Prop Firms EXPLAINED! (Beginners Must-Watch)

Summary

In this video, a million-dollar funded prop firm trader explains how virtual prop firms allow traders to access large amounts of capital without risking their own money. The video covers how to pass prop firm challenges, avoid scams, and choose reputable firms by considering their reputation, profit-to-drawdown ratio, and pricing. With over 1,000 successful traders helped, the presenter shares valuable tips on increasing your chances of becoming a funded trader, highlighting that only a small percentage of participants succeed. The video offers practical advice and insights for those looking to thrive in the prop trading world.

Takeaways

• 😀 Prop firms offer traders access to capital without risking their own money, allowing them to trade on larger accounts and share profits.
• 😀 Virtual prop firms operate through an evaluation model where traders must prove their skills before gaining access to funded accounts.
• 😀 Traders can choose from different account sizes, ranging from $10,000 to $200,000, and pay an evaluation fee to begin the process.
• 😀 To pass the evaluation, traders must hit specific profit targets without exceeding daily or overall drawdown limits, such as 5% or 10%.
• 😀 If traders successfully pass the evaluation, they are granted a funded account, with the opportunity to keep around 80% of the profits.
• 😀 Reputable prop firms refund the initial evaluation fee once the trader makes their first payout.
• 😀 Choosing the right prop firm requires evaluating their reputation, the profit-to-drawdown ratio, and the price of the challenge.
• 😀 A good profit-to-drawdown ratio makes it easier for traders to pass the challenge and trade more profitably.
• 😀 Be cautious of prop firms offering unusually low prices, as this could signal an unreliable or short-lived company.
• 😀 Avoid scams by researching the firm's history, ensuring they have been in business for several years, and confirming there’s a real person behind the firm.
• 😀 Only about 6-7% of traders who sign up for a prop firm challenge get funded, and even fewer (1.75%) make a payout, making it essential to increase your odds with effective strategies.

Q & A

What is the main benefit of using prop firms for traders?

The main benefit is that traders can access significant amounts of capital to trade without using their own money. This allows them to earn a profit share without the financial risk of losing their own funds.

What is the difference between traditional prop firms and virtual prop firms?

Traditional prop firms, like banks or hedge funds, would train traders and evaluate them in person before granting access to capital. Virtual prop firms, on the other hand, operate online and use an evaluation model with different stages, allowing traders to qualify for funded accounts after passing specific trading challenges.

How do the evaluation challenges at virtual prop firms work?

Traders are given a demo account and must meet specific profit targets without violating risk parameters, like not losing more than a set percentage per day or overall. If they meet these targets, they progress through the challenge phases and can eventually receive a funded account.

What are the typical profit and risk limits on funded accounts in virtual prop firms?

Typically, funded accounts have a daily loss limit of 5% and an overall loss limit of 10%. Traders are required to make consistent profits while staying within these risk parameters.

Why is it advantageous for traders to use larger capital accounts at prop firms?

Larger capital accounts allow traders to scale their profits without doing more work. For instance, with a $100,000 account, making a 10% profit could result in $10,000, whereas a smaller account would yield much less from the same percentage gain.

What are the three key factors to look for when choosing a prop firm?

The three key factors are: reputation (how long the firm has been in business and the reviews from other traders), profit-to-drawdown ratio (the ease of hitting profit targets with acceptable risk), and pricing (ensuring the fees are reasonable and in line with industry standards).

What might indicate that a prop firm could be a scam?

Warning signs include very low prices compared to the industry average, the lack of a transparent company with identifiable representatives, and the allowance of high-frequency trading (HFT), which is often associated with scams.

How can online review platforms help traders avoid scams in prop firms?

Platforms like Trustpilot and Prop Firm Match can provide insights into the reputation of a prop firm, showing user reviews and feedback that may highlight scams or shady practices.

What percentage of people who sign up for prop firm challenges actually succeed in getting funded?

Only about 6-7% of people who sign up for prop firm challenges pass and get funded. Even fewer, about 1.75%, actually make a payout.

What can traders do to increase their chances of passing a prop firm challenge?

Traders can follow proven strategies used by successful funded traders. One such strategy is available through specific demo courses that teach how to approach prop firm challenges and increase the likelihood of passing and getting funded.