Exploring the Pros and Cons of Joining a Prop Trading Firm

In recent times, more and more people have been dreaming of a different kind of life. They want to break away from the usual 9-to-5 job and have the freedom to travel and explore. The reason behind this desire is the wish to have control over their own time and be able to pursue their interests while still earning a steady income. Trading has become a popular way to achieve this dream. By using the flexible nature of financial markets, people can work on their own terms and make money from anywhere in the world. This different way of working and living allows for excitement, independence, and a better balance between work and free time.

WHAT IS A PROP TRADING FIRM?

Proprietary trading firms, such as FTMO, The Funded Trader or Billions Club, are firms that provide aspiring traders with the opportunity to trade financial markets using the firm's capital. These firms aim to discover and support talented traders by offering them a platform to showcase their skills and potentially earn a share of the profits. 

Traders who join these firms typically go through a selection process and, upon acceptance, receive a funded trading account. They are then given specific trading rules and risk parameters to follow while using the firm's capital. 

The profits generated by successful traders are usually split between the trader and the firm. Prop trading firms provide traders with an avenue to access capital, gain experience, and potentially build a career in trading, without the need for significant personal capital or financial backing.

PROS AND CONS OF PROP TRADING 

Prop trading presents notable benefits for traders aiming to engage in the financial markets. Nevertheless, it is crucial to acknowledge the potential downsides of prop trading as well. 

Let's explore the pros first:

• Access to Substantial Trading Capital: Traders gain access to significant trading capital provided by the firm, enabling them to execute larger trades and potentially generate higher profits compared to trading with their own limited funds.
• Lowered Risk: Traders face reduced risk as they are not risking their personal funds, except for entry fees. This mitigates the financial risk associated with starting trading activities.
• Integrated Risk Controls: Prop trading firms implement built-in risk controls to safeguard traders' capital. These mechanisms restrict potential losses, ensuring that traders do not exceed a predetermined limit, such as losing more than 5% of their capital in a single day or hitting an overall loss limit of approximately 10%. If these limits are reached, the funded account may be revoked.
• Convenient Profit Withdrawals: Prop trading firms often facilitate regular withdrawals of profits, typically on a weekly basis. This feature allows traders to easily access and withdraw their earnings, providing them with financial flexibility and enabling them to trade more comfortably.
• Diversified Market Opportunities: Prop traders have the advantage of trading in diverse global financial markets. These markets include stocks, Forex, cryptocurrencies, and indices. 

What are the cons? 

• Limited Trading Independence: Proprietary trading firms often have strict rules and guidelines that traders must follow. These rules may limit the trading strategies, instruments, or markets that traders can access, potentially restricting their creativity and flexibility in trading.
• Profit Sharing: Some prop trading firms require traders to share a portion of their profits with the firm. While this can be seen as a fair arrangement since the firm provides the trading capital, it does reduce the overall profitability for the individual trader.
• Evaluation Failure Risk: Failure to adhere to the rules set by the prop firm may lead to evaluation failure or loss of funding, necessitating the payment of evaluation fees once again.
• Account Growth Limitations: Although some firms offer the option of scaling the account size, there is typically a maximum limit on account growth. This differs from trading independently, where the potential for unlimited growth exists in theory.
• Strategy Replication: Proprietary firms may replicate profitable trading strategies employed by traders, potentially necessitating the sharing of strategies with others.
• Lack of Control over Technology: Traders may be required to use the trading platforms and technology provided by the prop trading firm. This can limit their ability to customize their trading setup or use preferred trading tools and software.

HOW TO BECOME A PROP TRADER?

To become a funded trader, the process typically involves a series of steps. The first step is to purchase a challenge from a prop trading firm. This challenge consists of specific trading objectives and risk parameters that traders must adhere to. The next step is to pass the first phase of the challenge by successfully meeting the trading objectives and demonstrating consistency. Traders need to showcase their skills and adhere to the required risk management guidelines. 

Once they pass the first phase, they can proceed to the second phase of the challenge. By successfully surpassing the second phase, traders can become funded traders and gain access to the firm's capital to trade with, sharing in the profits generated. 

HOW TO CHOOSE A PROP TRADING ACCOUNT? 

When selecting a prop trading account, there are several important considerations to take into account. Here are some key factors to keep in mind:

• Profit Split: Examine the percentage of profits you will retain as a trader. Opt for a firm that offers a higher profit split. 
• Evaluation Process: Evaluate the evaluation process used to determine eligibility for funding from the prop firm. Choose a firm that employs a transparent and fair evaluation process. Look at the max daily or overall drawdowns, time limit (maximum and minimum trading days to pass the challenge), or if a fee you pay for the challenge is refundable or not. 
• Available Markets: Look for the range of markets offered by the firm. Select a firm that specializes in the markets you are interested in.
• Available Leverage: Assess the level of leverage provided by the firm. Choose a firm that offers leverage suitable for your trading style.
• Customer Support: Reliable customer support is essential. Choose a firm that provides responsive and helpful customer support to address any inquiries or concerns you may have.
• Trading Platform Reliability: A dependable trading platform is crucial for efficient trade execution. Choose a firm that offers a stable and user-friendly trading platform equipped with a variety of tools and features.
• HQ & team: Look at the people who founded the company, where the headquarter is based and to see if the company is legit or not. 

NOTE TO ALWAYS REMEMBER

It is important to always remember that trading involves risks and requires knowledge, expertise, and discipline. While trading can offer opportunities for financial gains, it is crucial to approach it with caution and a thorough understanding of the market. Successful trading requires acquiring knowledge about different trading strategies, staying updated with market trends, and exercising discipline in following a well-defined trading plan. Without these essential elements, the risks involved in trading can outweigh the potential rewards. Therefore, it is crucial to approach trading with a realistic mindset and be prepared to invest time and effort in developing the necessary skills and understanding the associated risks.