Unveiling the Pros and Cons of Online Prop Firms (2024)

In the world of day trading, online proprietary (prop) trading firms are remaking the landscape. These digital platforms provide an open pathway to the thrilling pursuit of trading. If you’ve been exploring prop trading or online prop firms, this is the perfect pitstop for you. While other articles delve into the meat and potatoes of prop trading in general, here we’ll focus on the pros and cons of trading with the best online prop firms, so you can quickly decide if it’s something you want to try.

Online prop firms are making futures trading more accessible than ever. What exactly makes them shine versus the alternatives (like trading your own capital, or not trading at all, if you don’t have the capital)? Let’s dig into the benefits:

1. No Capital Contribution: The prospect of trading without risking your own capital is enticing and opens up a world of possibility.

• This eliminates a roadblock for countless traders. The capital required to trade in a normal brokerage account makes it inaccessible to most people on the planet, unfortunately. But this erases that barrier.
• Trading with firm capital versus your own can also help to make trading more objective. When you only stand to lose your subscription fee, and not tens of thousands of dollars, you get to focus on trading, not on the money.
• Because you don’t have to put up capital, you can put a lot more hours into practicing your trading and developing your skills, while still having “a bit of skin in the game”. Having that bit of commitment is important for you to grow as a trader.

2. Earning Potential: Profitable traders can greatly increase their earning potential by using an online prop firm. Of course, you have to be profitable to make money.

• Winning traders can scale up indefinitely using the capital from online prop firms, making winning trades, days, weeks, months, and years, potentially much larger.
• Working with multiple online prop firms and/or multiple accounts at one firm can increase this potential.

3. Risk-Free Evaluation: You can dip your toes in the trading pool without fear of immediate loss. Online prop firms often provide a risk-free evaluation period where you can hone your strategies with demo accounts.

• This allows you, for a small evaluation fee, to get use to the platform and the rules, before you’re trading with real money.
• You can also try out multiple firms at the same time without a great big commitment to any of them.
• The best online prop firms don’t place a time limit on how long you can take to pass an evaluation, so you can take your time and trade your plan.

4. Accessibility and Flexibility:

• Almost anyone can join and give it a shot. Although there are some countries whose residents can’t participate due to regulations or sanctions, these online prop firms don’t discriminate. Young, old, educated or not, as long as you’re legally able to participate, you’re allowed in.
• Trading is open nearly round the clock 6 days a week. So if you have a job or other schedule commitments to work around, you can usually find a market open to suit your needs, starting at 6pm ET on Sunday, through 5pm ET Friday.

5. Educational Resources and Community: Some online prop firms offer a wealth of resources to help you arm yourself with trading knowledge.

• From instructional videos to live 1-on-1 coaching, these resources may help you anywhere along your trading journey.
• Many prop firms also have their own online communities, where you can share ideas and get moral support from other traders. Just remember to take a grain of salt with any advice you receive.

Despite the potential benefits, you have to understand the unique challenges and downsides to trading with an online prop firm.

1. Profit Split: With a prop firm, you’ll be sharing your victories. Since you get to use their capital, they get to keep a cut of your profits.

• With most of the online firms I take seriously, their cut is 10%-20%. This isn’t bad, in my prop trading career I’ve received as little as 40% at times.
• You may not see this as a problem, since you’re also getting to trade with more capital than you probably would otherwise. If you make a profit, 90% of a bigger profit can easily fetch you more earnings than 100% of a smaller profit.

2. Subscription fees: Online prop firms typically charge a monthly fee for evaluations, and sometimes a data fee once they fund your account.

• This means you are risking some money, even if it is much less than you would have to put up as trading capital. You must maintain discipline and not spend more on evaluations than you can afford to lose.
• Data fees for online prop firms vary. Some charge a one-time fee, some charge monthly, and some give you a choice. Either way, it’s a cost to factor into your decision.

3. Rules and Requirements: While these guidelines often follow good trading principles, they can limit your trading, so you need to pick a program that has reasonable rules.

• You’ll have to follow the rules in order to keep your evaluation account, and in many cases you’ll have to follow rules to keep your account once you’re funded.
• Some rules make more sense than others, and some favor certain styles of trading more than others. It’s important to be aware and pick your poison — choose a prop firm evaluation with rules that fit your style.

4. You May Never Get Paid: You’ve heard the disclaimer. Trading is hard, and most traders don’t make money. You have to be profitable and follow the rules to get paid.

• Access to more capital doesn’t help you if you aren’t profitable in your trading. You may spend many months or years without making anything from trading.
• Although I haven’t personally heard of one of these prop firms going out of business and/or failing to pay their traders, that’s always a possibility with a trading firm just as with any company.

5. Limited Trading Instruments: Depending on the firm, you may face limited choices of what you can trade.

• Most firms focus on either futures or forex, due to leverage. They can leverage their funds to give their traders more margin than they could with stocks or options. Most professional traders prefer futures because it’s a regulated market, rather than an over-the-counter dealer market like forex.
• This means you won’t be able to trade individual stocks (yet, at least) with most of these companies.

Online prop firms offer a great opportunity for traders looking to explore professional trading without investing a large chunk of trading capital. These firms can provide a great training ground for traders of all levels of experience, allowing you to grow in your trading without risking it all — while still having an unlimited potential upside and a little bit of skin in the game.

Check out the best prop firms for beginners and best overall online prop firms if you want to compare the top firms. Navigating the world of prop trading can be exciting but also confusing at times. With the right knowledge and resources, you can be confident in your decisions and move forward, making the most of the opportunities available to you.

Originally published at https://epicctrader.com on August 1, 2023.

This content is for informational purposes only. I’m a trader, but I don’t give financial advice and this site is not financial advice. I’m not currently registered and I’m not a financial advisor. You should consult a financial professional before making any financial decisions.

I work hard to keep the content current and accurate with frequent updates. Sometimes data changes, deals lapse, or actual information can differ from what’s stated on this site. epicctrader.com is an independent site. Trademarks, logos, images, screenshots, and other branded content is property of the company being discussed. While independent, I may be compensated when you click on a link on this site.

RISK DISCLOSURE:

Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

HYPOTHETICAL PERFORMANCE DISCLOSURE:

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses is material points, which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect trading results. Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.