Prop firm forex trading

Want to become a prop firm forex trader but don’t know how? Learn the proprietary trading with pros and cons and discover how to select the right prop firm.

Have you ever heard of prop firm forex trading? It is amongst the most popular ways to make money in the forex market, and that too without your own capital. If you are also interested in forex prop firm trading, read this article to get key insights.

What is a Forex Proprietary Trading?

Forex Proprietary Trading is a strategy in which traders buy or sell currency pairs with the capital of proprietary companies. The strategy involves two parties: a proprietary trading firm and a proprietary trader.

A prop trading firm is an institution, organization, or company providing capital to traders to trade in various financial markets, including contracts for difference, shares, currencies, options, etc.

A prop trader is a person who trades with the money and resources of a prop firm and shares the profit with the company.

How Prop firm works

Forex trading requires a significant amount of capital and knowledge. Prop firms have capital and look for talent, while prop traders have market knowledge but lack capital. Therefore, under this strategy, both parties come together for mutual benefit.

Prop firms hire skilled traders and provide them with capital and all the resources needed for trading. In return, the prop trader agrees to share the profit with the firm.

The prop firms also set a risk limit. So, in case the trader’s losses reach the limit, they will suspend the trader. Let us understand forex prop trading with an example.

Suppose a skilled trader starts trading with a forex prop firm. The profit-sharing ratio is 60% for traders and 40% for firms. The capital allocated is 10,000 EURO, while the maximum drawdown is 10%.

Suppose the trader identifies a buying opportunity for the EUR/USD pair. He opens a long position when the exchange rate is 1.10. The exchange rate moves in his favour and increases to 1.18.

His profit from trade is 10,000(1.18-110)= 800 EURO. So, the trader’s profit will be 480 EURO, and the firm will be 320 EURO. Now, in this case, if the trader made a loss of 1000 or more, the firm can suspend the trader.

How to select the best Forex prop firm

The scope of Forex proprietary trading is increasing. Large numbers of traders are attracted to forex prop trading, so numerous prop firms are available.

However, selecting the right firm from the range of options is complex, and doing proper futures prop firm comparisons can help narrow down the best choices. The choice of prop firm has a significant impact on your trading journey. So watch these following factors before selecting your prop trading partner:

Reputation:

The foremost factor to consider when selecting a prop firm is reputation. Choose a reputed firm with a good track record and positive previous client reviews. Read the client’s and traders’ reviews on a different platform. A platform with a great reputation aims to provide traders with quality services to maintain that.

Tools & Resources:

Forex trading involves research, market analysis, and continuous learning. For a smooth trading journey, a trader requires different tools and resources. So go for a forex prop firm that offers webinars, books, automated tools, analysis tools and learning resources.

Prop Firms with Free Market Data:

Free live market data is available in some prop firms such as real-time price feeds, advanced charting tools, news updates and economic calendars. These characteristics enable traders to be more informed and make better decisions without incurring additional costs. When comparing prop firms, it is a good idea to see whether they offer such data as a standard package because it can save you money and make your overall trading experience better.

Quality of Support:

A prop firm trading is a kind of collaboration between the trader and a company. You may require the firm’s support at every stage of your journey. So, go for a trading firm that you can reach out to in case of any query or issue related to trading.

Capital and profit allocation:

Capital and profit policies are the most crucial element of prop firm forex trading. A prop firm provides traders with a capital amount trade. Every trader is different, with different trading strategies that change capital requirements. So, a trader should consider the capital allocation amount.

In addition, a trader agrees to share a profit percentage with the company in return for its capital. Therefore, considering the profit allocation percentage is also essential. A profit ranging between 60 to 90% in trader’s favour can be good for starting a prop firm’s trading.

Maximum Drawdown and withdrawal policies:

Maximum drawdown is the percentage of trade capital that a firm allows traders to risk. A company can terminate the contract when the trader’s loss exceeds that percentage. Also, the prop firm has some rules regarding profit withdrawal. So, it is a must to check the suitability of these policies.

Pros of prop firm forex trading

Forex proprietary trading is actually a great way to get started on your journey. Although it has many benefits, let us quickly discuss some of the key advantages:

One of the biggest problems new, intermediate or even professional forex traders face is a lack of funds. Capital is a key obstacle that stops people from starting trading.

However, with forex prop trading, you don’t need to worry about capital. The firm will provide you with capital. You just need to take care of profit.

Learning curve:

Forex trading prop firms will provide you with various other resources besides capital. It can include training sessions, webinars, automated tools, forex trading courses, books, etc.

Hence, you will get more practical knowledge during the whole process. And if you want to switch from prop trading to any other strategy, you can do that easily.

Best for professional traders:

Forex prop trading only requires knowledge. There is no better way to trade for a person with a great understanding of the dynamic forex market.

In addition, you will get to meet with professional traders who have been working in the market for years. It will develop your overall knowledge and give you access to the trading community.

Good Profit Sharing:

One of the key advantages of Forex Prop Firm Trading is that you will get a good profit share. Generally, prop forex traders receive a decent profit share that is even greater than the firm’s. In addition, when the success rate is higher, traders also receive bonuses for their performance.

Cons of prop firm forex trading

Like any other forex approach, prop trading also has some disadvantages. If you are thinking of prop trading, then you must also look at the dark side of the strategy. Here are the major cons of the approach:

Expensive:

Prop trading firms charge traders a significant amount of fees. These fees are for providing traders with training and assessment programs. It may involve operational and other trading costs. So, before selecting the prop firm, evaluation of the fee structure is a must.

Risky:

Forex trading involves a significant amount of risk. In prop trading, traders are not risking their own money, but the chances of losses are there. The firm can terminate the trader when the losses exceed the limit or maximum drawdown. This situation will not at all be suitable for a trader.

Delays in Payouts:

In prop forex trading, the profit is shared between the trader and the firm based on the agreed amount. The firm makes profit payments to the traders. Traders may experience delayed or disputed payouts during the process.

Lack of Independence:

Prop firms to limit the risk amount by setting some risk management, withdrawal, and capital allocation rules. As a result, a prop trader may experience a lack of control and interference in decision-making.
In addition, traders also need to report the firms regarding the trades. So, the kind of autonomy a trader has while trading with their own capital is not possible with this strategy.

Best Futures Prop Firms: What to Look For and How to Choose

The most important thing when you are starting your trading career is to select the best futures prop firms that will provide you with the necessary support and resources. A good futures prop firm will provide equitable capital allocation that is in line with your trading requirements and a profit-sharing ratio that is favourable to the trader, typically 60 to 90 per cent. Another important consideration is reputation, choose companies that have good reviews and have a history of success in futures trading.

Seek companies that offer free or cheap market information and sophisticated trading platforms. Educational materials such as webinars and market analysis, as well as quality customer support, are also very valuable.

Also, ensure that their risk management policies are good, particularly the drawdown limits and withdrawal policies. The most effective futures prop firms strike a balance between trader freedom and effective risk controls to safeguard both sides.

Comparing these factors, you will be able to find a futures prop firm that suits your style and will allow you to maximise your profit potential and manage risks.

Traits of a Smart Prop Traders

An intelligent prop trader knows how to trade and adheres to the regulations of the prop firm. They are not only interested in large profits but also consistency, discipline and risk control.

The following are some of the main characteristics and behaviours of an intelligent prop trader:

Good Risk Management: They observe the maximum drawdown limits and position sizes.
Discipline in Trading: They stick to their plan and do not make rash decisions or trade out of revenge.

Resource Utilisation: They utilise all the resources available, such as tools, webinars as well and market data offered by the firm.
Self-Review: They keep a trading journal and review their trades to get better with time.
Emotional Control: They remain calm in volatile markets, and they do not overtrade.
Business Mindset: They approach trading as a business, and they are interested in long-term growth and long-term performance.

By developing these habits, any trader can work towards becoming a smart prop trader and building a sustainable trading career.

Conclusion

Prop firm forex trading is the best way to make money in the market, especially for traders without capital. However, If prop trading had been that easy, everyone would have become a prop trader.

Becoming a prop trader requires excellent knowledge and a good understanding of the market. In addition, you need to master the art of money and risk management for this strategy. Also, you need to dedicate a significant amount of time to it and treat it as a profession. With proper knowledge and dedication, prop trading can actually give you excellent results.

FAQs

1. Forex prop firms that accept U.S. clients?

There are also forex prop firms that accept US clients, which provide trading accounts with profit-sharing and rigid risk policies. Make sure you verify legal terms and reputation of the firm before you join as a US trader.

2. How Prop Firms Work?

Prop firms offer traders capital and trading tools. Traders apply their expertise to trade and share profits with the company. The company establishes risk limits to safeguard its capital.

3. Popular Forex Prop Firms?

Popular forex prop firms are those firms that are reputable, have good support and fair profit splits. You should always do research and select companies that fit your trading style and objectives.

4. Key Considerations When Choosing a Prop Firm?

Key factors to consider when selecting a prop firm are reputation, amount of capital provided, percentage of profits to be shared, amount of risk that can be taken, quality of support, tools available and withdrawal policies. These influence your success in trading.

5. Which prop firms include free market data?

Other prop firms offer free market data such as real-time prices, charts and news as part of their service. This assists traders to make better decisions at no additional cost. Never join without checking firm details.