Forex Basics

Trader’s Guide to Proprietary Forex Firms

What’s the hottest trend in Forex today? Did you know that somebody else is willing to risk their own money instead of yours, and be paid for it? Forex prop trading – no risk of losing your own money, firms battling to give you large figures to trade, you get a nice piece of that trade, and the cherry on the top, they will always want more if you do well, a never-ending circle. Going forward know this is just an opinion and advice from certain prop traders. So, everybody is already doing it, and that means there are a lot of shady companies out there. Companies that you don’t want to do any business with. Let’s see what you need to know about prop firms, what to look for, sort of general rules for everyone.

What are proprietary trading firms? What they do is, they give you their own money to trade, and, at first, you give them payments, every month or some other kind of fees. It’s always some kind of exchange, helps them insure themselves because they are not familiar with you and they are taking the risks. Of course, you have to assess, what kind of a deal they are offering to you, does that fill your criteria. You can also bring your money to trade and earn more. There are no restrictions, this way you can snowball it up.

Which firms are worth your attention? The ones that don’t take people from the streets to do their business. They will take anybody and that’s a recipe for failure. These companies are first to filter out. Most firms will provide trade training, that correlates with their business style, but good firms will give you options on how you trade, enabling you to trade in a successful, proven way with good exit strategies. Depending on the firm, money fees are going to scale, and it is going to be upfront because firms have training fees, they take all the risk. So be prepared to invest some money first. Successes come gradually, so expect that you will not be making sustainable money for some time.

Explosive income is not real. Training is thorough, nobody’s going to give much money to novice and it’s going to take time to earn credit. And that’s the moment of showing character, going through the grinder. This is the display of trading in the long term, it will show you if you are up to it. Building a system and going again through it, repeatedly, is what trading is – it’s a long game. Today’s novice doesn’t have to have a good resume, it used to be required to show good results for at least a year of trading, to be at least remotely interesting to a firm.

Although it doesn’t hurt to have good trading results, today’s firms will not even ask for it, since many people can produce fake good resumes, you just have to be a good trader. But, if you do have the experience, all that learning and testing won’t go to waste, as firms today tend to release you into the wild, they will test you through their platform and trading. If you produce good results under pressure they will hire you for a long time. Everyone’s experience is different. These lines are just recommendations, showing you options, providing you with more chances for success.

A Few Things to consider…

Prop firms are not a new thing, they ‘we been around since circa 1970, and most of them got modernized in their way of doing business. Those that didn’t should be avoided. Most of them will have desk fees, and you should watch for your expenses on these, as they can get wild. Follow your criteria and financial capability. Be careful with your expectations, set realistic criteria, don’t let scammers take advantage of you with promises of quick and high turnarounds. Firms insisting on using their trading systems are to be avoided, as there is no perfect system and your developed systems go to waste. Also, avoid multi-level marketing structure firms. More on MLMs later.

Structure of the old prop firms formed in the ’90s is still in use today, but they were infamous for a poor working environment. Firms that still work in those conditions are easily spotted and should be avoided, although, some people may thrive in that. Besides that disadvantage, you were required to be present in the office, sacrifice comfort of life, time, even when it wasn’t needed. Simply put, nobody stays with those firms for long as conditions are horrible and it’s hard to make any money because of high desk fees. These fees as horrible as they sound they have a purpose, other than to annoy you. Desk fees allow the firm to operate normally, without affecting the prop trader’s success. Not to trade with your money – something that early prop firms did practice.

Early prop firms would account for traders’ high desk fees as profit, instead of investing in support. These fees are usually higher the more expenses the firm has, for example, a rented office. The Desk fees are usually paid monthly, enabling firms to support employees and pay bills. Most importantly, after all, negative things on desk fees, by paying them you are granted the ability to trade with that firm. Desk fees are a common business practice, and there are many variations to them, but it is best to avoid the “old” firms and those that are not disclosing the fees.

If something sounds too good to be true, it’s probably a scam. Promises of fast unrealistic gains are signs of a scam firm. Scam firms charge upfront and set you up for a test you can’t pass. Why would they do that? It’s not to see into your character, to see how you handle pressure, it’s because they are not there to make a selection, they just want your upfront money. They will promise large trading capital, just to bait you in and once they get your money you are of no interest to them, and they disappear. Those kinds of firms are all over the internet. Do your research first. Avoid firms that impose time limits for targets, another unrealistic expectation, because the market can go up and down and sometimes be completely dead, giving you no chance to make reasonable trades and therefore reach their targets. Giving you monthly targets means that such a firm simply doesn’t understand how Forex market works or they want you to miss trades.

Why? They are just after your money, luring you in with promises of large funding and insisting on high desk fees. They are Incompetent or simply scammers. In both cases, not a healthy environment. Some firms might understand that more time is needed for reaching the targets, for example, 3 or 6 months. So when you see firm with unrealistic expectations, stay away. Ask yourself, do you have a chance to prosper when you are in such a firm. The worst thing that you can do, is set yourself in a position you lose time and don’t get paid.

Firms that won’t let you trade outside their way, is an uncommon practice. Almost all these firms use the popular and ineffective indicators like the RSI (some variations of the RSI are much better and applicable for current Forex conditions), and different risk structures that you should avoid. A lot of prop firms may think they have a method that works and will force this. They teach people their way, fund themselves with your desk fees, and this way the prop firm gets a big tax write off. But in the end, that doesn’t benefit you, the trader.

MLM’s, multi-level marketing, widely known as pyramid schemes. It can be a legitimate business but mostly it’s a form of scam. It is a structure without good traders, sometimes they even don’t care about trading at all, just to grab your money. It never ends well for people at the bottom of the pyramid, while those on the top make large sums of money. There can be some exceptions when people at the bottom actually make money, and they will get praised for it, but it’s just so that scammers can show some legitimacy. MLM structure created their bad reputation, there are so many options other than MLM-s, you can choose whoever you like for trade.

All prop firms take a skim of the trade, it varies in percentage, that is how they make their money. Takes vary from firm to firm, you may expect 30-60% on initial stages, and as you get to higher tier takes will drop. There are a lot of firms with different options. Some give attractive prices, up from a few hundred dollars, with a one-time fee. Others give full experience, with direct support but will take you back for several thousand dollars US upfront. Cheaper doesn’t mean bad, they just may be more reserved to allow you to potentially earn more. They might have several divisions, for stocks, options, and Forex.

All firms that take trading seriously, will make some kind of candidate elimination process. You will be interviewed and tested several times and that will result in high-quality traders. Of all tested, maybe 5% will be funded, and they will be trained on technical analysis, strategies, etc. It will take up to 6 months before you get any funding. After about 6 months your gains should be in a range of 6-9%, anything less and you are done. Other prop firms do not have a “failure” possibility but they keep your initial deposit until you prove yourself. These numbers will make you advance to the next step.

Make preparations before you make any decisions. Calculate fees, see how it works for you. There is a bunch of prop firms out there, probably one for everybody’s taste. Make sure to avoid things like MLM-s or “old” firms. You can call yourself a professional trader when you get funded, and then understand that trading is a long game, full of emotional challenges.