What Is A Prop Firm in Forex?

1.A prop firm gives you money to trade after you prove through virtual accounts that you are an experienced trader and can make a specified profit amount a popular example is Funded next

2.you require a fee to register, which is dependent on the account type

3.You don’t use your own money to trade

4.If you make profits, you share them with the firm.

5.If you lose, the firm takes the loss, not you.

Prop firms require you to pay for the opportunity to trade on their demo account under very strict rules & if you are profitable without breaking their many rules, they will reward you with some money which they call a "payout".

However, if you fail to be profitable or if you break their rules while making profit, they will close your account & ask you to pay for another challenge (another opportunity to start over).

The prop firms make their money from people who keep purchasing & re-purchasing their challenges after failing or after having their accounts closed because they broke a rule.

Statistics show that around 95% of traders will fail a prop firm challenge either due to not meeting their profit target or due to breaking a rule.

There are several rules put in place by prop firms such as maximum daily loss limit, restriction from trading during certain news releases, using EAs, taking on too much risk, etc.

If you are able to pass the prop firm challenge, they allow you proceed to the next phase where you will be handed another demo account (aka funded account) but this time you do not have to pay for it. Instead, any profits you make on this funded account will be shared/split with the prop firm.

So, if the prop firm has an 80/20 split, you will take 80% of the profits while the prop firm keeps 20%.

Even after you have progressed to the stage of being handed a funded account, you still need to abide by the prop firm's rules or it will be taken from you.

@glo_forex a prop firm does not give real money to trade with, prop firms give you a demo account to trade with using fake money. If you are profitable without breaking their rules, the prop firms will give you a monetary reward called a payout. But the capital that prop firms give you is not real money it's called "simulated capital" meaning fake money on a demo account

yes, they give a demo account first its also called a virtual account

So how would you rate prop firms on a scale of 1-10?

Even after the demo account, prop firms do not give you real money to trade with. You still trade with a demo account after you pass their challenge. This brings us to the question: "how do prop firms generate the money they pay to traders?" Well, they are two schools of thought to this:

1. The prop firms claim they copy traders on the demo account and replicate their trades on real accounts controlled by the prop firms. Any profits are shared with the trader. However, some people dispute this claim as false. This leads us to the second school of thought

2. Some say prop firms pay older traders with the fees paid by newer traders. Kind of similiar to a ponzi scheme

For me, I dont really rate prop firms at all because they dont give you real money to trade with. I am of the school of thought that prop firms are like ponzi schemes that use money gotten from those who pay for challenges to pay those who actually pass the challenges. And of course, those who fail will be more than those who pass, so it is good business for them. That is why you see so many prop firms springing up every day. By the time governments start regulating prop firms, you will see that their number will reduce as many of them will close shop.