Forex traders who do not have a lot of capital for their own personal trading accounts often turn to prop firm trading as a workaround. When you trade with a prop firm, you control some of the firm’s capital. You receive a cut of your winnings. Both you and the prop firm benefit from this arrangement, since they are profiting from your expertise, and you are earning more than you could otherwise.
How do you become a prop firm trader? Below is the step-by-step process to join a prop firm and start trading with a funded account.
1. Develop your trading strategy.
Before you can even think about becoming prop from trader, you need have a workable trading strategy. So, the initial steps are the same as they would be if you were planning to trade with your own individual account. You will need to do the following:
- Learn everything you can about how forex trading works.
- Explore various strategies.
- Backtest and demo test trading methods until you are profitable on paper with at least one.
- Choose a money management system.
As you are developing your trading strategy and money management system, you should also be working on honing your trading psychology.
Basically, you want to get to the point where you would be ready to trade with an individual account. That will also mean that you should theoretically be ready to trade profitably with a prop firm account.
2. Find a prop firm that will fit your needs.
Once you are ready to trade profitably, the next step is to choose a prop firm to apply to. Every prop firm has its own rules, account sizes, features, benefits and drawbacks. Selecting an appropriate prop form is a whole topic onto itself. So, this is something we will cover in depth in a future article.
You will need to do the step below concurrently with this one. Not all evaluation challenges are compatible with all trading methods. So learning about the evaluation challenge at a prop firm is one of the steps in deciding whether it is a good fit for you or not.
3. Read in detail about how the evaluation challenge works.
You need to check to see whether it is even possible for you to complete an evaluation challenge before you attempt it. Simply being a profitable trader is not necessarily a guarantee that you can pass a challenge.
A common impediment is a time limit on a challenge. This is when a prop firm requires you to achieve a particular profit target within a set time period.
This will not be a problem with some systems. But for others, it might be. Say, for instance, your system is profitable, but only generates a few trades per month. You might calculate even if your system performs perfectly, it will not generate enough profit within the set time period to pass the evaluation.
In that case, you would need to either move on to a different prop firm to apply through a challenge that you can feasibly pass, or you would need to apply for an instant funding account instead.
4. Pay your fee and take the evaluation challenge.
Once you are confident you understand all the rules for the evaluation, you can go ahead and pay the evaluation fee, and begin the challenge.
Hopefully, you will be successful. If so, the prop firm should fund your account upon completion of the evaluation.
5. If you fail, try again until you succeed.
If you do not pass the evaluation on your first attempt, most prop firms will allow you to repeat it. You might even be able to do this an unlimited number of times. Just be aware that if you do, you will probably have to pay the evaluation fee each time.
If you do not want to keep doing this, either try again at a different prop firm where the evaluation is easier, or get an instant funded account.
The fee for an instant funded account will generally be higher than it would be for an evaluation account. But it might still be less than continuing to sink costs into failed evaluations.
Make Sure You Follow the Prop Firm’s Rules
So many forex traders finally get into a prop firm with a funded account, only to end up losing that account within a few months, or even a few weeks.
There are two common reasons this happens. The first is too much drawdown. The second is unintentionally breaking the pro firm’s trading rules.
Avoiding drawdown is pretty self explanatory. If you are starting to experience too much drawdown, you should pause your live trading. Wait until you are profiting on paper again before you get back to trading with the prop firm’s funds.
Managing not to break the rules is just a matter of being aware of them. Take the time to look them up, and read them carefully. They are not always obvious. If you are worried about forgetting them, just write them down somewhere. Make sure to check them once in a while just to remind yourself.
With a working strategy, smart money management, and carefully following the rules, hopefully you can stay with the prop firm you’ve joined for a long time. Once you have grown your funds, you can transfer them to your individual trading account if you want.
