I don’t understand their existence and how they work.
How does a company give $100,000 of their money to you to trade, and stay profitable?
What’s the catch? What’s the benefits over using your own funds to trade something like this?
They don’t really give you $100k or any money at all. They assume you will fail the challenge. If you do not fail, the legit firms will pay you your profits, but they are not gaining any money from your trades. The business only works if the vast majority fail.
Having said that, I’m funded with 5ers and have had no problems with them.
Wynn said:
@Lexi
Actually, they copy their most successful traders.
Is this verified in any way or just people like to believe?
Wynn said:
@Lexi
Actually, they copy their most successful traders.
Is this verified in any way or just people like to believe?
Their CEO said in an interview that they do make money from profitable traders.
Wynn said:
@Lexi
Actually, they copy their most successful traders.
Is this verified in any way or just people like to believe?
Some prop firms have written this in their FAQ. They even give you a monthly salary on top of trading with their capital.
It’s quite normal. No prop firm can survive without using the best traders for their good. It’s beneficial for the prop firm and for the trader as well. I know a lot of people hate prop firms and think they are scummy af, but all those rules are there for something. To find the most profitable and consistent people and bring them to their own ecosystem so both parties can benefit from the same thing.
Wynn said:
@Lexi
Actually, they copy their most successful traders.
Is this verified in any way or just people like to believe?
Go watch their YouTube; multiple funded traders there explain how they do it and they’re happy to have them on the team.
@Lexi
Bro, you’re trading with 5ers; can you please tell me what the spread is around London and New York Session in EURUSD and what is the commission per lot?
I am currently backtesting my strategy and I need to check whether it can survive or not.
@Mika
Commission is $4/lot and the spread is okay, 0.1-0.5 is the norm. Up to 0.9 on some pairs though.
They don’t give you any money. It’s all demo accounts. They work like insurance; you get paid from the challenge losers, and with recent news events, you may have figured out the other way insurance companies make money: by denying payouts. That is exactly how these funded accounts work.
Essentially, the people who fail challenges pay the ones who pass and get a payout. They don’t give you $100k; rather, a demo account which usually, if you lose 10% of the account total value, you get it taken off you. Most challenges are 8% phase 1, 5% phase 2, which for most can be quite a struggle to pass. So in short, the 90% who fail challenges and lose what they paid for the challenge pay the 10% who pass and get a payout.
@Bela
So they give you a demo account to prove yourself - but when do they give you an actual cut of the money?
Eli said:
@Bela
So they give you a demo account to prove yourself - but when do they give you an actual cut of the money?
It’s all demo accounts even if you pass the challenge. They pay you with their own funds. Most of these prop firms lose money if you win because the trade is never executed on the market. That’s why you have to be wary of joining no-name ones. They won’t pay you out if you win too much. Some prop firms like FTMO claim they copy trades from their successful traders and execute them in the market.
They give you a demo account. If you make money, they give you money from who failed the challenge. In general, 90% of traders lose, but funded firms set rules that are like impossible to pass for new traders or 99% will fail.
@Toryn
If it’s a demo account - how do they get the funds?
The other traders who failed the challenge - how much are they paying?
Eli said:
@Toryn
If it’s a demo account - how do they get the funds?
The other traders who failed the challenge - how much are they paying?
They don’t ‘get the funds’. You pay £ to take an evaluation challenge. You pass and are then up on another demo account. You then trade that demo account, and if you make money, the prop firm will pay you a % of what you made. The way they pay their profitable traders is by using the failed challenge fees from other traders.
Someone above says props copy their best traders’ trades - this is true, but for less than 1% of firms. I’ve seen some of the best traders banned for the most ridiculous ‘breaches’ purely because the firm would go bust if they paid the splits they owed. Hence why now you have firms putting caps on the payouts. It’s an unsustainable business model based on people losing and then denying the payouts of the actual successful traders if it’s too high. It’s a blended model of a casino and an insurance company. It’s also unregulated, but it won’t be long until someone in the prop space goes to prison.
The idea is 90% of traders lose.
So most of the traders are going to lose their fee, and that money is for payouts. They don’t give you real money (exception being 5ers, which I heard they really give you real accounts if you get funded). Anyway, that doesn’t even matter as long as you take your profits in real money. I mean, does it matter if you trade on a demo account if your profits are real money? C’mon… the only thing that matters is to have a serious prop firm and you can pass the challenge. Simple as that.
They do not give you $100k live funds; they have whatever the maximum drawdown is on another live account of theirs from which they copy trade your trades from and make the exact same profit as yourself. It’s called a booking; firms that do not do this are the ones that go under.
They don’t give you money/capital to trade with. Some prop firms even clearly state that it’s a simulated environment. Most of the people will fail their challenges, and it’s the prop firm’s income. Very few will pass it, and even some will encounter issues like slippage (which shouldn’t exist in demo markets) that the firms use to make people fail their challenges. Those who pass might get a few payouts, and some might get banned after a few payouts for whatever reason the firm likes.
What prop firms don’t deny payouts?