What Is A Prop Firm and More...Easiest Explanation!
Prop trading is an exciting concept that has quickly gained popularity in the trading world For both new and seasoned traders, prop firms provide the opportunity to have access to significant funds, and reduce personal risk while still earning significant profits.
In this article, we’ll dive into what prop trading is all about, discuss the types of prop firms available, and explore how traders profit from trading with these firms By the end, you’ll have a better understanding of why prop trading has gained so much traction in the trading community
What is a Prop Firm?
A prop firm (short for proprietary trading firm) is essentially a firm that invests in skilled traders These firms offer traders virtual funds to trade by giving them access to funded accounts. These are firm funds and not the trader’s funds. The traders get a significant share of the profits earned by them in the funded account Traders just have to pass an evaluation process offered by prop firms to get a funded account Traders get the advantage of accessing larger amounts of funds, and the prop firm gains from the profits the traders generate.
For those with the skill and consistency to succeed in trading, trading with a prop firm can be an excellent way to leverage expertise without risking your own money.
How Do Traders Profit in Prop Trading?
The way that trades profit with a prop firm is fairly straightforward They are essentially given access to accounts with large/huge funds and are paid a massive split of the profit based on the profit they earn in that particular account The better the performance, the higher the earnings
For example, a trader gets a $100,000 funded account to trade after passing the challenge Now when the trader starts earning profits in the funded account, they earn some percentage of such profits usually between 80% to 95% depending on the profit split offered by the prop firm. In most cases, the trader even gets back the fees they pay for joining the evaluation process
Take it from me: I once earned five figures trading with Hola Prime, a leading prop firm I started with a $100,000 account, hit my targets, and got my funded account. After receiving the funded account, I got my payout and also received a 200% refund of the fees I paid They offered me 100% of the fee paid with my first payout and then another 100% after my 4th payout. I must say, that, I am Impressed!
The Risks Involved in Prop Trading
Let’s talk about risk because it’s an inseparable part of trading When trading with a prop firm, you’ll be required to complete an evaluation process before you get access to funded accounts. The evaluation usually has two stages where traders need to meet certain profit targets without breaking the firm’s challenge rules
In case you fail the evaluation, you do not get the funded account. You won’t get the fees you paid to buy the challenge But, if you pass, this will be negligible as the size of the account that you will handle is far much bigger An example would be, a trader who could pay $500 to $1,000 to qualify for a $100,000 account - which is almost peanuts in comparison to the account size you receive to trade.
After you pass the evaluation, you can begin trading and earn money without any risk of loss of your funds. In that respect, it is very often safer to trade with a prop firm than to trade with your funds with a broker
Comparing Prop Firms: A Quick Overview
Let’s compare some of the best prop trading firms out there to help you understand how they differ This isn’t an exhaustive list, but it will give you a solid starting point
Hola Prime: Known for its 1-hour payout processing and 95% profit split with no extra fee or add-ons They are the first in their industry to offer Price Transparency Reports to traders Traders can also hold positions over the weekend in some accounts and have access to five different trading platforms, namely, MT4, MT5, DXTrader, cTrader, and Match Trader You can even earn up to 20% affiliate commission if you refer other traders to the firm. At Hola Prime, traders can also earn a profit of 20% from the Challenge Phase
Funded Next: Offers a profit of 15% from the Challenge Phase and a 95% profit split However, traders must wait 24 hours for payouts, and weekend trading is not always allowed
FTMO: One of the most popular firms, FTMO has a profit split of 80% and a 14-day payout period. Weekend trading isn’t allowed during the funded stage, but the firm does offer solid support and a large selection of trading platforms
Funding Pips: Offers withdrawal within 1-3 working days. However, there are many platforms available to trade on, including cTrader, Match Trader, and TradeLocker The profit split offered by Funding Pips is 80%
Alpha Capital Group: This firm is famous for its straightforward fee, with an impressive 95% profit split However, they take 2-4 working days to process withdrawals
Every one of the firms listed above provides a very different trading environment; indeed it's a matter of finding one that suits your goal for trading and your trading style
Key Benefits of Prop Firms
Here are some key reasons why prop firms became so in favor recently:
● Access to Capital: Prop firms allow traders to access large sums of capital in terms of funded accounts, which enables them to trade more and potentially earn more profits without the risk of using their own money.
● Reduced Risk: Since the firm provides trading in a simulated environment, traders don’t have to worry about losing their funds if they experience a bad streak. Since traders can earn real profits using virtual funds in the funded account
● Profit Splits: Traders often receive up to 95% of the profits they generate This high profit-sharing ratio is one of the biggest attractions for traders.
● Leverage: Many prop firms offer high leverage (up to 100:1), allowing traders to make more significant moves in the market.
● Low Entry Fees: Most prop firms charge a relatively small fee for the evaluation process For example, you could pay $48 for a chance to manage a $5,000 account, making it a low-cost way to potentially access large capital. The fee is also refunded by prop firms if you pass the challenge For example, Hola Prime offers a 200% fee reimbursement
Conclusion
Prop trading offers a unique and exciting opportunity for traders looking to scale their earnings and minimize personal risk. By understanding the different types of prop firms and choosing the right one for your trading style, you can maximize your chances of success
Whether you’re a seasoned trader or just starting, working with a prop firm could be the next step in your trading journey. Choose wisely, and the rewards could be substantial.
Ready to dive into the world of prop trading? Explore your options and start building your trading career today!
Let me know in the comments what you found helpful in this guide And don’t forget to check out my blog for more such content!