Pros and Cons of Prop Trading FX | Pepperstone (2024)



Proprietary (prop) trading firms are by no means new, but they have grown in popularity over the last decade. A prop trading firm looks to recruit talented traders and fund them with the company’s capital. The funds that a trader makes, is then split between the trader and the company. The profit share is between 50 – 95%, with the trader taking the lion's share.

Things to consider

It all sounds great, so why have some prop trading firms gained a poor reputation in this arena?

In this article we are going to discuss the various stages of becoming a funded trader, the limitations that are levied on some accounts, drawdowns, profit targets, and more.

The ability to use a robot – have a profitable robot? Some prop firms will let you auto trade.

How to become a funded trader

It is not as easy as signing up to a reputable company, paying your fees and being let loose to trade the company’s capital. Most prop trading firms have a two-phase evaluation process or challenge.

  • Step 1 – You pay your enrollment fee. You will then be given a trading period to complete the first stage of your enrolment. There will also be a minimum amount of trading days, a maximum daily loss, maximum overall loss, and a profit target. We will discuss these matters in more detail later

  • Step 2 – You pay no extra fee. You have a new challenge duration, loss restrictions and profit target. The levels may well differ from Step 1.

Passing the two-phase enrollment period, without breaking any of the rules, results in a funded account. It should be noted that funded accounts still must adhere to certain trading parameters or restrictions.

Trading Power

Companies offer different scales of trading power at enrolment. This could be between $10,000 to $200,000 in size. The higher the account, the higher the enrollment fee.

It should also be noted that different account sizes come with different profit and loss parameters. In general, the larger the account, the larger profit target and maximum loss or drawdown allowed.

Scaling up

If you can constantly generate profits, then your account size could increase according to the company’s scaling plan. The more profits you generate, the higher your funded capital. The maximum funded capital varies depending on the prop firm. One offers a maximum of $150k while an Israeli based company scales up to $4m per account, with a trader allowed to have 7 accounts in total.

How do prop firms make money?

Trading platform providers openly display a risk warning on their sites. The risk warning will highlight the percentage of retail traders that lose money with that provider. This can make for some scary reading with the average being between 70-80%.

Although there are no hard figures published to confirm this comparison, if prop trading firms have a failure percentage close to these figures, that is a lot of traders who will not make it through the initial stages.

We should also remember that a prop firm evaluation process comes with added rules, such as the limitation on the holding period of a trade, the trade size, drawdowns, and the ability to trade over high impact economic releases. These restrictions, possibly compounding the number of traders who fail.

During the initial challenge you are trading on a demo account. If you pass or fail, the prop company has no financial gain or loss from your trading. You can also pay to extend your trial period or reload and try again for a fee.

If you make it through the trial period and become a funded trader, it is likely that the prop fund has found a disciplined and productive partner. They will then profit from your continued success. This sounds like a good business model for the prop firms, with limited drawdowns and risk.

It is not all one-sided (pros)

Should a prop trading firm be considered by experienced traders? There are various ways that you can benefit from a prop trading account:

  • Discipline in your trading – having to adhere to set parameters can result in a trader being more productive and with a better knowledge of drawdown periods. Not chasing losses or overtrading.

  • Growing your trading capital – although you can use compound interest in your personal trading account, depending on the prop firms scaling policy, this can be a quicker route to higher trading capital.

  • Increased percentage with increased capital – some firms offer tiered percentage performance dependent on working capital. The bigger the account the greater the percentage.

  • Leverage – various levels of leverage to increase a trader’s exposure in the market.

  • Support – chat, webinars, trade ideas, stats calculator, 1-on-1 coaching, workshops, trading tools. Established prop shops offer an array of trading tools and add-ons.

  • Free trial – some, but not all, offer a free trial. A try before you buy scheme.

  • Initial fee refunded – the initial subscription fee reimbursed after the challenge stages are complete.

  • Unlimited evaluation period – no time limit in the challenge stage.

  • Your first pay-out – 100% trader pay-out up to the first £5k profit.

  • Remote working – the ability to work from home.

  • Quick withdrawal – some offer fast withdrawals at your request. Others are timed weekly, bi-weekly, or monthly.

  • No minimum pay-outs – no need to build a big balance before you withdraw.

  • Profit split or bonus after the testing period – if you make it through the testing period, you will get rewarded.

  • One stage or no valuation process – a shortened period or no evaluation at all.

    Pros and Cons of Prop Trading FX | Pepperstone (1)

But there are aspects you need to be aware of (cons)

You are tempted to apply for a funded account. What pitfalls should you be aware of?

  • The rules – they need to be clear and easy to understand. You don’t want to get your account suspended or closed because you broke one of the terms and conditions.

  • Minimum trading Days – the prop firm doesn’t want you to be a 1-trade-wonder. Most firms will look for a minimum amount of trading days. A trading day being a day when a new trade is opened.

  • Maximum trading Days – be careful that your trading style will reach the target in the allocated amount of time. If you have a maximum period of 30 day and a minimum period of 10 days, that means you need to place a trade on average of 1 every 3 days. Will your system struggle with the ruling?

  • Closing trades before the weekend – you need to ask yourself ‘is this restrictive to the way that you trade’? Combined with maximum and minimum trading days, can it be done?

  • Closing trades before the evening – same as above.

  • No trading over high volatility news events - is this restrictive to the way that you trade?

  • Limited products – some prop firms only offer futures. Perhaps you are a crypto trader. There are limited providers for these products.

  • Maximum open trades – do you scale into positions? Is the limitation going to be an issue?

  • Recurring payments – is it a one-off fee or a recurring monthly payment?

  • Max funding – how much funding do you require?

  • Trailing stops or drawdown – is this calculated from your current equity or your closed trade account balance?

Things to consider (cont.)

As with any new venture, there are a lot of factors to consider before setting out to be a funded trader.

Don’t chase the capital

To an inexperienced trader, the chance to trade ‘size’ is exciting and compelling. You have £1000 in your trading account and are only chipping away, making limited progress. The promise of a larger account, using some of your start up money to pay the challenge fee, is tempting. Make sure that you have a trading system that works, at least on a demo account. Experience first, then commitment.

Clear T & Cs

You shouldn’t have to look hard for the rules of the challenge and partnership. These should be front and centre and easy to understand, not hidden on a back page or in a linked, and long, disclaimer.

Supported platforms

What platforms can you trade from? Do you have experience in the functionality?


Does it make for a sound investment? How do the fees vary from firm to firm?

Reputable Firm

How long has the firm been established? Do they have any recommendations? What is their Trust Pilot review? How many reported traders do they have on their books?


Are there any hidden fees? Is it just a one-off fee or is it ongoing? If it is on-going, what does it pay towards?

Pros and Cons of Prop Trading FX | Pepperstone (2024)


What are the pros and cons of prop firm trading? ›

However, if you understand the risk and trust the management and its operations, proprietary trading offers many advantages, although it mostly involves day trading. At the end of the day, the main advantage of proprietary trading is leverage, and the main disadvantage of proprietary trading is fraud.

Do prop firms really pay out? ›

There is nothing inherently scammy about the business model of prop firms. But how do they make money then? For starters, prop firms, of course, do not give money to just anyone who asks. Typically, they have a multi-stage evaluation process to make sure the traders they employ know what they are doing.

What is the success rate of prop traders? ›

According to it, 4% of traders, on average, pass prop firm challenges. But only 1% of traders kept their funded accounts for a reasonable amount of time. While this result is not nearly as bad as the one discussed earlier, it still looks bleak for prospective prop traders. But why is the percentage of failure so high?

Are prop accounts worth it? ›

Getting funded by a prop firm has significant advantages such as: You get access to significant trading capital that can get you bigger profits compared with your own small account. You do not risk your own money (outside of evaluation/entry fees).

Is prop trading worth it? ›

Prop trading is worth it, although it's not recommended to invest more than you can afford to lose. Prop trading is suitable for beginner traders who don't have enough capital to start their journey.

How stressful is prop trading? ›

Prop trading isn't all pomp and glamour either. It's a competitive, high-stress field with drawbacks like any other career. It's also awash with less-than-reputable firms that offer zero base pay, limited profit sharing and often make new hires pay for training and tech.

What is the failure rate for FTMO? ›

The FTMO challenge has a reputation for being extremely difficult to pass. Across FTMO's various account levels, it is estimated that only around 10% of traders are able to successfully complete the evaluation and become a funded trader. This means approximately 90% of those who attempt the challenge end up failing.

Which is the most trusted prop firm? ›

Best Prop Trading Firms 2024 - Reviewed by Experts
  1. Topstep: A Leader in Trading Innovation. ...
  2. The 5%ers: Forex Trading with a Twist. ...
  3. Earn2Trade: Empowering Aspiring Traders. ...
  4. SurgeTrader: A Gateway to Diverse Trading Assets. ...
  5. FTMO: Stringent Yet Rewarding. ...
  6. E8 Funding: Innovative and Flexible.
Feb 2, 2024

How much does the average prop trader make? ›

Prop Firm Trader Salary

The salary of a prop trader can vary greatly depending on several factors such as experience, performance, and the size of the firm. On average, a junior prop trader can expect to earn anywhere between $50,000 to $100,000 per year, while a senior trader can make upwards of $500,000 annually.

Can you make a living with prop trading? ›

Prop trading can be lucrative, with earnings tied to a profit-sharing ratio. Unlike traditional brokers relying on commissions, prop traders' income directly links to generated profits. Ratios vary, often ranging from 75/100 to 90/100, offering flexibility based on experience and strategy.

What happens if you lose money prop trading? ›

When you are trading with a prop firm, your losses are usually limited to the foregone risk of your challenge/account fee. You are generally not liable for the prop firm's lost funds.

How many people pass FTMO? ›

There is estimated to be a 90% fail rate of traders that take the FTMO challenge. The reason behind this is due to traders chasing the profit target with a time restriction in place.

Why do traders fail prop firms? ›

- Traders in prop firms often have limited control over the firm's capital. They may need to deposit their own money as collateral or risk management. - Additionally, payouts are subject to the firm's rules, which may restrict a trader's access to profits.

Do prop firms really work? ›

Also known as “prop trading,” it offers higher earnings potential much earlier in your career than jobs like investment banking or private equity. It's arguably the most merit-based industry within finance: if you make millions of dollars for your firm, you'll earn some percentage of it.

Is it hard to get into prop trading? ›

I speak from personal experience as a funded trader with True Forex Funds. While the journey requires dedication, consistency, and a strategic vision, it's entirely achievable. Proprietary trading firms are on the lookout for traders who demonstrate not only profitability but also sound risk management skills.

What are the negatives of prop firms? ›

- Traders in prop firms often have limited control over the firm's capital. They may need to deposit their own money as collateral or risk management. - Additionally, payouts are subject to the firm's rules, which may restrict a trader's access to profits.

What are the disadvantages of prop firms? ›

👎 Prop Trading Cons
  • Proprietary Firms Are Less Regulated Than Retail Brokers: Most prop trading firms that provide remote trading are not regulated at all. ...
  • Risk of Losing Money: ...
  • Proprietary Trading Fees are High: ...
  • Prop Trading is Mostly Day Trading: ...
  • Proprietary Firms Can Steal Your Intellectual Property:
Nov 15, 2023

What are the cons of prop firms? ›

Personal Risk: One of the significant drawbacks of prop trading is the potential personal financial risk. If a trader doesn't perform well, they may lose their deposit, and in some cases, their job. Loss Limitations: Prop firms often implement daily loss limits to protect their capital.

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