Thread on Prop Firms Pros & Cons🧵
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As a solo trader you have the option to trade on a traditional personal broker account or through a prop firm.
In this thread I will discuss the Pros & Cons between trading on a personal account vs a prop firm account.
In this thread I will discuss the Pros & Cons between trading on a personal account vs a prop firm account.
What is a Prop Firm?
A prop firm is a company that provides its traders with access to capital, in return for a percentage of the profits generated.
Here are the Pros & Cons with Prop Firm Trading:
A prop firm is a company that provides its traders with access to capital, in return for a percentage of the profits generated.
Here are the Pros & Cons with Prop Firm Trading:
PRO: Leverage Capital✅
Prop firm trading allows you to leverage capital which means you can increase your position sizing for higher reward. With a $500 investment, after passing evaluation, you're able to trade a 100k account which is access to 10k in capital if max DD is 10%.
Prop firm trading allows you to leverage capital which means you can increase your position sizing for higher reward. With a $500 investment, after passing evaluation, you're able to trade a 100k account which is access to 10k in capital if max DD is 10%.
PRO: Long Term Scalability✅
Trading through prop firms allows you to scale up capital a lot faster versus flipping small accounts. To become a full time trader having capital is key. This is great for long term because you can scale up to 6 or 7 figures in capital.
Cont...
Trading through prop firms allows you to scale up capital a lot faster versus flipping small accounts. To become a full time trader having capital is key. This is great for long term because you can scale up to 6 or 7 figures in capital.
Cont...
For an ex, lets say Trader A trades a 50k personal account and avgs 5% return per month which is $2,500.
The downside is:
#1 Most people don't have this amount of capital to trade on a personal account with
#2 After taxes, it's not enough to live comfortably in the US.
The downside is:
#1 Most people don't have this amount of capital to trade on a personal account with
#2 After taxes, it's not enough to live comfortably in the US.
Lets say Trader B trades a 200k prop firm funded account and averages 5% return per month which is $8,000 after a 80/20 profit split
If this trader can consistently average 5% per month on a 200k funded account, after taxes they can live comfortably almost anywhere in the world
If this trader can consistently average 5% per month on a 200k funded account, after taxes they can live comfortably almost anywhere in the world
PRO: No risk to your own capital once funded✅
The initial risk is the fee you pay for the challenge account however with your first payout you will receive a refund on that fee so after that it's risk free. After, if you lose the account you don't lose any of your own capital.
The initial risk is the fee you pay for the challenge account however with your first payout you will receive a refund on that fee so after that it's risk free. After, if you lose the account you don't lose any of your own capital.
PRO: Trade in a structured environment✅
Prop firms will have wills you have to follow or else you breach the account. These rules create a structured trading environment which will teach and help improve discipline and risk management skills.
Prop firms will have wills you have to follow or else you breach the account. These rules create a structured trading environment which will teach and help improve discipline and risk management skills.
PRO: Improve discipline & risk management skills✅
This PRO goes hand in hand with trading in a structured environment. Rules like daily max DD keeps you from overtrading which improves discipline. The max DD rule will mentally make you want to lower & manage risk properly.
This PRO goes hand in hand with trading in a structured environment. Rules like daily max DD keeps you from overtrading which improves discipline. The max DD rule will mentally make you want to lower & manage risk properly.
PRO: Tax benefits✅
If you create an LLC, purchase the challenge account under your LLC, pass evaluation, this means the prop firm now employs your LLC as a trader for the firm. If you fail challenge accounts you will be able to write the fee off as a tax deductible.
If you create an LLC, purchase the challenge account under your LLC, pass evaluation, this means the prop firm now employs your LLC as a trader for the firm. If you fail challenge accounts you will be able to write the fee off as a tax deductible.
PRO: Build a network✅
Trading itself is a solo business but through fintwit & Discords, you're able to network with other funded traders or traders looking to get funded. It's always good to surround yourself with likeminded people with the same goals as you.
Trading itself is a solo business but through fintwit & Discords, you're able to network with other funded traders or traders looking to get funded. It's always good to surround yourself with likeminded people with the same goals as you.
CON: Must pass evaluation❌
Trading itself is the most difficult business to be successful in meaning it's hard enough already to be profitable on a personal account, it's even harder to pass challenge accounts & consistently collect payouts due to the rules you have to follow.
Trading itself is the most difficult business to be successful in meaning it's hard enough already to be profitable on a personal account, it's even harder to pass challenge accounts & consistently collect payouts due to the rules you have to follow.
CON: Time spent to pass evaluation❌
We know that time is money. Majority of firms do not pay you to pass evaluations so not only do you have to invest money to become funded, you have to invest time and for most people it will take months to just pass a challenge to get funded.
We know that time is money. Majority of firms do not pay you to pass evaluations so not only do you have to invest money to become funded, you have to invest time and for most people it will take months to just pass a challenge to get funded.
CON: Must follow prop firm's trading rules❌
With a personal account there's no trading rules and objectives which can be a good and bad thing. There's always the risk of losing the account if you breach one of the rules which will mean that all of your hard work will be gone.
With a personal account there's no trading rules and objectives which can be a good and bad thing. There's always the risk of losing the account if you breach one of the rules which will mean that all of your hard work will be gone.
CON: Cannot withdraw whenever you want❌
With a personal account you can withdraw your capital & profits whenever you want. With prop firms you can only withdraw profits after a certain amount of days or weeks depending on the prop firm.
With a personal account you can withdraw your capital & profits whenever you want. With prop firms you can only withdraw profits after a certain amount of days or weeks depending on the prop firm.
CON: Risk of regulation on prop firms❌
The prop firm industry is growing everyday however it's unclear if there will be regulations due to the amount of scam companies. Imo, if prop firms become bigger than traditional brokers this will only increase the chances of regulations.
The prop firm industry is growing everyday however it's unclear if there will be regulations due to the amount of scam companies. Imo, if prop firms become bigger than traditional brokers this will only increase the chances of regulations.
CON: Risk of losing trading account or profits if prop firms go out of business❌
There's no guarantee that a prop firm company will be around forever. There's lots of scam companies out there. Only the ones with good CEOs & management teams will be around for long term.
There's no guarantee that a prop firm company will be around forever. There's lots of scam companies out there. Only the ones with good CEOs & management teams will be around for long term.
After recapping the pros & cons of prop firms here is my take:
It's very important to pick a firm that has built a trustworthy track record. You want a company that is backed by a good CEO, has great customer service and make sure that the firm has never had any payout issues.
It's very important to pick a firm that has built a trustworthy track record. You want a company that is backed by a good CEO, has great customer service and make sure that the firm has never had any payout issues.
As long as prop firms are around there is no reason for me personally to be trading a live account through a traditional broker unless it's for long term investments. Im 250k funded but my goal right now is to scale up to 1M in funded capital.
With 1M in funded capital I can trade half of it with my model and make 5 figures per month and keep the other half as a safety net if I were to ever lose the account.
I'm affiliated with @MyFundedFX and do trust them so if you're interested in purchasing an account, here is my affiliate link: myfundedfx.tech
I also just started a 500k @fundedengineer challenge which I will be alerted all my trades live in my Discord for Lifetime members only.
Here is the link to my Discord to become a Lifetime member: whop.com
Here is the link to my Discord to become a Lifetime member: whop.com
Here is my Notion link to access more free educational content from me. ossified-ground-684.notion.site
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