Should you trade with a prop firm or your own money? - Pipsmashers (2024)

If you are justgetting started in forex, I believe you must have been told that you need a lot of money for trading (some traders will dispute this). But let’s face it. Not every one of us has thousands of dollars to invest in a trading account. This is where prop firms come in.

Prop firms, also known as proprietary trading firms, are financial organizations that fund traders to trade financial assets (stocks, currencies, commodities, or crypto) with a view of profit sharing.

This capability has led some traders to opt for prop firms as their way to financial freedom via forex.

So a few months ago I decided to sign up for FundedNext’s $15k challenge, and having made some wins and losses, I saw it wise to share my views on how to trade with a prop firm with this post.

Why choose a prop firm?

There are so many prop firms out there offering traders different kinds of accounts/challenges starting from $5k to $600k. These cost somewhere between $50 to $714. For example,TopTierTrader’s $100k challenge account costs $476.

Earn more money

Even though you are given a simulated account, the 70% to 90% percent profit split offered by most prop firms makes it more lucrative and economical if you do not have enough money for trading.

Challenges to consider

As much as you may have lots of ‘capital’ to trade, there are a few things to consider before you trade with a prop firm or purchase any challenge account.

You aren’t really given a real account

The reality about most prop firms is that they won’t give you a real account to trade on. Once you have signed up for a new challenge, you are given a simulation account (what they call a challenge account). And even if you pass the challenge, you would still trade on the simulation account. The good thing is that you will receive your profits as per the agreement.

Profit is shared

Traders take 90% or 80% of the profits (depending on the type of prop firm) unlike if you had your own account where would enjoy all the profits. Even so, the returns are still generous if you compare them to trading on a live $100 or $500-dollar account.

Some rules aren’t really that clear, especially on daily loss

I find that some rules aren’t clear. For example, most prop firms will automatically deactivate your account if you hit the maximum draw-down. But what happens when you, unfortunately, hit the minimum daily loss while still in profit? Do you also lose the account? Unfortunately, that is the case, but this is not clearly stated on their FAQs page.

For example, assume you have a $15k challenge account, a max loss of 10%, and a daily loss of 5%. You have grown it to $17, 746. Then, on one day, things go bad for you, and you hit your minimum draw-down (let’s say 5%) of $17, 746, which is around $887. Should you lose the account yet you haven’t hit the max loss of $1774.6? Or should it be $3274.6?

I think that if your trading account is still in profits or you still haven’t hit your max loss (which most prop firms set at 10%), your account should not be terminated.

Another thing is some policies are not transparent or prominently displayed on their website, most especially trading activity. For example, some prop firms do not allow stacking trades, but haven’t mentioned it on their FAQs.

I think that all policies should be clearly displayed on the website. Not that after you have passed a challenge is when you are told you can’t get a ‘funded account’ because you violated a policy that wasn’t clear stated in their documentation.

Beware of Fake Prop Firms

A huge factor that makes some traders not trade with a prop firm is that there are no proper regulations on prop firms’ activities in most jurisdictions. Yes, so if the firm goes under, there is nothing you can do about your money. I have also heard stories of some prop firms slowing load times when you want to enter or exit a trade or withholding profits.

Which are the reputable prop firms

Finding a reputable prop firm is extremely important—one that doesn’t slow server load times, or with rules designed to make you fail (hard profit targets, unreasonable time limits to pass a challenge, or hard draw-down rules), or go under without notice. Here is a list of reputable prop firms you can trade with.

Moving beyond prop firms

First, you really don’t need a lot of money to trade Forex/CDFs. What matters is yourexperience and practicing risk management. In forex, if you don’t have proper risk management skills, you will still lose money.

Thinking that having a lot of money to trade may be a terrible idea. And let’s face it; most stats shared by even prop firms shows that less than 10% of traders proceed to a funded account. Besides, few manage to keep their accounts for long.

That is why I still think that trading with your money (or an instant funded account) is the smartest way to make it in forex. It molds you differently, unlike in an evaluation account of prop firms. Just remember to always start small and build from there. Besides, risk is everything. You are better off losing a small amount at the beginning and not all your capital.

Should you trade with a prop firm or your own money? - Pipsmashers (2024)


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