We will cover the essentials traders must consider before evaluating Forex proprietary firms (or ‘prop firms’ as they are typically known) to solve one of the biggest problems in Forex trading – having a big enough cash deposit to run a long-term successful strategy that makes consistent returns in the market.
Rocket21
In SummaryRocket21 features an impressive community of 50M+ traders from 7+ countries with payouts of $4M+. Traders get one-step and two-step evaluation challenges. Profit targets are 9% for the former and 8%-5% for the latter. The maximum drawdown is between 6% and 10%. Rocket21 allows traders to revive a failed two-step challenge if they have passed the first step for fees between $113 and $2,332, allowing traders to restart at step two.
Traders can pick from seven account options and scale total assets under management to $2,000,000. It places Rocket21 among the best Forex prop firms.
Pros & Cons
- Innovative product offering including its Revive feature, Scaling plan and various add-on options
- There is no time limit during the evaluation process.
- A reasonable minimum evaluation fee of $59
- Maximum profit share up to 90%
- Limited operational history
fundedprime
In SummaryTraders get a two-step evaluation challenge with a 10%-5% profit target on the DXtrade platform in partnership with Eightcap and a maximum drawdown of 10%. Traders must trade for at least 3 days. fundedprime offers a maximum Forex leverage of 1:50. Traders can choose from five funded account options starting from $10,000 with a maximum asset under management up to $800,000. It places fundedprime among the best Forex prop firms.
A profit target for funded traders does not exist. Traders can request their first withdrawal after 30 days, before bi-monthly withdrawals are available, via bank wires or cryptocurrencies.
Pros & Cons
- Cryptocurrency withdrawals
- There is no time limit during the evaluation process.
- Maximum profit share up to 80%
- Trading via the platforms of trusted Australian brokerage Eightcap
- Limited operational history
Pip Traders Funding
In SummaryI rank PIP Traders Funding among the best Forex prop firms amid its 8% profit target for the one-step evaluation challenge. Traders can opt for the two-step alternative with a 10%-5% profit target. The maximum drawdown is between 8% to 10%, and all accounts are with Eightcap. The profit share starts at 70% and scales to 90%, while traders must trade for at least 5 days during any challenge.
PIP Traders Funding allows up to three $200,000 accounts and offers the DXtrade trading platform, copy trading, and weekend position. Traders can also benefit from low forex trading fees.
Pros & Cons
- Funded traders receive a personal life coach service and resources to enhance their physical and mental well-being
- Trading via the platforms of competitive and trusted Australian broker Eightcap
- There is no time limit during the evaluation process
- Maximum profit share of 90%
- Limited operational history
Lionheart Funding
In SummaryLionheart Funding is a prop firm offering a three-step evaluation challenge besides the industry-standard one-step and two-step challenges. It has 7 account options and 4 unique challenge types with varying conditions. There are no minimum or maximum trading days during the evaluation. The maximum drawdown ranges between 6% and 10%. The profit target is 10% for the one-step challenge, 8%-5% or 10%-5% for the two-step option, and 6%-5%-4% for the low-cost three-step alternative. Therefore, Lionheart Funding ranks among the best Forex prop firms.
While traders get the DXtrade trading platform, Lionheart Funding prohibits algorithmic trading for funded accounts.
Pros & Cons
- Trading via competitive and trusted Australian brokerage Eightcap
- Low minimum evaluation fee
- Fast payouts, usually within 24 hours
- Profit share of 90%
- Limited operational history
Profitex
In SummaryProfitex caters to 100K+ traders and features a one-step evaluation challenge hosted by Australian-based Eightcap with a 10% profit target and maximum leverage of 1:30. No minimum trading day requirements apply for the evaluation. Profitex offers 5 account options up to a maximum of $200,000, with a maximum loss of 10% from the starting balance. The 7% daily drawdown limit ranks among the highest in the industry. It places Profitex highly among the best Forex prop firms.
Traders get the DXtrade trading platform, 24/7 customer support, and the competitive Eightcap Forex trading fees apply. Profitex processes profit share withdrawals through bank wires or cryptocurrencies.
Pros & Cons
- Offers trusted Australian broker, Eightcap's trading platform
- Cryptocurrency withdrawals
- There is no time limit during the evaluation process
- Maximum profit share up to 80%
- Limited operational history
What are Prop Firms?
Forex prop firms offer to ‘fund’ traders with cash allocations for trading on margin accounts and operate on a profit-share basis, sometimes up to a 90% share for the traders. One of the reasons many active traders fail is a lack of trading capital. It causes overtrading, frustration, and profit-chasing, which generally results in trading losses, as evident by the high failure rate among retail traders.
Trading with and for a Forex prop firm solves the capital problem, as traders get allocations anywhere between $10,000 to $2,000,000 in funded trading accounts. They must pass an ‘evaluation period’ and often pay monthly maintenance fees for access to capital. Traders must also consider the added stress and performance pressure this setup may cause.
How Do Forex Prop Firms Work?
Forex prop firms provide margin capital and trading infrastructure to their traders, usually they have a strict risk management team to protect their bottom line. They operate on a profit-share basis, which ranges between 50% and 90%. Most Forex prop firms scale up available capital once traders reach pre-agreed performance goals. For example, they may double the allocated funds each time a trader exceeds 10% in profits.
Are Forex Prop Firm Legal?
Forex prop firms are generally legal. There are no rules governing how to open a Forex prop firm, nor against it. Forex prop firms are unregulated since they do not provide financial services or asset management for third-party clients. They trade their capital for their own benefit and can hire as many traders as they wish, and there are no licenses to operate a Forex prop firm or to become a Forex prop trader. Some regulators question the current framework and may introduce some form of regulatory approval in the future to register a Forex prop firm, but currently, none exists.
How to Choose a Forex Prop Trading Program
Traders should consider the reputation of the Forex prop firm they are considering working with, evaluate their conditions and fees, ensure the risk management parameters suit their trading strategy, and maintain the freedom to withdraw their profits without restrictions.
How Do I Become a Prop Trader?
Several ways exist to start a career as a Forex prop trader, but the below guide covers the most common steps to get started with a Forex prop firm.
Here are the few required steps to become a Forex prop trader, which can vary slightly from firm to firm:
- Apply to a Forex prop firm, which often includes details about the individuals trading background and experience.
- A potential interview may follow, but it is not always necessary, especially if traders have the relevant know-how and where there is an outline of their strategy and preferred markets to be traded.
- An evaluation period, usually using demo accounts, where the Forex prop firm offers strict guidelines and performance goals the trader must meet to advance.
- Once traders pass the evaluation period, they can become funded prop traders, can select their account package, and often pay a fee for access to capital or trading infrastructure and general support, trade signal etc.
How Do Prop Traders Make Money?
Forex prop firms engage in a profit-share agreement, usually between 50% and 90%, with their prop traders and often attach minimum profit requirements that must be achieved before a trader can withdraw profits made using the allocated capital.
Prop Firm Trading Fees
Most Forex prop firms charge a monthly fee for access to capital, which can range between $100 and $500, depending on how much capital a prop trader seeks from the firm. Some ask for a one-time fee during the evaluation period. Prop traders must also inquire about the trading conditions, fees, spreads etc. These are costs charged by brokers and some have a volume-based rebate program, which can be useful if the trader’s strategy involves making many trades.
What are the Risks Involved with Proprietary Firms?
Stress and performance pressure are the primary risks prop traders face. The absence of a basic income and no job security can result in avoidable trading mistakes. Most aspiring traders cannot handle the pressure to outperform markets in any condition with sustainable results, experiencing burnout while having to pay monthly fees to remain with the Forex prop firm.
Pros & Cons of Prop Trading
Traders interested in Forex prop trading should consider the pros and cons before registering with any Forex prop firm.
The pros of Forex prop trading are:
- Lower overall trading fees due to the volume Forex prop firms typically trade monthly.
- Significant amount of trading capital available
- Low entry requirements with high earnings potential
- An exciting career and access to a professional community with like-minded traders
- A competitive landscape
- A risk management team that acts as a layer of security
The cons of Forex prop trading are:
- Extreme-stress environment to continuously perform in any market condition and potentially lose capital provided by the firm.
- No job security, as any Forex prop firm will cut underperforming or losing portfolios.
- One-time, monthly, or annual fees for access to capital, trading platforms, and cutting-edge trading tools
- Capital investment from the trader, which some Forex prop firms require, as a buffer to potential trading losses
- Ultra-competitive and performance-driven environment, which some traders cannot handle.
- Strict daily loss limits and overall drawdown conditions
- No basic income guarantee.
Bottom Line
A Forex prop firm will offer the right trader an excellent opportunity unavailable elsewhere. Most traders either lack the strategy or the mindset to perform in an ultra-competitive, performance-driven environment, and the possibility of stress and burnout is high for many whom don’t have the right mental approach. However, the rewards are potentially high, and access to capital is very tempting to the underfunded trader.
