Prop firms have become an increasingly popular way of amplifying trading profit, and even allowing it to become a full-time profession. The most obvious benefit to trading with one is the access to capital, however, it doesn’t stop there. With that comes a plethora of other benefits. We’ve compiled this list of the benefits of using a prop firm in case you’ve been deliberating and needed a few more reasons to convince you to take the plunge.
Access to Capital
The biggest appeal to using a prop firm, as opposed to trading independently, is the access to capital. Prop firms give their own capital to traders, and in return, they take a percentage of the profit. In simpler terms, instead of the trader using their own money to make trades, they use money given to them by the firm and give them part of their earnings.
You can make a lot of money because you start with more money
As the saying goes “it takes money to make money”. The higher the amount of capital the trader has to start trading with, the more he can make, as the profit is a percentage of the capital. Now we’re not saying we know how much is in your bank account, but if you’re a skilled trader, prop firms can give you hundreds of thousands of dollars, and sometimes over a million. Using a prop firm is a great way for a trader to earn a high profit using his skills, even if he does not have a lot of money to start with.
You don’t need a lot of money to get started
On the same note, traders using prop firms don’t need a lot of money to get started. Most firms do have a signup fee or a monthly fee, however, it is a small amount of money in comparison to the capital given to trade with. These fees vary between firms and are often relative to the starter funding capital. The higher capital the firm is willing to give to the trader, the higher the participation fee will be, and vice versa. Some firms even refund the fee once traders pass their challenge.
For a more in-depth evaluation of prop firms with the lowest registration fees, check out our article ‘Prop Firms with the Overall Lowest Participation Fees’.
You get access to more trading capital the better you do
Traders will usually have to complete a series of challenges in order to gain access to the total amount of capital. Up until this point, trades have been made in a demo mode, without access to real capital.
However, even once passing these challenges, the more the trader proves that they can make successful trades and earn a high profit, the more capital they will be given by the firm. In addition, the trader is able to keep a higher percentage of the profit for himself. This works in favor for both parties. The more money the trader is given, and the more successful trades he makes, the more money the trader will make both for himself and for the firm. Most firms have a detailed chart of their scaling plan. These charts include the account balance, stopout/drawdown, profit target, and profit split.
Education & resources
As we mentioned, the way that prop firms work is that they give their own capital to traders, and in return, they get a predetermined percentage of the profit. Therefore, it is in the firm’s best interest that the trader makes successful trades. The more money the trader makes, the more money the firm will get back. Because of this, many firms will offer free educational support for traders, such as classes, courses, videos, webinars, workshops, and events. All of these give the trader quality information that they can use to make successful trades.
Mentorship & support
For the same reason as mentioned above, many firms will have mentorship and support for traders. This may come in the form of customer support, live chat, and even coaches. These mentors offer traders guidance and seasoned advice.
Risk management parameters
Since traders are not using their own capital for trades, the money that could potentially be lost from a bad trade, or a series of bad trades, will have much less of an impact on the trader. Losses are a natural part of trading, but trading with a prop firm means that the money lost is not at risk to the trader. It was given to him by the firm.
All prop firms will have policies to ensure traders don’t lose too much money.
A drawdown is a limit on the capital that can be lost by the trader. If a situation arises where the amount of drawdown is lost, the trader will be cut from the program. Drawdowns are put in place by firms to protect themselves from losing too much money.
Stoploss is the price at which the trader will exit the trade if it is not going to plan. Thus limiting the potential loss on a trade.
Leverage is used by prop firms to allow the trader more capital for trading. When you use a broker, leverage is limited.
These are just a few examples of risk parameters that prop firms implement in order to minimize risk. These policies are put in place by firms to protect themselves from losing too much money, but also mean that traders do not lose too much themselves. They put a cap on the risk, but allow reward to be boundless.
Access to software
The software that traders have access to through prop firms is much more sophisticated and user-friendly than the software that they would generally have if trading independently.
Community
A huge benefit of using an online prop firm is the access to the community of traders. Most prop firms have platforms set up for traders to discuss trades, share tips and showcase their successes. Discord, Facebook, and other chat rooms are all popular platforms for community building.
Cheaper than classic firms and brokers
Compared to classic prop firms or using a broker, online prop firms are significantly cheaper and offer more flexibility.
Classic prop firms hire traders as full-time employees. They are given a salary and bonuses based on the success of their trades.
When trading with a broker, traders are only subject to their own capital. In addition, brokers often have high fees and may charge per trade.
Full/Part-time job
Online prop firms give traders the freedom to make trading work around their lifestyle. Or even to totally make it their full-time job.
Each prop firm with has its own restrictions on trading overnight, holding on weekends, and trading during busy news hours. This does differ between firms, and different programs, so if it’s important to you, look into it before you start.
Leverage
Different countries implement different leverage regulations. For traders in countries with strict regulations, using an online prop firm offers a way around those rules. Traders can take advantage of the leverage offered by prop firms, without complying with their countries’ regulations.
In conclusion, joining a prop firm program comes with a number of perks, besides just the access to capital. By implementing all the features on offer, traders can really revolutionize their trading.
If we’ve given you enough reasons to start working with a prop firm, check out our article 10 Questions to Ask Yourself Before Choosing a Prop Firm.
