How does working for a prop firm look?

Table of Contents

1. What is a prop firm?
2. What is prop trading?
3. Can anyone work for a prop firm?
4. What are the positive and negative features of prop firms?
5. List of top Forex prop firms
6. The legal structures of prop trading firms
7. Differences between working for a prop firm and being a day trader
8. Conclusion

What is a prop firm?

A prop firm, originally a proprietary firm, is a trading company representing an organization, usually a bank or another firm that invests its capital in making profits. Rather than traditionally using their clients’ money, hedge funds or investment banks would. 

As a prop trader, you can take part in the firm’s profit without risking your capital. You do so by using the firm’s money to buy and sell assets, and since they fund you, you as a trader get paid based on a profit split commission plan that the firm has set. The most common profit splits range from 50-90% to the trader.

What is prop trading?

Prop trading is short for proprietary trading, and it implies financial assets trading such as forex pairs, commodities, bonds, indices, cryptocurrencies, stocks, etc., with the prop trading firm’s capital.

By that being said, a prop trading firm earns money from their client’s trading and not by their clients’ thin-margin commissions.

A prop trading firm has a built structure in which traders use the firms’ capital to get part of the traders’ profits. The main advantage is that traders gain access to higher leverage without risking their capital. Prop firms have different criteria for their clients’ funding, and some offer direct funding for a one-time fee. Some offer financing after successfully passing one of their evaluation processes with specific rules. After being a funded trader at a prop firm, you have to follow that same firm’s trading rules, so you are allowed to keep the funded account. Usually, after regulating any of the rules, the account is taken from you, and you have to start all over again.

Can anyone work for a prop firm?

Anyone of legal age in their representative country can be a client of a prop firm. Remember that you work as a contractor, not a full-time employee, which means that you get no hourly wages, salary, or other benefits that the firm offers. The only payment you are eligible for is the percentage of the profit you make, depending on the profit split of each firm. That being said, you can start working as their client with their capital with no experience, or if you are a professional.

You have to consider their rules, though, meaning that most firms usually have evaluation processes that many beginners with low amounts of experience will have a hard time passing. On the other hand, other firms that offer direct funding usually require you to show some kind of previous proof of your success before trusting you with their capital, so keep that in mind when looking for a prop firm that will suit you best. As a beginner, a good choice for a prop firm would be its educational program, so you have experienced people helping you achieve your dream. And who else is better to help than the people who deal with their rule systems daily and who know them by heart.

What are the positive and negative features of prop firms?

Positive features of prop firms:

• Chance to trade with a massive amount of capital,
• Working with the firm’s money (no risk of losing your capital),
• Offers low funding options for newer traders; some firms even have trial accounts to get used to their platform and dashboard,
• Lower trading commissions compared to retail day traders,
• Chance of getting feedback from professional traders,
• The opportunity to participate in educational programs taught by professionals (usually cost a specific fee).

Negative features of prop firms:

• Usually online, meaning that you aren’t in contact with experienced day traders,
• Competition in this field is contested, which you will sooner or later have to face,
• Great retail traders are every prop traders competition because of the access to a different variety of trading tools and high internet speed,
• Prop firms often charge different fees such as (desk fee, starting fee, monthly fees for their tools, etc.), and considering the profit split, combining them costs a lot.

List of top Forex prop firms

1. FTMO

• Account balance up to $200,000
• Free trial
• 2 step evaluation process
• Free evaluation process upon not reaching the profit target (only if balance is positive)
• Allowed news trading on swing accounts
• Allowed overnight trading
• Leverage 100:1
• Profit split up to 90%

2. My Forex Funds

• Instant funded real accounts
• Traders receive account fees back (+12% on the first payout)
• Low fees
• Leverage 50:1 up to 500:1
• Profit split up to 85%

3. DT4X Trader

• Direct funded accounts
• Scaling up to $1,240,000
• Low fees
• No maximum or minimum time requirement
• No lot size restrictions
• Withdrawal growth function
• Leverage 10:1 up to 50:1
• Profit split 60%

4. Lux Trading Firm

• Free trial
• Scaling up to $10,000,000+
• No time limit on profit target
• Allowed weekend holding
• 1 Phase evaluation
• Leverage 10:1, 5:1 & 1:1
• Profit split 65%

5. The5%ers

• Instant funding real accounts
• Funding doubled at every profit target hit
• Allowed weekend and overnight holding
• Leverage 30:1 & 3:1
• Profit split 50%

6. Surge Trader

• Up to $1,000,000 capital
• Free trial upon request
• $1,000,000 challenge account
• News trading is allowed
• No minimal trading days
• 1 step evaluation process
• Leverage 10:1, 5:1 & 2:1
• Profit split 75%

The legal structures of prop trading firms

You can sort prop trading firms by the following two major types:

• No profit-sharing, and
• Profit-sharing.

No profit-sharing structure means that the trader keeps 90-100% of their profits. This is only possible since the trader owns the money and not the prop firm itself. Most traders, especially beginners, don’t have the capital to choose this option, so they decide for the second one where they get leveraged capital from the prop firm, which allows them to trade higher amounts than ordinarily possible.

On the other hand, the profit-sharing structure takes a part of the profit made by the trader since they are allowing the trader to avoid putting in his capital. The only costs that the trader has to pay are the one-time fee/monthly fee for the account, and in some cases, for their training courses. Prop firms earning profit split means lower commission charges, allowing traders to make more money.

Diference between working for a prop firm and being a day trader

Working for a prop firm means that you can purchase an account type that they provide, for most of the time, a one-time fee to acquire a set balance, so you don’t need to manage your own money. The prop firm also provides leverage meaning that you can trade larger lot sizes than at other times. On the other hand, you should be careful because every prop firm has its own trading rules that you must follow, mainly to maintain relatively low-risk management for their capital. Refusing to follow the specified rules can mean termination of your contract agreement, which can, in some cases, result in you losing your trading account.

Being a day trader is quite different since you work 100% with your capital, which means that fundamental discipline is essential. As an individual, you have a chance to negotiate for lower commissions with your broker. The fact that you are working with your own money is dangerous but at the same time a good motivator, which means that it will make you more careful with things like overall discipline for things like managing risk with stop losses and similar.