Casual FX discussion.
Should i trade with prop firms?
This is a a question i have seen many traders ask these days. The answer is it depends on situation to situation.
I am an old school trader so i will answer it from my perspective:.
Cons from my thought process, this is not exhaustive:
1. I think the prop firm trading doesn't qualify as trading because that doesn't teach you how to manage your emotions and you would never build a connection with the money you are trading (its gamified demo account). You may not hesitate at all to place 1 Standard lot in prop firm account but may feel shaky when you are trading your own money. So the prop maybe good for making money at this moment but not in trading long term. Props are supposed to be your Exit and not your start.
2. The rules severely limit the potential of the trader. Trading is managing risk while maximizing reward. Not every trade deserves the same risk some warrant bigger risk.The linear nature of risk in prop firm account limit the trader to engaging frequently.
They limit the amount of money you can make on A+ setups they flatten the reward for each trade making you trade over a larger period for months to generate same returns. So when your strategy was working you could have made more but in that period you just made a small amount of money because you could not add additional risk on a good trade. So you had to continue trading to reach your financial goals and sadly more market exposure means you will ultimately give back money to markets. Its a casino that wants to slow down your rise and taper it so they can survive
3. Their rules don't accommodate every trading style. And you may find them severely limiting for your trading strategy.
4. The probability of your payout depends on the firms honesty and reputation. Remember its just distributing from a large pile of money deposited by the losers to pay to the winners. If the firm feels you are hurting their bottom line they may get rid of you by creating a new rule.
5. At one point a significant downturn in equity would lead to loss of the funded account or make it impossible for that account to make profit. If your 100K account drops to 90K you may have to start the new account process again but a real account could recover on its own time.
6. They gamify the trading down to a few parameters that benefit the props when trading is much more.
Asymmetric rewards are ignored even though they guarantee you make more money when your conviction is higher, but a fixed drawdown could limit those trades.
Psychological highs are ignore , say if you are riding highs and growing your account you sometimes have the potential to ride those highs pushing your account to higher dollar value by taking more risk.
7. Its a stupendous waste of time to pass challenges every time you exhaust the drawdown limit. You trade a demo account that might payout but when time comes you may feel disappointed trading your own money with smaller lot size or may get scared trading your own money.
8. They do away with the right of passage. A trader grows when they grow their account hardening them mentally to handling large sums of money. But fake money cant simulate that.
Pros:
1. You have to put a small amount upfront and you trade a sim account with right set of conditions you could run that up and get a large payout.
2. You get to learn and if you develop a good frame work could draw a consistent payout. The ROI is better.(Caveat the scalability is questionable).
3. It might wire your brain to work under risk constraints. This could somewhat help in real trading.
If you feel you have mastered a framework and are on tight budget go for a prop account. Take regular payouts and fund your self an actual account. If you are a learner and have only got 50 USD(example amount) want to learn cheaply and possibly benefit from multiplier effect of prop acount go fund it, but don't forget to save money for real trading.