1. WHAT IS INVOLVED IN THE EVALUATION AND THE TRADING RULES?
Almost without exception, prop firms require traders to undergo an assessment from the outset. These evaluations give the trader a chance to prove themselves worthy of a capital investment, covering areas such as risk management, profitability, and overall trading skills.
The trading rules for each prop firm can vary dramatically. Typically, firms will charge a registration fee. Why? They want you to have skin in the game and take it as seriously as they do. This helps them filter out serious traders.
Plus, companies need to cover various operating expenses. However, these fees shouldn’t necessarily be your focus. Think about it this way. One firm could charge $200 but require a 10% profit target in a month, while another charges $250 and has no time constraint. You could easily burn through more than four auditions with the first firm before succeeding.
The trading rules employed by the firm form the bedrock to any evaluation.
And they boil down to a few key elements:
- Time – Is there a minimum or maximum number of trading days?
- Target – What is the profit target required to pass the evaluation?
- Drawdown – How much can you lose before disqualification from the program?
In addition, many firms have a program that features multiple stages, which can be a bit frustrating. Most funded trader programs feature a multi-phase evaluation process. Traders succeed, only to have to do it all over again to receive a funded account.
Not only that, but other programs often feature a complex set of trading rules designed to minimize the number of successful, profitable traders.
2. WHAT PORTION OF PROFITS AM I ENTITLED TO?
While prop firms provide the capital, traders do the heavy lifting.
Traders can find all different levels of profit split — from 50% all the way up to 90%. The profit share can have a huge impact on earning potential.
Let’s see how… Let’s assume a trader consistently earns a 20% return per year trading the markets.
Scenario #1:
The trader has invested $5,000 of their own money into their trading capital.
- Investment: $5,000
- Bankroll: $5,000
- Earnings: $1,000
- Trader keeps all $1,000
- Annual ROI: 20%
Scenario #2:
The trader invests $600 for a $100K prop firm account that has a 70% profit split.
- Investment: $600
- Bankroll: $100,000
- Earnings: $20,000
- Trader keeps $14,000
- Annual ROI: 2,233%
Scenario #3:
The trader invests $700 for a $100K prop firm account that has a 90% profit split.
- Investment: $700
- Bankroll: $100,000
- Earnings: $20,000
- Trader keeps $18,000
- Annual ROI: 2,471%
Two things become immediately apparent.
First, a profitable trader can realize a much larger gain with a smaller investment if they partner with a prop firm — by a factor of over 100x.
Second, in comparing Scenarios #2 and #3, while the evaluation fee may be slightly higher for a larger profit-share, the ROI is 10% greater.
3. DOES THE FIRM HAVE STRONG ENOUGH FINANCIAL STANDING TO SUPPORT FUNDING?
If you look hard enough, you’ll find stories of prop firms that disappeared overnight, leaving traders wondering where their money went.
Don’t be afraid to ask a prospective partner about their financial situation — where the capital comes from, how much is available, and what do they keep in reserve.
Specifically, you want a firm with deep enough pockets and backing to handle drawdowns and payouts.
4. CAN I GET QUICK CUSTOMER SERVICE?
Even with the best-laid plans, issues can and will arise. Whether it’s the market, the broker or the trading platform, there are often curveballs when you least expect it. Nothing is more frustrating than trying to reach customer service and waiting on a call-back, especially when the situation is serious. Customer service can and should be available during regular business hours to handle your questions, whether it’s rules compliance or ensuring your account is funded.
5. ARE ACCOUNTS FUNDED WITH REAL, LIVE CAPITAL?
You would think this is a no-brainer, but not every prop firm drops you into a real account once you pass your audition.
In fact, some NEVER do!
Some of the most well-known prop firms do not fund accounts with actual capital. Once traders pass their challenge, they are still on a demo account with fake money, and the firm only pays out the winners.
Their interests are not aligned. If a trader passes and receives a payout, that’s a loss on the P/L sheet, and a sad day for the prop firm. Thus, they look to profit from the failure of traders by creating programs with complicated rules and stringent time restrictions.
6. WHICH ASSETS ARE TRADABLE?
Prop firms and their brokers provide access to different tradable products — like forex, crypto, indices, stocks and more.
The firm you pick should match your specific needs. This may be easy if you specialize in just one forex pair.
However, if you utilize cross-asset strategies for hedging and risk management, make sure you select a firm that carries enough products for you to work effectively and take advantage of new trends.
7. HOW LONG DOES IT TAKE TO RECEIVE A PROFIT PAYOUT?
For those who earn a living trading, regular, timely withdrawals are an essential part of their business.
Some firms can take weeks to pay out your money and require substantial documentation.
Reputable companies provide multiple methods of withdrawal and can send you money quickly.
8. HOW LONG DO I HAVE TO WAIT FOR MY FUNDED ACCOUNT AFTER I PASS THE EVALUATION?
Once you pass your evaluation, you want to begin trading as soon as possible. Imagine the excitement of accomplishing a huge milestone and earning a funded account, only to have to wait a week or more to begin trading.
Any company with enough liquidity should be able to get your account set up and funded within a few days at the most – with the quickest firms taking 24-48 hours or less.
9. ARE THERE ANY HIDDEN FEES OR MONTHLY SUBSCRIPTIONS?
Fees should be transparent and easy to understand. You should know going into the evaluation what you need to pay and when.
Some firms work on a monthly subscription model and others have sneaky hidden fees for withdrawals or moving through to the funded account.
Some may also put you through multiple steps or ‘challenges’ as part of their evaluation process. Some firms offer a “refundable” registration fee, but make sure you read the fine print on how to redeem your refund as there might be stringent requirements and waiting periods.
10. IS THERE A DISCOUNT FOR A RETRY IF I DON’T PASS?
Not everyone succeeds at their first audition.
You’ll typically find companies will offer discounts on future assessments or a limited number of retries. Understand what happens if you miss the mark on the evaluation and if there is a goodwill discount for retries.
11. HOW LONG DOES IT TAKE TO GET MY EVALUATION ACCOUNT AFTER I REGISTER?
When you pay for a product, you should expect delivery as soon as possible. A prop firm evaluation account shouldn’t be an exception. At minimum, the prop firm should quickly contact you by email to let you know the next steps.
12. ARE THERE TIME LIMITS — OR OTHER RESTRICTIONS — ON THE EVALUATION?
Although we touched on this earlier, it’s a key point of differentiation.
Many prop firms mandate that traders comply with a laundry list of demands to qualify. They must, for example, trade for at least ten days and pass within thirty days. This can force traders to make questionable decisions to meet the deadlines, something traders should try to avoid.
In addition, many prop firms mandate a minimum number of trades to pass — which means if you bag a huge winner and pass the assessment, you have to continue trading to meet the requirement and risk your profit target.
13. WHICH TRADING PLATFORM CAN I USE FOR MY TRADING?
Most firms offer trading through common platforms. However, you may find companies that have their own proprietary platform or technology. Make sure you understand which platform the firm offers and familiarize yourself with it, if necessary.
14. DOES THE FIRM OFFER A TRADING DASHBOARD AND WHAT INFORMATION IS ON IT?
Trading dashboards provide a snapshot of metrics to help you manage your strategies and account. You want a platform that delivers up-to-date information with a complete history of your trading and performance.
Furthermore, you want a dashboard where you can see at a glance, how you stack up against key metrics like the profit target, drawdown and others.
15. WHERE IS THE FIRM BASED?
Companies can set up shop in any country – and believe us , they do. Ideally you want to pick a firm that is governed and regulated by standards that provide legal protections and assurances for traders.
FINAL THOUGHTS
While this list is by no means comprehensive, ultimately, you need to ask the questions specific to your situation and trading style, to name the few.
If you need some help in figuring out which Prop firm to chose, or you are not sure how to evaluate the company you have your eyes on, or any other question in regard to Prop Trading, feel free to Contact us at Global-View . We have resources, knowledge and direct connections with some of the best Prop Firms out there.
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