Copy trading is popular with millions of retail Forex traders, and the rise of retail prop firms that allow copy trading allows copy traders to deploy strategies in funded demo accounts that pay real money as long as copy traders do not violate strict trading rules. Should you consider copy trading in your prop trading account? Below are the pros and cons of prop firms that allow copy trading.
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What Is a Prop Firm?
A prop firm employs traders who manage company funds. Traders must differentiate between professional prop firms with trading floors where prop traders work from offices and retail prop firms with fee-based challenges that allow retail traders to trade from home.
Retail prop traders always manage demo accounts, and many retail prop firms do not rely on trading revenues but generate income from fee-based challenge fees and monthly subscriptions by funded prop traders.
Here is an example:
- Prop trading firm ABC has 10,000 funded prop traders who pay $150 per month for access to capital, generating $1,500,000 in monthly non-trading revenue
- For each funded account, assume 100 traders fail the challenge, which costs $100, or 10,000 (funded traders) x 100 (failed traders per funded account) = 1,000,000 x $100 for a total of $100,000,000 in one-off non-trading revenue
Do Prop Firms Allow Copy Trading?
Licensed, professional financial firms, hedge funds, high-frequency trading firms, or family offices never allow copy trading, as they employ traders with unique trading strategies or deploy proprietary trading algorithms.
Retail prop trading firms that offer funded accounts after traders pass fee-based trading challenges may offer copy trading at their discretion. Copy traders must read the terms and conditions carefully, as the best prop firms only allow copy trading between internal accounts owned by the trader, but do not allow external copy trading, which is not a suitable prop trading strategy.
Copy trading at retail prop firms that allow external copy trading is a red flag. It suggests the retail firm relies on fee-based challenge fees rather than trading revenues for their primary source of income, as they could choose to copy traders directly from signal providers. This would deny them the one-off challenge fees they charge traders, which is why they allow external copy trading.
Prop Firms Allowing Copy Trading – How Does It Work?
Most prop firms that allow copy trading offer the MT4 or MT5 trading platforms, which fully support copy trading. Traders can subscribe to signal providers within MT4/MT5 if the broker supports the signal service. Alternatively, copy traders have to use third-party plugins to enable copy trading.
Prop Firms Allowing Copy Trading – Pros & Cons
Traders who consider prop firms that allow copy trading must understand the pros and cons of copy trading at prop firms.
Pros
- Diversification
- Efficiency
Cons
- Risk of violating strict trading restrictions set by prop firms
- Dependency
- Risk of loss
- Technical limitations
- Limited control
Bottom Line
Trading with prop firms that allow copy trading from external signal providers raises a red flag that the firm relies on fee-based challenge fees rather than profitable trading. A prop firm could directly copy trades from signal providers, but it would eliminate opportunities for charging traders one-off challenge fees.
