The Proprietary Trading Firm Concept Explained

Proprietary trading firms are also called prop trading firms or prop firms. This article will examine what proprietary firms are all about and their benefits and limitations. We will also discuss the best prop firms for futures and forex trading.

What is a Proprietary Trading Firm?

A proprietary trading firm is a company that focuses on hiring or training experienced traders, then invests money in financial instruments to make funds available to the traders. This is referred to as a funded program. Depending on the kinds of account sizes the company offers, traders can get financed with $500 to millions of dollars. Traders can then utilize their trading tools and expertise to trade and generate profits, after which their share of the profits is given to them.

Many prop trading firms majorly enable trading in the forex and futures markets because the teams behind these prop firms tend to be versatile in these two areas. That helps the team to offer additional support to its traders, which could come from training, professional trading tools, and specialized coaching. These various forms of extra support can enhance the level of success that traders enjoy at these prop firms.

How do prop firms select traders?

Prop firms tend to have an evaluation process to determine traders’ eligibility for their funded programs. The evaluation is mainly conducted through a demo account that serves as the evaluation account and allows traders to display the required skills needed to qualify for a funded account. Traders will get capital to trade via a funded account given by the prop firm. The capital is then used for live trading, where the profits and losses determine how long the trader will have that account.

Usually, a prop firm will have rules that will guide the conduct of traders during its evaluation process. While the rules may be similar for many prop firms, there are still some significant differences as some have more stringent rules than others. Traders interested in prop firms need to be aware of these differences and not assume that all prop firms have the same rules or mode of operation. The rules keep traders in check by giving them clear goals and targets.

Also, there is a formula for dividing the profit (profit split) that traders make since the firm provides the funds while the trader utilizes the funds. Depending on the firm and the trader’s performance, the profit split can range from 50:50 to 90:10, with traders usually taking the higher percentage. Some trading skills prop firms require from traders include risk management and consistent generation of profits.  

What are the Benefits of Prop Firms for Traders?

Prop firms are a significant avenue for traders to participate in the financial markets without using their funds. Instead, prop trading firms make funds available to traders who successfully complete the evaluation process.

These firms also allow traders to test their strategies with minimal risks and low costs. This will build the traders’ confidence and enable them to enhance their potential, which will also benefit the prop firm. The more profit traders can generate, the better for the prop firms since they will also have their share.

What are the Disadvantages of Prop Firms for Traders?

One of the limitations of prop firms is the profit split because the ratio is not universal across all prop firms. The traders’ portion is high in some firms and low in others which could be discouraging for some traders because they will feel their hard work is not being rewarded enough.

For instance, if trader A is at a prop firm where the profit split is 50:50 while trader B is at a different prop firm where the profit split is 70:30. If they both make $3,000 in profit after conducting a series of trades, trader A will be leaving with $1,500 of the gain while trader B will be going with $2,100.

Another limitation is the presence of stringent rules such as risk management strategy, profit target, and specific trading days, just to mention a few. These rules tend to reduce the margin of error that traders have, thus piling pressure on them, and they might perform poorly. Prop trading firms also limit the financial instruments that can be traded and the kind of strategies that traders are allowed to use.

The most detrimental limitation is probably the existence of several scam prop firms on the internet. These prop firms promise things they cannot deliver but entice unsuspecting traders with attractive terms and conditions. Once they sign up, traders realize these firms are fraudulent, but it is already too late, and thus they lose their money.

Not all prop firms allow public access, but several prop firms still accept traders from anywhere in the world once they have proven their skills and abilities.

What are the Best Prop Trading Firms for Futures?

As mentioned earlier, we will discuss the best prop trading firms for futures and forex. We will now look at some of the most trusted, known, and successful prop firms for futures trading in the funding industry.

Topstep

Topstep is one of the most trusted and successful prop firms offering funded accounts to trade the futures market. Topstep initially offered funded accounts for trading forex but then brought that to a close and focused exclusively on the futures market. As a result, this prop firm has one of the largest communities of futures traders, with the majority satisfied with the services offered.

Topstep has been around for about twelve years, founded in 2010 by Michael Patak in Chicago. This longevity has helped enhance its reputation and popularity, and it is easy to know the team members behind this prop trading firm. Topstep has 3 account sizes available for futures traders. The evaluation process at Topstep is known as ‘The Trading Combine,’ It is a two-step process where traders can showcase their abilities and become eligible for a funded account.

The first step of the Trading Combine requires a minimum of 5 days for completion, and there are no maximum days, meaning traders can take as long as they want to complete the first step. The second step takes a bit longer as it depends on the performance of a trader. But if the trader is good enough, he can finish it within 4 days.

The three account sizes offered by Topstep are listed below with their respective number of max contracts and monthly price.

  • $50K with max contracts of (5) and a fee of $165 per month
  • $100K with max contracts of (10) and a fee of $325 per month
  • $150K with max contracts of (15) and a fee of $375 per month

It is clear from the above list that the minimum amount of funding is $50K and the maximum amount of financing that a trader can receive from Topstep is $150K. Topstep rules for its futures funded program include:

  •  Avoid hitting the daily loss limit and trailing drawdown.
  • Do not trade outside the stipulated trading periods.
  • The minimum trading days are 5 but only in the first step of the Trading Combine.
  • Achieve the profit target and adhere to the scaling plan.
  • Only trade the allowed instruments.

Topstep offers traders free education.

The first $5,000 in profits belongs entirely to the trader. Subsequent profits are then divided in the 80:20 ratio, the profit split where 80% of the profits goes to the trader while the firm takes the remaining 20%. The firm also offers free simulated trial accounts for 14 days.

Apex trader funding

Apex is another successful prop trading firm that makes funds available to traders interested in futures trading. The goal is to help traders engage in profitable and responsible trading. The firm employs a sustainable model of providing funds to futures traders because it understands the challenges that traders face regarding access to funds for trading.

Darrell Martin founded Apex in 2008, and the firm has flourished since then with a community of over 30,000 traders in more than 150 countries worldwide. The company provided more than $150 million in funds to futures traders, and many of these traders have already withdrawn profits.

The evaluation process at Apex is referred to as the Apex Challenge, and traders need to pass it to become eligible for funding. However, it only involves one step, and once traders pass it, they qualify for a funded account. All that is required of the trader is to achieve the profit target within a minimum of 10 trading days. Below is a list of the account sizes offered by Apex and the corresponding number of contracts and monthly prices.

  • $25K with 4 contracts (20 micros) for $147 per month
  • $50K with 10 contracts (20 micros) for $167 per month
  • $75K with 12 contracts (24 micros) for $187 per month
  • $100K with 14 contracts (28 micros) for $207 per month
  • $150K with 17 contracts (34 micros) for $297 per month
  • $250K with 27 contracts (54 micros) for $517 per month
  • $300K with 35 contracts (70 micros) for $657 per month

From the above, the minimum funding available to traders at Apex is $25K, while the maximum is $300K. Some of the rules involved in Apex trader funding include:

  • Achieve the profit target
  • Avoid hitting the max loss
  • Trade for at least 10 trading days
  • Do not maintain an open trading position beyond 4:59 PM ET
  • Do not provide other people with access to your account

Apex’s beneficial features don’t include the daily drawdown and no scaling plan, which reduce the pressure on traders. Also, traders do not have to pay real-time data fees and NinjaTrader license fees, which cost $55 and $75, respectively.

Leeloo Trading

Leeloo Trading is one of the top prop trading firms in futures trading that provides traders with easy trading rules and fast funding. The mode of operation employed by Leeloo Trading involves a skillful combination of rules and prices, which has enhanced the firm’s reputation and popularity.

Leeloo Trading was founded by a family of ranchers with the leadership of a successful woman named Jody Dahl. The founders are successful livestock owners hence the seemingly weird theme of the website and the litany of images displaying ranches, horses, bulls, and farmers. All of that is just to show the real life of the founders, which makes them more relatable.

The evaluation process at Leeloo Trading is known as Leeloo Challenge, and traders are expected to complete the challenge within at least 10 trading days. The challenge entails achieving the profit target within the stipulated number of days. The account sizes offered by Leeloo Trading are listed below, along with the number of contracts and respective prices:

  • $25K with 3 contracts for $150 per month
  • $50K with 8 contracts for $180 per month
  • $100K with 12 contracts for $220 per month
  • $150K with 15 contracts for $305 per month
  • $250K with 25 contracts for $525 per month
  • $300K with 30 contracts for $675 per month

Like Apex trader funding, Leeloo Trading offers a minimum financing of $25K and a maximum amount of $300K. The Leeloo Trading rules include one primary rule: to avoid hitting the trailing drawdown. Another rule to be aware of is the minimum trading days of 10.

Unlike other prop trading firms, rules like weekly loss limit, daily loss limit, not trading during news or major economic releases, etc. are absent at Leeloo Trading, which means traders registered with this firm have more room for flexibility. The first $12,500 in profits entirely belongs to the trader, while subsequent profits are divided according to the profit split. The profit split was initially 80:20, but it was modified this year to 90:10. Traders now get 90% of their profits after the first $12,500. 

Earn2Trade

Earn2Trade is a prop trading firm that functions as an educational firm. It provides several courses on futures trading, including mentoring sessions and webinars anchored by certified professional traders. Once their trainees complete the educational courses (Bootcamp) or the test known as Gauntlet or Gauntlet Mini, they are offered a funded account to trade the futures market.

Earn2Trade was founded by David Lojko and Ryan Masten in 2016, and other key members of the Earn2Trade team include Csaba Francis Nahoczky, the director of education and client services. Christopher Gray, the lead education coordinator, and Orianna Foucault, the support and candidate relations director.

Below are the account sizes offered by Earn2Trade:

  • $25K with up to 3 contracts for $150 per month.
  • $50K with up to 6 contracts for $170 per month.
  • $75K with up to 9 contracts for $245 per month.
  • $100K with up to 12 contracts for $315 per month.
  • $150K with up to 15 contracts for $350 per month.

The rules at Earn2Trade include:

  • Traders must trade for at least 15 trading days.
  • Avoid hitting the maximum daily loss.
  • Do not use beyond the allowed contract.
  • Only trade during the stipulated times.
  • Do not hit the trailing drawdown.

The benefits of Earn2Trade include a comprehensive education system, withdrawals are not restricted, and traders can trade during the news.

What are the Best Prop Trading Firms for Forex?

Let us now examine the best prop trading firms for forex trading.

FTMO

FTMO is a financial technology firm that was founded in 2014, and it is based in Prague, Czech Republic. They offer one of the most thriving funded trading programs in the industry. FTMO was founded by combining trading systems and multiple ideas about risk and money management.

FTMO offers traders funded accounts to trade the forex market, but their performance will first be evaluated in real-time simulated accounts. This evaluation process consists of two stages known as the FTMO challenge and Verification. The FTMO Challenge involves traders displaying discipline and skills to achieve goals. FTMO uses this step to evaluate traders’ risk management level and expertise.

The Verification stage is where traders become qualified to receive a funded account from FTMO. It tests the consistency of traders, especially their ability to generate profit regularly over an extended period without breaking any FTMO rules.

Some benefits of FTMO include a generous profit split of 90:10 and access to two funded accounts simultaneously, with each having a balance of $200,000. This means traders can have up to $400,000 in trading capital. Traders also gain access to adequate education and trading tools that enhance the possibility of generating profits.  

City Traders Imperium

City Traders Imperium or CTI, is a prop trading firm that offers trading capital to selected traders for trading the forex market. It also provides educational services, which include access to proper educational materials and trading tools. CTI is a privately-owned firm that is based in the United Kingdom.

CTI provides up to 4 million dollars in trading capital as long as traders show a propensity for excellent management of such a huge capital. CTI operates by providing a platform for traders to leverage their trading skills while also generating increased profits at an accelerated pace via a funded account from the firm.

There are two ways by which traders can get funded at CTI. The first way is to go through the evaluation process, which will involve traders displaying sufficient trading skills and consistency in trading. The second way is via direct funding, and this does not include an evaluation process, as traders will receive funds directly. This option is also known as the Portfolio Manager, but the rules are more stringent than going through the evaluation process. Moreover, the sign-up fee for direct funding is significantly higher than the sign-up fee for the evaluation.

Some benefits traders enjoy at CTI include professional coaching from experienced and veteran traders, access to valuable educational content, and a wide range of instruments and services for traders to choose from and enjoy.

The5ers

The5ers is a prop trading firm founded in 2016 and based in Israel. The5ers funded trading program provides trading capital to traders through a funded account which can be used to trade the forex market.

The5ers offers for traders include various account sizes at level 1, in which the funding is instant, but only 25% of the account balance is made available to traders. These funded accounts at level 1 aim to evaluate traders to determine how successful they will be when using their personal trading strategies while adhering to the risk management requirements of the firm.

Once traders achieve the assigned account’s trading objectives, they will access the total balance in that account for trading. The significant rules include achieving the profit target, not violating the max loss limit rules, and adopting a logical approach to using leverage.

Some of the benefits at The5ers include less stringent rules and access to educational materials that are favorable to beginners. In addition, once traders achieve a milestone, their funding gets doubled.   

Audacity Capital

Audacity Capital prop trading firm provides trading capital to forex traders via funded accounts. The trading capital could be up to $500,000, depending on the trader’s capacity. Audacity Capital was founded by Karim Yousfi in 2012 and is based in London.

Audacity Capital prop trading firm doesn’t apply an evaluation test or challenge to determine the eligibility of traders for funding. Instead, the firm does things differently by having specific requirements that traders must meet before they can receive funding. The first step is for traders to apply and fill out a form where they provide a current track record of 3 to 6 months that displays their trading strategy and skills. They will then undergo an interview process where traders’ eligibility is determined.

Once the trader receives approval for funding and the forex account details have been made available, the trader should go through the contract to understand the company’s rules and risk parameters. The significant constraints to be aware of include leverage and lot size, no trading during news or weekends, respecting the 10% fixed drawdown and realizing 10% profits on the account.

Some benefits of being a funded trader at Audacity Capital include a favorable scaling program, adequate trading support, excellent trading conditions, and losses suffered on the account that are not attributed to the trader because the firm bears the losses.

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