Most Common Myths About Using A Prop FIrm
There are a lot of myths that float around about online prop firms and their legitimacy. Most of these myths stem from traders having bad experiences with illegitimate firms, and misinformation about the costs. We’ve gathered the myths that we hear most often, and have combatted them with the facts that you need to know.
Myth 1: You’ll have to hand them most of the money you make
Truth: Prop firm programs do generally have a profit share percentage between 50-90%. This is how they afford to keep the lights on. Do keep in mind that when working with a prop firm, traders have more capital to trade with. So even if you have to hand over a percentage of your profit, the profit will be significantly higher than it would be if you were trading with your own capital.
Whilst it might be very tempting to go with the firm that offers the highest amount of profit split in the trader’s favor, the firms with lower splits tend to be the ones that care more about the trader. These firms want a long, healthy relationship with traders and they want to see them succeed. In fact, traders very often end up taking home more money when the profit split is lower because these firms genuinely want traders to succeed and therefor offer resources for that to happen.
Having said this, most programs have scaling plans for successful traders. These plans will usually start at a relatively low payout percentage, but scale up to 90-100%. The more the trader can prove that he makes successful trades, the more capital he’ll be given and the higher the percentage of the profit he can keep.
Myth 2: There are lots of hidden fees
Truth: It is very important that when you start working with a prop firm, you make sure that they are reputable and trustworthy, that way you wont be faced with hidden fees down the line.
You’ll want to make sure that they have been around for at least a few years and that they have many positive reviews from satisfied customers. This way, you’ll be dealing with a reliable firm that is transparent with its policies. If their website does not give crystal clear information on their fees, that could very well be a red flag.
You should be able to go through their website and gain a clear understanding of all the fees needed to become a registered trader. Reliable firms will usually have a registration fee and no other fees.
Although some firms do have a monthly fee, but this should be clear from the beginning. And as with everything, if it sounds too good to be true, it usually is.
Myth 3: You can’t make as much money using a prop firm as you can on your own
Truth: The opposite is true. You can make far more money than on your own. Prop firms give traders their own capital to make trades with. So when traders make x% profit on their account balance, they’re making a lot more money than they would have with their own capital.
When trading with a private account traders are constantly debating if to pull out the profit, because once you do, it decreases your account. However, with prop firms, if you pull out money, the firms simply add more to your account.
Another way that firms encourage financial growth is with scaling plans. These plans reward successful traders by increasing their account balance each time they hit a target. In addition to that, they increase the profit split so that traders pocket more, and some firms even award bonuses.
Myth 4: They make challenges impossible to pass
Truth: Before you attempt a challenge, make sure all the terms and conditions are clear to you. Whether that’s the maximum time to complete the task, stopout, profit target, etc. If you think that you can hit the profit target in the given time frame, with the trading rules, go for it. Most established firms should give pretty fair conditions.
As mentioned earlier, there unfortunately are a number of untrustworthy prop firms. The best way to make sure you’re using a credible firm is to research and read reviews. Make sure you can find reviewers that have used the firm and have positive things to say about it.
Myth 5: There are high upfront costs
Truth: There is a range of prices when it comes to prop firm plans, but they aren’t all expensive, there are even several that cost less than $100 to start. Some prop firms even refund the registration fee to funded traders.
For more information about low-cost programs check out our article Prop Firms with the Overall Lowest Participation Fees.
Myth 6: Prop firms rely on traders’ fees
Truth: There are some out there that do, but the majority of them do not. Unfortunately, there are a number of untrustworthy firms that purposely make challenges too difficult, in order to make a profit from registration fees. There even are some that have even shut down due to too many participants passing the challenges, and the firm did not have enough money to run without the fees from the failures.
Myth 7: There are so many fake reviews
Truth: The best place to read legitimate reviews is Trustpilot. Trustpilot developed advanced technology to detect fake reviews. Each review is given what they call a “fake score” and only if they have enough information to believe the review is real, do they allow it to be posted. The most trustworthy firms should have a rating of 4.7 stars and above, and at least 500 reviews from the past few years. In addition, Trustpilot awards legitimate companies with a ‘verified company’ badge, so look out for those.
Conclusion
In conclusion, most reputable firms will have fair requirements and prices. Before you jump into a challenge read up on the company and make sure you understand the terms of the challenge itself.
