Proprietary trading involves the use of a company's own funds to trade stocks, commodities, currencies, cryptocurrencies, and forex.
This approach allows the company to generate profits directly from its trading activities rather than relying on commissions from clients, thereby enabling them to retain a larger share of the profits.
Trading futures can be both expensive and complex due to their high volatility, but they also offer the potential for substantial profits when executed skilfully.
Futures proprietary trading firms provide traders with small accounts access to the requisite capital needed to engage in futures trading. These firms offer several benefits, including:
- Enabling you to trade without risking your personal capital
- Providing substantial funding to prevent overleveraging and gambling
- Enforcing risk management policies
- Offering a wealth of educational tools and resources to support traders’ development
To be eligible for a fully funded trading account, traders must typically pass an evaluation or challenge, which entails achieving a specific profit target within a stated timeframe without exceeding a maximum loss.
The challenge often requires a fee and is done using a demo account.
Once successfully completed, traders gain access to funds and a live account.
Depending on the proprietary trading firm, traders can retain a significant portion of their profits, ranging from 70% to 90%, with the potential for increased funding following sustained success.
The Four Main Types of Futures Proprietary Trading Firms
- Event-driven trading firms focus on trading opportunities arising from economic or corporate events like elections, bankruptcies, and mergers.
- Multi-strategy trading firms employ various short and long-term trading strategies.
- High-frequency trading firms use algorithms, financial data, and electronic tools to execute high-speed trades with high order-to-trade ratios and high turnover rates.
- Quantitative trading firms use mathematical and statistical models to identify and execute trading opportunities.
Selecting the right futures proprietary trading firm depends on your trading style and strategies.
How to Pick Futures Trading Prop Firms?
Given the number of funded futures trading firms out there, choosing the right one can be a daunting task. When looking at your options, consider the following steps:
Assets available
The world of trading and investing offers a vast array of opportunities, encompassing numerous assets and strategies. As you choose, consider whether you wish to specialise exclusively in futures prop trading or whether you would like to maintain the flexibility to broaden your trading portfolio.
Certain traders advocate mastering a single asset, whereas others argue that a diverse portfolio is the key to achieving success.
Reputation
The most reputable futures trading prop firms are those that have built a longstanding track record of reliability and trustworthiness. In today’s market, there is an abundance of companies touting get-rich-quick schemes or enticingly low fees that often turn out to be fraudulent. Unfortunately, identifying these fake firms is not always straightforward. When in doubt, it is advisable to stick with well-established prop firms, even if this entails paying slightly higher fees.
Resources and support
If you believe you could benefit from additional assistance, seek out firms that provide educational materials and mentorship. Given the constant evolution of technology, markets, and challenges, there is always room for learning, even for seasoned traders. The top-tier futures proprietary firms recognise this and offer high-quality educational resources.
Trading styles
Different proprietary firms have varying focuses, with some specialising in high-frequency trading, while others, such as Apex Trader Funding and Topstep, adopt a more flexible approach, allowing individual traders to define their strategies. Prior to making a commitment, it is essential to ascertain which trading strategies are allowed on your funded futures account and what data and tools you will be able to access.
Fees and costs
Each firm will have its own payment structure. Naturally, the most enticing options appear to be those with low upfront payments and substantial profit-sharing arrangements. However, such firms may not provide the best tools and resources. Evaluating which firm offers the best value for money entails a comprehensive assessment of fees, profit-sharing terms, features, and support. Given the variability of individual budgets, what constitutes “good value” will inevitably differ from one trader to another.
Final Thoughts
Futures proprietary trading firms can be a lucrative avenue for skilled traders, but they come with inherent risks due to market volatility. It’s therefore essential to thoroughly research which prop firm you choose, considering factors like reputation, fees, and available resources.
Always remember that trading involves risk, and it’s crucial to use available tools and never invest more than you can afford to lose.
