Trading with a forex prop firm gives you the opportunity to control more capital than you might be able to with your personal trading account. That means you can grow your account more rapidly. But not all prop firms are equal. There are a lot of variations in terms of account sizes, trading restrictions, profit splits and more.
To help you choose the right forex prop firm, let’s go over important considerations when you are comparing firms.
1. Investigate the firm’s background, age and reputation
Prop firms are a dime a dozen, but the vast majority of them do not stay open long. In fact, many only stay open for a couple of years due to unsustainable business models. But a few have been around for a long time now.
Obviously, it is best to trade with a firm that you will be able to stay with over the long term if possible.
Research the background of any firm you are thinking of working with. Learn about their business model, financial viability, and history. Make sure they are operating fairly and transparently, and that they pay their traders in full and on time.
2. Rules for profit targets and drawdown
Prop firms are not letting you trade their capital in exchange for nothing. They have expectations that you will be able to meet certain profit targets, as well as avoid too much drawdown.
Check the profit targets. How high are they, and what period of time do they apply to? Also check the daily drawdown limit, as well as the total loss limit. Compare this to your strategy’s performance. Do you think you can hit the profit targets and avoid dipping below the drawdown and loss limits? If not, you either need to tweak your system, or choose a different prop firm.
3. Trading rules
There are trading rules and restrictions at every prop firm, but they can differ from firm to firm. At some firms, you may encounter rules that are incompatible with your trading methods.
A common example is trading the news. A lot of prop firms do not allow you to do this. If you have a news-based strategy, you will have to find a firm that lets you use your method.
Read through the rules carefully. Some of them may surprise you. You do not want to get caught off guard.
4. Account sizes
Figure out what account size would be ideal for you, and try to find a prop firm that offers it. Keep in mind that settling for a slightly smaller account with more favorable rules may be a good move in some scenarios.
5. Profit split and payouts
Different forex prop firms offer a range of profit splits. Some may be significantly higher than others. They might also have different account tiers that offer higher or lower profit splits. All things being equal, you should of course look for a high profit split.
Find out what the firm’s schedule is for paying out profits, and how the funds are disbursed. Do they go directly into the prop firm account? When and how can you withdraw them? How quickly do they transfer? Are there fees?
Ideally, it will be quick and easy to receive your share of the profit on a predictable schedule, and do with it what you need to.
6. Challenge process
Before you can join a prop firm, many firms have you go through a challenge process, also called an evaluation. This is a test you have to pass to prove that you have the trading skills they are looking for. Only after passing will they give you a funded account.
Each firm sets its own rules, restrictions and goals for challenges. Some may be much easier for you to pass than others. In fact, depending on your trading strategies, some evaluations may not even be possible for you to pass, since their rules and restrictions might prohibit your methods. You have to watch out for that, just as you have to watch out for trading rules that would work against you once you have your funded account.
Some prop firms may have several different challenge options to try and be flexible. Each may be tied to a different funded account size/type. Usually, you will have an easier challenge to pass for a smaller account. So, that is how a lot of prop traders start out.
7. Tools and support
It is in your prop firm’s interest that you excel as a trader. So, they may provide you with support, tools and resources that are exclusive to their traders. Here are some of the types of resources you might find:
- Onboarding: There will be some kind of onboarding process when you join the trading firm. What that will consist of can range quite a bit. Look for onboarding that is efficient, but also provides you with the support you need to get off to a flying start.
- Webinars and workshops. You might be able to attend live trading sessions to learn.
- Training programs. Some prop firms may offer courses on strategy and risk management.
- Market analysis. Prop firms may offer traders proprietary market analysis.
- Risk monitoring systems. These are automated systems that track your trading and which may enforce risk limits when necessary (useful for preventing excess drawdown).
- Community. There may be a community portal that allows you to connect with other people who work at the firm or other prop traders at the firm. You may be able to discuss publicly on forums or privately in DMs.
- Analytics. You might get access to analytic tools that provide detailed tracking and analysis on your trading history.
Find the Right Forex Prop Firm for You
In the end, choosing the best forex prop firm isn’t just about evaluating the reputation and features of the firm. It’s about determining whether the account types, rules, and evaluation will fit your needs given your trading strategies.
If you are a news trader, don’t pick a firm that bans news trading. If you are an interday trader, don’t pick a firm that limits overnight trading, etc.
