Prop Firm: 9 Things You Must Know Before Joining

Prop Firm

There are several funded trading programs available from a variety of prop firms. However, not all are made equal in terms of fairness to you. As a result, before making a decision, you need to consider several factors when choosing a prop firm. In this post, we will discuss what those factors are.

One-Time or Monthly Fee

First, you should check the requirements needed before you get funded. Do they have a one-time fee or monthly fee? Some prop firms require their trader to pay a monthly fee like Audacity Capital. This is not so good for new traders since you would need to be in profit by a certain amount just to cover that monthly fee. So you should ask yourself why join a prop firm that requires a monthly fee when there are others without.

Hidden Fees

If they have a one-time fee, see if they also have hidden fees. Some prop firms have a one-time fee cost in their program but if you don’t read the FAQ, you might not know that there are other hidden fees in the program.

With or Without Challenge

When you decide to choose a prop firm, you need to understand what a prop firm challenge is. If you decide to choose one with a one-time fee and no hidden costs, you should then decide if you want one with a challenge or one without. This is important because the one-time fee that you paid, will be refunded only if you pass the challenge. Not everybody can pass the challenge. Some prop firms make the challenge as difficult as possible because the fees from traders failing is how they make their money. So if you see refundable, you should know that it is only when you pass their challenge. 

Evaluation Period

Regarding the challenge, you should also set aside about 30-60 days. Some prop firms have a shorter challenge completion time depending on how profitable you are during the challenge. But most of the big prop firms require you to take their 2 phase challenge. This means you have 30 days to pass the first phase and then 60 days for the 2 phase which is the verification phase. Usually, the first phase is a lot more difficult than the second phase since you have a shorter time to reach their profit target.

Non-Refundable Fee

If you fail their challenge, you must pay their fee again in order to repeat it. The bigger the price of the fee, the bigger the funding amount. But this still depends on whether you pass or not. So there is risk involved when you choose to pay a bigger fee to get the biggest funding but then fail the challenge. 

Live Account or Demo Account

Some may argue that these challenges benefit you as a trader and that you should view them as a learning experience. But isn’t it preferable to learn using a live trading account rather than a demo challenge account? A live account will teach you more than a demo account. With a live account, you can account for emotions, which are an important element of trading. You are not hesitant to make trades with a demo account because it is only a demo account and you will not lose a lot of money. However, a live account involves risk, which includes emotions and fear. 

Instant Funding

If you already know how to trade, why not find a prop firm that provides instant funding with a live account rather than wasting time with challenges and demo accounts? There are certain prop firms that merely require an interview. They will interview you about your trading strategy, and if you pass the interview, you will just need to pay a one-time fee and your account will be funded within 24 hours. Even if you fail the interview, you will not lose any money. So you truly don’t have anything to lose.

Scaling Plan

After you check their fees, you can now check their scaling plan. You might start with a smaller funding amount and you are looking for a much bigger account down the road. Some prop firms offer to scale up to a million dollars. But how easy or difficult it is to scale depends on the prop firm.

Some prop firms look at your profitability every 3 months before adding more funding to your account. So even if a prop firm says you can scale up to a million dollars, it might take you years. Do you have the time it takes to wait to get a bigger funded account? But some prop firms scale your account only after you reach a profit target. So for example, a prop firm has a profit target of 10% and automatic scaling by up to 50%. This means if you are profitable, you can get that million-dollar funding at a much faster rate than other prop firms.

Trading Flexibility

Next, let’s look at the trading flexibility of a prop firm. You should check to see if they are flexible enough to let you trade any trading technique or style, at any time of the day. It is also better to find those that allow you to trade the news, hedge positions, and leave trade open overnight and on weekends. The fewer restrictions the better. Also, remember that quite a few prop firms don’t allow you to use EAs. 

Trading Tools

Expert Advisors are an extremely popular and very useful tool for a trader. It would be counterproductive to prohibit its use. Using an expert advisor removes the emotional component of trading. Fear or greed will not impact the decision to accept or reject trading signals. The expert advisor will carry out trades in accordance with the existing instructions, ignoring the emotional components of loss and profit. If forex trading is your major source of income, an expert advisor may help you relax while increasing your earnings by lowering stress and fatigue.

Tradable Assets

The last thing to consider is the tradeable assets. Some traders specialize in trading certain assets. However, all prop firms provide forex trading pairs. Aside from that, you may check to see if they provide cryptocurrencies, commodities, indices, stocks, and metals. Having more assets is beneficial. It provides you with trading options, which is usually a good thing.

In Conclusion

Now that we listed all the things you need to know before choosing a prop firm, you need to narrow down the prop firms that are fair for you. In summary, it is better to choose a prop firm that only has a one-time fee without hidden fees. It is also better to find one without challenge so as to not waste time. We want to get funding as soon as possible so we can start earning money. Then we want a prop firm that lets you trade with a live account rather than a demo account.

A prop firm with instant funding and a live account is best. If you want to make big profits, the prop firm should at least have a scaling of $1,000,000. This is so that in the long run when you are profitable, you will be able to earn more from the profits. A 50% profit split is fair.

A prop firm should be flexible in terms of the trading rules and allows tools like EA, as this gives you options down the road when you are looking to use a new trading strategy or EA. Lastly, the more tradable assets the better it is for you to find the opportunity in trading those assets. 

Let’s narrow down our choices that offer everything that we are looking for. FundYourFX, FTUK, and MyForexFunds tick all the boxes we mentioned above. They are all reputable prop firms. They have a one-time fee, without challenge, a live account, instant funding, a scaling plan to at least $1 million, and relaxed rules.

So we need to now compare which one is a better deal. FundYourFX’s one-time fee is £297 (refundable on your 5th profit share) or $372 for a $15,000 funded account. You’d have to spend £550 or $689 in FTUK to secure the same $15,000 funding. That is near twice the cost of FundYourFX. MyForexFunds offers programs with and without challenges. The one without a challenge costs $485, but the funding is just $10,000. Clearly, FundYourFX is a better value than the rest.