Is Proprietary Trading Legit?
Let’s do a deep dive into how Prop Firms work and if we should trust them.
Updated on: 2022-02-10
You may have heard of the term “proprietary trading” in the news—particularly if you made it through one of those long reports on the financial crisis. But what exactly is it, and why is it important?
Prop trading, in short, lets the everyday person on the street that is passionate about learning the art of trading have a shot at actually converting their passion to something that can constantly sustain their lives, and be profitable from this. These prop trading firms, unlike banks and hedge funds, do not headhunt gunslingers from the Ivy leagues or other trading firms, but rather people that are genuinely interested about prop trading, study it, and immediately apply to make money. Of course, there’s a ritual process that will let the prop trading firm invest in you (usually through winning a trading challenge), where the only output they are watching is your trading results before putting capital with you.
Banks and firms trade stocks, bonds, commodities, or other financial instruments. This type of trading activity occurs when a financial firm chooses to profit from market activities rather than thin-margin commissions obtained through client trading activity.
The goal of this type of trading is to make a profit for the firm in a completely maximised way. Banks or firms engage in this type of trading because they’re able to achieve an edge in terms of market information and access to sophisticated modelling and trading software.
Because prop traders are able to make use of information not available to other investors, they are able to make trades that may have an adverse effect on the markets, possibly exacerbating market downturns and contributing to systemic risk.
Making Money From Prop Trading?
Yes, at the end of the day, this is still what matters most right? You want to know if you can make legit money from prop trading, and of course, if you do it well, you obviously can.
Most firms will put you through a process that equips you with the ability to trade profitably before funding your account. This is typically a bundle of support materials, trading software, strategies, and even mentorship, and subsequently, you’d be applying this real-time through an evaluation (probably a trading challenge of sorts). The goal is to prove that you’re able to generate alpha.
Here at Funded Trader we have been researching, reviewing, and comparing the majority of Prop Firms available to the retail traders for quite a few years now, since 2017 as a matter of fact, and every day new and better opportunities arise.
Topstep is most definitely the pioneer amongst these companies, having started all the way back in 2012! And they have established themselves as the standard to follow.
But it’s since 2018 that the sector started growing really fast, and today we feature in our Fundsfinder about 20 different Prop Firms for almost 100 different evaluation programs: some are trading challenges in SIM, but some others provide a funded account right away!
Here is a short tutorial for you.
Profit Targets And Fundability
Most top proprietary trading firms set a target, where your profit targets at the end of 10 days or 14 days, need to be at least 10%. From here, if you pass their targets, you’d generally be funded. This is the part where you use the firm’s allocated capital to you, to actually make money for yourself.
Let us walk you through some of the best proprietary trading firms that traders vote for.
The 4 Best Proprietary Trading Firms Voted For By Forex Traders.
- FTMO: Deemed as the most popular forex prop firm in the world. They offer traders some of the best profit splits out there. For starters, they start at 80%, and for real superman types of traders, it’s not uncommon to see them dishing out 90% of the profits to the traders.
Funding Affordability: Its affordability is also a key scorer here, where you start at €155 and you’d get a $10,000 funded account. Although there’s also a one-time fee involved, this is fully refunded after passing the 2-step evaluation process.
Trading Performance Analytics: The investment to literally track performance levels like an athlete is unreal here. FTMO traders can access and track their trading input with real-time feedback to suggest aggressiveness levels and to recommend that they re-calibrate, if necessary.
- The5%ers: These guys are not joking around. The slogan of theirs “Take our capital, keep the profit” is as real as it gets. The main focus here is that traders of this platform can be funded instantly from day 1 of joining, without any trials.
Instant Funding: the platform immediately starts working with traders in 2 schemes based on a risk approach of course. Low risk account generally gets you a capital of $6,000 with €235 as a participation fee. Payout splits start at 50% for low risk accounts, and all the way up to 80% if you pass their $100k bootcamp challenge.
Trading Community Support: Traders form quite a tight knit here as there are specific trading rooms that traders chat to scan market trends, set ups and attack opportunities together. Reps from The5%ers itself also do live trading within the groups (like a stream), at least 4 times a week. That’s consistency right there!
- Fidelcrest: Rather young as a company as it only got into the scene in 2018, these guys offer one of the largest profit shares (80% as well). Unlike other prop trading firms, the inclusion of less advanced traders, to slowly build them up with initial funding of $5,000 to train risk management and consistency, is a plus point here.
Cheapest One Off Fee: Compared to other prop trading sites, the one-off fee is the lowest seen, at €99 for a $5,000 micro account. This is usually doubled or tripled on other sites, although funding quantum is also higher, but the key point here is it allows real beginner type build-up at very minimal incurred one-time fee.
Crypto Trading Too: Fidelcrest offers its traders the ability to tap on all instruments including Cryptocurrencies. As long as you can consistently bring in the dough, and keep it within limits of the losses barrier set, this is highly attractive, considering the liquidity in the crypto markets too.
- City Traders Imperium: This firm takes education really seriously. No, I’m not talking about those Houdini gurus that can’t actually fight in a ring. Traders within the community have been giving it raving reviews and stressed that the firm is concentrated on helping normal people become profitable forex traders.
Teaching You How To Fight: Mainly aimed at crafting a blueprint that will help get you to a point of consistent profitability, their funded trader program’s focus is getting you there (your goal) eventually. Their evaluation time is one of the longest I’ve seen: 1 year. If you stick to the plan, you will get there.
Safe Evaluation Account Sizes: If you are a complete novice, this matters. Their starting matched funding at $2,500 with your one-time payment of €109 is indeed more expensive than some of the other options there, but the ability to trade Forex, indices, Gold, and also have a detailed education plan is one of the main things that stood out here. Again, the 1-year mark, is already more than safe to make sure you know if you are going to make it or not.
The 4 Best Proprietary Trading Firms Voted For By Future Traders.
- Earn2Trade: Known for supporting and enabling multiple funded accounts per trader, Earn2Trade is fairly young to the block but is already a contender in the scene. Their trading challenge The Gauntlet Classic is ideal for the swing trader, The Gauntlet Mini has no time limitation for you to reach the profit target, while the Trader’s Career Path offer a generous capital growth scheme. The excellent tools and education resources offered are some of the best, with just the “beginner crash course” already containing a collection of 60 essential videos.
Great Customer Support In Multi Languages: Customer support offered is solid and fast, where languages such as Spanish, Portuguese and Arabic are available.
1 Phase To Be Funded: 1 phase is all that is required for a budding trader to pass, in order to be funded. The Gauntlet Mini even enables traders to get a funding account after a period of 15 days when criteria are met.
- Topstep: Dubbed as the original funder where they were the first on the street to fund retail traders, where they combine active education that is practical, used by new traders, to eventually make money. In 2021 alone, they funded a total of 8389 accounts.
100% Profit For First $5k: The first $5k in profit earned by the trader belongs to the trader and subsequently thereafter, each dollar of profit is split, 80-20, 80% to the trader and 20% to the firm.
Impressive Educational Resources Line Up: The wealth of information provided on the site, from its blog, video archives, podcasts, and a strong community that is active, are key pillars that help traders turn pro.
- Leeloo Trading: Third generation farmers and ranchers with solid work ethic that has its origins in Spain/Europe. A smaller but solid prop trading firm that specializes in future contracts trading.
100% Profit For First $8k: Traders who bag the first $8k keep 100% of the profits and subsequently do a 80-20 split for the first year with the firm and 90-10 split thereafter.
Free Ninja Trader License: Unlike competitors that require traders to pay for extra charting tool licenses, Leeloo provides all traders with a free ninja trader license.
- SAVIUS: A small but established prop trading firm that has a boutique funder vibe. Their innovative approaches in swing trading and micro futures (both CME and EUREX) to the provision of fixed income for the most successful traders in its stable, is what many know them for.
Up To $2k Income For Funded Traders: For traders that pass their 2 evaluation programs, a huge bump in capital will be given and in phases 5 and 6, they will even be on a fixed income given by the firm.
Lesser Rules In Evaluation Process: There aren’t as many rules in the evaluation process compared to other firms, as long as a trader proves profitable consistency. The only yardstick to reach is reaching the profit targets in 30 days.
What Are The Cons And Problems Of Prop Trading Then?
As much as money can be made in prop trading, it’s also important to point out some of the key cons in a transparent manner. First, let’s talk about the elephant in the room with regards to the treatment of losses. What exactly will you lose if you do not perform? Firstly, you don’t lose or risk any of your own savings nest. The prop trading firm loses more than you for sure. But in all transparency, you do lose out on your initial enrolment fees for taking part in the trading challenges before they look at your results and decide to fund you. Oh, and if your computer does suck, probably you would have spent quite a bit to get it to a faster spec before getting into this program. Nonetheless, still, start-up cost is money.
There’s literally no exact iron-clad obligation for you to repay any of your losses no? Not really, there’s normally a risk contribution split that will be apparent between you and the prop trading firm.
This directly affects the leverage you are given and for prop trading, leverage affects how you make money from the strategies that you can implement. So you are paying still, in some manner, just read the fine prints properly related to this.
Also, remember that for remote prop traders, you’re technically not an employee of the company, and generally everything of that you do, is like an outsourced service provider/distributor, where the only thing that is paid out to you, is your profit split. In the most unlucky situation of all, if the prop trading firm gets overexposed and goes into liquidation, your deposit, and profit splits, will be difficult to recover.
Legit Or Not?
Obviously, many onlookers do feel that it looks too good to be true. You fund the account with a low €99 one-time fee and get $5,000 in your account? Yes. Remember, their incentive is to make you make money, so that they, can earn from your ability to do so. There is some inherent risk for them obviously as they are using their money to fund you, and you can also blow up your account too, I get it.
However, these guys aren’t newbies in the scene. Tight stoppage allowance, limiting losses, are already controls in place, so that the maximum risk, is already calculated, and is an affordable loss for them.
The law of numbers, where their profitable trading crowd, continuously grows, also offsets this probable risk.
Wrapping It Up
If you are a retail trader and have been consistent on your trading styles, small profits, and have constantly been wondering if you can team up with funders to make this a more solidified base to take on bigger markets, this article has given a clear direction and look of what’s available out there to consider.
It is tough to implement certain strategies without sufficient leverage, and certain plays, mimicking market making for pre and post-trading hours, are close to impossible with a retail trader account without wolfpack hunting approaches that are available with prop trading firms.
The risk measurement and discipline instilled, especially among the programs, and the proof for rites of passage warranted by the prop trading firms above, are not new and overdemanding. To enable consistency in making money from the market requires strict rules that shouldn’t be bent (profit loss limits etc).
Prop trading firms have evolved together with the styles, liquidity, and approaches to help traders (new and experienced), to be part of their crowd that beats the market constantly.
If you are looking for funding resources to kick start your journey, you can start here to look at the valuable options that will help you.
Let’s go beat the market!