How do I know if a prop firm is legitimate or not? What are the features of a scam prop firm, and what are the most common types of legitimate prop firms. Here we answer all of your queries about finding a legitimate prop firm.
The establishment of prop firms into the online Forex market seems to be on the rise. So many Forex prop trading firms have been established into the market within the year alone. As the amount of prop firms seems to be rising, so does the number of prop firm scams seem to be increasing as well.
Anything that has an advantage must have a disadvantage. With the seen increase of Forex traders who need a Forex funding firm that will help boost their equity, so they can make more profits. Some people have decided to take advantage of this desperation to defraud unsuspecting traders.
In this article, we will be looking at the ways to know if a prop firm is legitimate or not, the features of a scam prop firm, several types of legitimate prop firms, and how to know if a prop firm is legitimate.
What is a prop firm?
A prop firm is referred to as a funding company that specialises in funding the account of a Forex trader to enable him to place more trades. These prop funding firms provide various types of accounts with different worth of funds in them.
The Forex trader is given the option to choose any account he would like to get funded with, and then pay the one-time participation fee, before having access to the funds. And even after access is granted, the Forex trader still has to go through vigorous challenges that will determine the growth or death of the account.
Prop firms have been around for a while now and they have managed to make a name for themselves. They are very different from normal Forex brokers, as most of these prop funds operate as a company without a direct link to the liquidity market.
Others provide a trading platform for their Forex traders, where they can buy and sell Forex markets. Prop funds also provide a growth scaling plan that enables a trader to easily grow his account funds to as high as $1,200,000, depending on the prop firm being used.
How does a prop firm operate?
Prop firms operate as a funding system for Forex traders. When a Forex trader signs up with a prop firm for the first time, they are mandated to pay a one-time fee before being given access to any funded account to trade with. The amount of this one-time fee varies depending on the prop firm being used, and also the type of the account.
There are different types of accounts ranging from basic accounts to pro accounts. These accounts have different amounts of funds and also a different one-time participant fee. The higher the funds of the accounts; the higher the fee to be paid. Most times these fees range from $200 to $500.
After a Forex trader has paid the one-time participant fee, they are given access to a percentage of the funds in the funded account. Now they are required to pass a challenge and upon passing the challenge, they are given the full amount of the funded account. Although some prop funds provide instant funding.
In most cases a Forex trader is made to pass through series of tests before the complete amount of funds will be made accessible to him. The challenge given by these prop firms differs. Some prop firms require a trader to hit a profit target of 10% with a drawdown limit of 10% within 3 months.
The good thing about these prop funds is that they provide a growth scanning plan for their Forex traders. Some prop firms offer their traders a 100% increase of funds if they can hit a profit target of 20%. At the end of every trading section, the profits generated from the trade are shared between the trader and the prop firm; some prop firms offer a 50%-50% profit share, while others offer as high as 80%-20%.
How to generate funds with prop firms?
You have to be a professional and skilled Forex trader to be able to make money from a prop fund. This is because most of the time the challenge set by these prop traders are always difficult to pass. This is understandable because nobody would want to bequeath that huge amount of funds to just anybody. This is why it is important to devise a means which would put you 2 steps ahead of the prop firms.
Having two different active proprietary fund accounts is advisable. This way you will have a plan B when it is needed, and also your risks will be diversified. Putting all your eggs into one basket is not even advisable, so whichever way you look at it, this is a good option, and you have a lot to gain than lose.
Make sure to always withdraw your profits and put them into your Forex trading account, because saving your profits in the prop fund firm is not advisable. Anything can happen, the prop firm could close down at any time due to unforeseen circumstances or others.
What are the advantages of trading with a prop firm?
Trading with a prop fund comes with many advantages such as:
- Trading with substantial capital.
- No trading competition.
- The ability to trade from any part of the world at any time.
- You don’t need to invest your capital, because you will be fully funded by the prop fund firm.
- The growth scaling plan for your account.
- You won’t need to trade alone.
- You will be able to earn monthly because most prop firms pay their Forex traders monthly.
- You will be surrounded by professional traders who will be willing to help you grow your account.
- You are provided with lower risk because you are not trading with your funds but rather with the company’s funds.
- Trading with a prop fund firm gives you a full prospect for a long-time trading career.
The disadvantages of trading with a prop firm
Trading with a prop fund also comes with many disadvantages such as:
- A lot of stress comes with trading a prop fund account as you have to account for all the loss incurred in your course of trading, and also you have to abide by their strict rules and regulations.
- There is no job security, because if you do not generate any profit, then you won’t be paid.
- The fees/ one-time participant fees required to be paid by a Forex trader can sometimes be inconvenient for the trader.
- Trading with a prop firm could limit your taxable assets, which is because most prop firms only trade some types of assets such as Forex, stocks, and indices.
- The trading rules might not favour you. Some prop traders do not leave trades open throughout the night or during weekends. This could be detrimental to swing traders and scalpers who would like to take advantage of all the market’s trading hours.
How to know a legitimate prop firm?
With the influx of many prop firms coming into the internet space, one has to be careful not to sign up with a scam prop fund firm that disguises as a legit prop fund firm.
A legitimate prop fund firm has some distinct features that make it stand out. The important thing to take note of is that a good legitimate prop firm must have a good amount of reviews on Trustpilot, and a good score, with lots of valuable and helpful comments.
Listed below are some of the characteristics of a legit prop firm you should look out for:
- They possess a reasonable Trustpilot presence.
- Their website has to be of good quality.
- They must possess a reasonable choice when it comes to funding.
- They must operate under good trading conditions, and not under some strict unrealistic rules.
- They should have a good and responsive support team. Their customer service should be up and doing.
- A legit prop fund firm should have withdrawal proofs by different traders on social media.
- They are also featured online by many writing blogs and other prop firms.
How to know a scam prop firm?
It is unrealistic to think that all prop firms are legit. This is because there are so many illegal prop funds that scam people of their hard-earned money. This is why a Forex trader needs to make a thorough research about the prop firm you want to sign up with. This will help you avoid so many unwanted issues that come with a fake prop fund firm.
Some prop firms will have you trading for months without the hope of any withdrawal, or worse still, they will allow you to participate in their challenge without the intention of moving forward or funding your account. Some scam sites operate by bringing up outrageous charges that were not stated in the account before.
How to recognize a scam Forex prop firm?
Scam Forex prop firms can be spotted easily, as they all have the same features and characteristics.
- They do not possess or have a very limited Trustpilot page.
- Their website has a very low quality, with a lot of grammatical mistakes.
- Their social media is not linked to their accounts; they do not have a social media presence.
- They are not referred to by other Forex traders online.
- They are not promoted online by any organization, or blog.
- They give odd funding options.
- They always guarantee huge funding with a simple challenge.
- They make the challenge too hard for even experienced traders to finish.
- They do not have a support service, or maybe just an email, which they never respond to.
Examples of legitimate prop firms
FTMO
Prop fund firm FTMO is located in Prague and is one of the legit fund firms in the industry. They have been around since 2014, and have been delivering good services to their Forex traders. FTMO offers its Forex traders an account challenge of $100,000, with a 70% profit share. They also provide their traders with various Forex brokers that they can trade with.
DT4X TRADER
Prop firm DT4X Trader is also a legit prop firm, which has been around since 2018 and is located in the UK. This prop firm ranks with the few prop firms that offer their traders an instant trading account. They offer an instant account of up to $50,000 with a profit share of 60%. They also provide a growth scaling ability of 10% which can propel the Forex trader to own an account with $1,240,000 worth of funds.
MYFOREXFUNDS
MyForexFunds is a Forex prop firm that gives its Forex traders an instant fund of up to $50,000 without any tasks. For Forex traders that love the challenge aspect, they are given funds of $2,000,000 with a profit share of 84%.
FOREX TRADERS UK
Forex Traders UK is a rapidly rising prop firm from the UK. It gives Forex traders to start Forex trading with their capital without any challenges or demo account. For a small fee you will get an amount of capital which is doubled every time you reach a milestone, up to $1,000,000.
THE 5%ERS
The 5ers is one of the legit prop firms around, it gives its traders 50% income revenues, funding of up to $1,280,000, and a growth scaling plan of 10%. This prop firm has reasonable and applicable trading rules and regulations, with time duration of 180 days.
Conclusion legitimate prop firms
In conclusion, spotting a legitimate prop fund firm is not difficult. You just have to pay attention to the tiny details. With many scams prop firms disguising as legit firms one has to be very careful. Thorough research needs to be done accordingly to ascertain the legitimacy of the prop firm, especially all these newly established prop firms.
But still one can never be too careful, because there are still some prop firms that will look all legit, with their website, offers, challenges, and charges. But when trading with them, you will start noticing some discrepancies.
In some cases, there are prop firms that will require you to pay almost half of your profits before you can make any withdrawal, and this clause was not stated on the website before you signed up. There are still some sites that will give you funds and will never allow you to withdraw your profits.
This is why one has to comb the internet thoroughly before signing up, once you see any red flag associated with the prop fund firm you want to sign up with? Do well to stay away from such companies.
