent for success if they are open enough.

FAQs

Is joining a prop firm worth it?

Yes, it can be if the prop firm is reputable and has good terms.

What is the success rate of prop firms?

Prop firms find successful traders regularly, and success depends on the individual trader.

Do people actually make money with prop firms?

Yes, many traders do.

Are trading prop firms good?

Many reputable prop firms have allowed traders to make a lot of money.

Can you make a living trading with prop firms?

Yes, it is possible.

What happens if you lose money in a prop firm?

The prop firm can stop you from trading their money.

Is prop trading risky?

The prop firm carries the risk because it is their capital.

re Prop Firms Worth It in 2024, March (2024)

FAQs

Are prop firms really worth it? ›

Prop firms are an excellent source of accessing further capital to increase profit potential. Passing a prop firm's evaluation means reaching a profit target while staying within its risk management rules. Prop firms require traders to use their brokers, which can be positive or negative depending on the broker.

What happens if you lose money from a prop firm? ›

Profits from trades are generally divided between the firm and the prop trader; however, the risk distribution is asymmetric. This means that in the event of a loss, the trader bears 100% of the losses, while they don't receive 100% of the profits.

What are the downsides of prop trading? ›

- Traders in prop firms often have limited control over the firm's capital. They may need to deposit their own money as collateral or risk management. - Additionally, payouts are subject to the firm's rules, which may restrict a trader's access to profits.

Can you make a living as a prop trader? ›

As a result, anyone can be profitable as a prop trader because profitability is linked to their experience and skills, strategy, and ability to generate gains by trading in the market with the firm's capital.

Do prop firms really pay out? ›

There is nothing inherently scammy about the business model of prop firms. But how do they make money then? For starters, prop firms, of course, do not give money to just anyone who asks. Typically, they have a multi-stage evaluation process to make sure the traders they employ know what they are doing.

Which is the most trusted prop firm? ›

The most popular prop trading firms and funded programmes
  • Axi Select.
  • FTMO.
  • The Forex Funder.
  • E8 Markets.
  • True Forex Funds.
  • The 5%ers.
  • Funded Next.

What are the disadvantages of prop firms? ›

5 Cons of Prop Trading
  • Auditions. For some traders, the requirement to pass an Audition or Challenge may be viewed as a drawback. ...
  • Competitive Environment. ...
  • No Guaranteed Income. ...
  • Long Learning Curve. ...
  • Psychological Pressure.
Oct 20, 2023

What is the failure rate of prop traders? ›

Understanding the Prop Firm Challenge

At its core, the prop firm challenge can be a way for prop firms to make money from failed challenges. This is because some sources have the failure rate of prop trading challenges at 90%. So for every 10 traders that buy a challenge, 9 will fail.

Why do people fail prop firms? ›

Lack of proper risk discipline

Risk discipline is crucial regardless of your style of trading. But it is especially important in prop trading as prop firms' strict rules make it too easy to blow your funded account. While some prop firms demand their traders to use mandatory stop-losses, not all do.

Why is prop trading illegal? ›

The Volcker Rule is intended to restrict high-risk, speculative trading activity by banks, such as proprietary trading or investing in or sponsoring hedge funds or private equity funds.

Are prop firms risk free? ›

Since proprietary trading uses the firm's own money rather than funds belonging to its clients, prop traders can take on greater levels of risk without having to answer to clients.

Is prop trading better than hedge fund? ›

Hedge funds are a much safer investment when you are uncertain as an investor. Even though prop trading is the same, it is much riskier as you are using a prop firm's money to profit. Leverage: When it comes to leverage, hedge funds use aggressive techniques to manage their assets.

How much does the average prop trader make? ›

The salary of a prop trader can vary greatly depending on several factors such as experience, performance, and the size of the firm. On average, a junior prop trader can expect to earn anywhere between $50,000 to $100,000 per year, while a senior trader can make upwards of $500,000 annually.

Are prop firms worth it? ›

Prop firm trading is a legitimate way to make money, but it is not without its risks. Prop firms provide traders with access to a significant amount of capital, typically in exchange for a percentage of the profits generated.

How stressful is prop trading? ›

Prop trading can be highly stressful due to the fast-paced nature of markets and the pressure to make split-second decisions. Working in the financial markets as a prop trader comes with a series of demanding hurdles. Such traders face an environment filled with: Intense rivalry.

How profitable is prop trading? ›

In conclusion, the income of prop firm traders can vary greatly depending on several factors such as experience, performance, and the size of the firm. On average, a junior prop trader can expect to earn anywhere between $50,000 to $100,000 per year, while a senior trader can make upwards of $500,000 annually.

What percentage do prop firms take? ›

A prop trading firm looks to recruit talented traders and fund them with the company's capital. The funds that a trader makes, is then split between the trader and the company. The profit share is between 50 – 95%, with the trader taking the lion's share.

What percentage of traders pass prop firm challenge? ›

That result should look catastrophic for anyone who hopes to join a prop firm. The article from Lux Trading Firm provides slightly different results. According to it, 4% of traders, on average, pass prop firm challenges. But only 1% of traders kept their funded accounts for a reasonable amount of time.

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