We will cover the essentials traders must consider before evaluating Forex proprietary firms (or ‘prop firms’ as they are typically known) to solve one of the biggest problems in Forex trading – having a big enough cash deposit to run a long-term successful strategy that makes consistent returns in the market.
FTMO
In SummaryFTMO ranks highly with its transparency, profit-share, and trading conditions, placing it among the most competitive and honest prop trading firms. FTMO pays its prop traders up to 90%. FTMO was the Deloitte Technology Fast 50 Winner for the past four years, starting in 2019, and traders can use MT4, MT5, and cTrader.
The trading conditions, while challenging, rank among the more generous ones, with a daily loss limit of up to 10% and a maximum drawdown of 20%. FTMO levies a minimum evaluation fee of €155. Traders benefit from balanced asset selection, and a free trial exists.
Pros & Cons
- Reasonable profit targets and generous maximum loss levels
- 80% to 90% profit share with a fast withdrawal process
- Customizable two-step evaluation period with free retrials where applicable
- MT4, MT5, and cTrader accounts with generous leverage
- No information about which broker or brokers FTMO uses
Fidelcrest
In SummaryFidelcrest is one of the most transparent and trusted prop trading firms. It features a two-step verification process and offers micro prop trading accounts from $15,000 for a one-time evaluation fee of €99 and unlimited retrials if traders do not violate the rules. The maximum payouts of 80% to 90% places Fidelcrest at the top of the list, where only a few prop firms compete.
Traders benefit from the most generous trading conditions industry-wide, as Fidelcrest grants 60 days to achieve the 10% profit target, while the maximum drawdown is 20%. Algorithmic trading and manual copy trading are allowed.
Pros & Cons
- Generous maximum loss levels of up to 20%
- Competitive leverage and 175+ assets covering five sectors
- Up to 90% profit share and up to $2,000,000 in funded accounts per trader
- MT4 and MT5 trading accounts with algorithmic trading permitted
- No information about the management team
E8 Funding
In SummaryE8 Funding has an excellent trust score based on 1,000+ reviews but lacks operational history. Interested prop traders can start with a 14-day free trial, and the minimum evaluation fee is a reasonable $138 with a two-phase verification process. Besides the standard 30-day period to achieve the profit target, E8 Funding offers an extended 60-day alternative.
Traders must pass the Letsdeel KYC process, which processes all E8 Funding withdrawals. Letsdeel accepts traders from all countries except 19. The 80% profit share places E8 Funding in the upper echelon, and the maximum leverage of 1:100 enables competitive trading conditions.
Pros & Cons
- Competitive leverage and commission-based spreads from 0.3 pips
- Four funded accounts in three base currencies
- 80% profit share payable after eight days, followed by bi-weekly payouts
- No details about the management team
- No information about which broker or brokers E8 Funding uses
BluFX
In SummaryUnlike most prop trading firms, BluFX does not have an evaluation period or trading challenges but relies on a monthly subscription-based model. Traders only get the cTrader trading platform with maximum Forex leverage of 1:30 and no minimum trading days, while BluFX prohibits algorithmic and copy trading. All accounts are US Dollar accounts, but BluFX pays profit share withdrawals in British Pounds.
The 50% profit share is the lowest in the prop trading industry. Once traders account for the monthly subscriptions, it can drop into single digits. Prop traders must weigh it against their strategy and expected profit potential.
Pros & Cons
- Swap-free trading accounts
- No minimum trading days
- No demo trading.
- No evaluation or verification phase
- Scores of negative public reviews
Funded Traders
In SummaryProp traders get a one-step evaluation process with a 10% profit target, a tremendous challenge to achieve in 30 days, but it remains the industry standard. The 4% daily loss limit and 5% maximum drawdown make Funded Traders Global one of the strictest firms based on conditions. It presents 300+ assets, placing it at the top among asset selections.
The minimum evaluation fee is $100 for a $10,000 MT4 prop trading account, but traders should consider the upgraded option for $145. The maximum evaluation fee is an industry-high $5,430, and traders can pay the fee via cryptocurrencies.
Pros & Cons
- Six funded account options with discounts on the evaluation fee
- 75% profit-share
- One-step evaluation period
- No published information about profit withdrawals
- Strict drawdown rules of only 5%
What are Prop Firms?
Forex prop firms offer to ‘fund’ traders with cash allocations for trading on margin accounts and operate on a profit-share basis, sometimes up to a 90% share for the traders. One of the reasons many active traders fail is a lack of trading capital. It causes overtrading, frustration, and profit-chasing, which generally results in trading losses, as evident by the high failure rate among retail traders.
Trading with and for a Forex prop firm solves the capital problem, as traders get allocations anywhere between $10,000 to $2,000,000 in funded trading accounts. They must pass an ‘evaluation period’ and often pay monthly maintenance fees for access to capital. Traders must also consider the added stress and performance pressure this setup may cause.
How Do Forex Prop Firms Work?
Forex prop firms provide margin capital and trading infrastructure to their traders, usually they have a strict risk management team to protect their bottom line. They operate on a profit-share basis, which ranges between 50% and 90%. Most Forex prop firms scale up available capital once traders reach pre-agreed performance goals. For example, they may double the allocated funds each time a trader exceeds 10% in profits.
Are Forex Prop Firms Legal?
Forex prop firms are generally legal. There are no rules governing how to open a Forex prop firm, nor against it. Forex prop firms are unregulated since they do not provide financial services or asset management for third-party clients. They trade their capital for their own benefit and can hire as many traders as they wish, and there are no licenses to operate a Forex prop firm or to become a Forex prop trader. Some regulators question the current framework and may introduce some form of regulatory approval in the future to register a Forex prop firm, but currently, none exists.
How to Choose a Forex Prop Trading Program
Traders should consider the reputation of the Forex prop firm they are considering working with, evaluate their conditions and fees, ensure the risk management parameters suit their trading strategy, and maintain the freedom to withdraw their profits without restrictions.
How Do I Become a Prop Trader?
Several ways exist to start a career as a Forex prop trader, but the below guide covers the most common steps to get started with a Forex prop firm.
Here are the few required steps to become a Forex prop trader, which can vary slightly from firm to firm:
- Apply to a Forex prop firm, which often includes details about the individuals trading background and experience.
- A potential interview may follow, but it is not always necessary, especially if traders have the relevant know-how and where there is an outline of their strategy and preferred markets to be traded.
- An evaluation period, usually using demo accounts, where the Forex prop firm offers strict guidelines and performance goals the trader must meet to advance.
- Once traders pass the evaluation period, they can become funded prop traders, can select their account package, and often pay a fee for access to capital or trading infrastructure and general support, trade signal etc.
How Do Prop Traders Make Money?
Forex prop firms engage in a profit-share agreement, usually between 50% and 90%, with their prop traders and often attach minimum profit requirements that must be achieved before a trader can withdraw profits made using the allocated capital.
Prop Firm Trading Fees
Most Forex prop firms charge a monthly fee for access to capital, which can range between $100 and $500, depending on how much capital a prop trader seeks from the firm. Some ask for a one-time fee during the evaluation period. Prop traders must also inquire about the trading conditions, fees, spreads etc. These are costs charged by brokers and some have a volume-based rebate program, which can be useful if the trader’s strategy involves making many trades.
What are the Risks Involved with Proprietary Firms?
Stress and performance pressure are the primary risks prop traders face. The absence of a basic income and no job security can result in avoidable trading mistakes. Most aspiring traders cannot handle the pressure to outperform markets in any condition with sustainable results, experiencing burnout while having to pay monthly fees to remain with the Forex prop firm.
Pros & Cons of Prop Trading
Traders interested in Forex prop trading should consider the pros and cons before registering with any Forex prop firm.
The pros of Forex prop trading are:
- Lower overall trading fees due to the volume Forex prop firms typically trade monthly.
- Significant amount of trading capital available
- Low entry requirements with high earnings potential
- An exciting career and access to a professional community with like-minded traders
- A competitive landscape
- A risk management team that acts as a layer of security
The cons of Forex prop trading are:
- Extreme-stress environment to continuously perform in any market condition and potentially lose capital provided by the firm.
- No job security, as any Forex prop firm will cut underperforming or losing portfolios.
- One-time, monthly, or annual fees for access to capital, trading platforms, and cutting-edge trading tools
- Capital investment from the trader, which some Forex prop firms require, as a buffer to potential trading losses
- Ultra-competitive and performance-driven environment, which some traders cannot handle.
- Strict daily loss limits and overall drawdown conditions
- No basic income guarantee.
Bottom Line
A Forex prop firm will offer the right trader an excellent opportunity unavailable elsewhere. Most traders either lack the strategy or the mindset to perform in an ultra-competitive, performance-driven environment, and the possibility of stress and burnout is high for many whom don’t have the right mental approach. However, the rewards are potentially high, and access to capital is very tempting to the underfunded trader.
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