Introduction to the Prop Firms for Day Trading
10/7/2024, 3:26:26 PM
Prop firm trading can be an excellent venture for your day trading journey. You can trade big evaluations without risking your own money, and you can also raise your skills.
Introduction to the Prop Firms for Day Trading
Prop firms have been quite popular as they provide several benefits for day traders. All you need is to choose a firm, fulfill the evaluation criteria, and move to the funded stage. You can handle a funded account and split the profit in the funded stage.
Let’s have an overview of the prop firms and how you can leverage your day trading by working with top Forex prop firms.
What are Prop Firms?
Proprietary trading firms offer online trading through a partnership with the traders. These firms provide funded accounts to the skilled traders and then split the earned profit. So, you can evade substantial risk by trading your money and managing a big sum without investing yours. Here’s how these firms usually work:
- Evaluation Phase: You must showcase your trading skills and consistency during the evaluation phase. The firm provides you with a demo account with a specific objective. It’s like a test every trader must pass (meet all objectives in a given time) to move to the funded phase. - Funding Phase: Once you pass the evaluation, you will progress to the funded phase. Usually, there are no profit targets, so whatever you make is divided between you and the firm. Prop firms can scale your funding depending on your performance. - Profit Sharing: Any profit you make is shared according to a split ratio. Depending on the firm, this ratio ranges between 50% and 90%. - Trading Rules: Each firm has different programs with different sets of rules. The most important rules include the drawdown limit, profit target, consistency rule, and news trading.
Benefits of Trading with Prop Firms
Day trading demands focus, precision, and substantial money to benefit from short-term price movements. Prop firms provide several advantages for day traders with their resources, tools, and capital. Here are some key benefits:
Access to Capital
How much money could you make trading a $50 account? Perhaps, you blow it in a few days. Or maybe you double it if you gamble with big lots. However, can you make a consistent profit with such an account size? Of course not!
But you can purchase a challenge with any renowned prop firm and gain access to a $5,000 account. All you need is to stay above the drawdown limit and reach the profit target. Similarly, you can gain access to a $100k account by paying the challenge fee.
Low Entry Cost
A decade ago, there were hardly any prop firms around. Most entities used to offer expensive mentoring programs followed by the funding phase. Thanks to the recent prop firm saga started after COVID that gave birth to several firms. Now, the entry cost is quite nominal. With $32, you can gain access to a $5,000 account with FundingPips. You may also join their trading competition at no charge.
Tight Risk Management
Each prop firm imposes strict risk management rules, including daily loss limit, drawdown limit, no news trading, and low leverage. Such rules may irritate newbies, but they are for the betterment of day traders. It’s easy to burst an account but hard to maintain it long-term.
Scaling
If you start with the lowest account size, like $5,000, it does not mean you will stick to it forever. As a day trader, if you manage to achieve consistent profit, the prop firm can gradually scale up your account to $2 million or even more. With a regular trading account, you can only dream of achieving it, but prop firm trading promises you this destination if you don’t stagger and stay consistent.
Challenges of Prop Firm Trading
Day traders may benefit from prop firm trading. However, there are certain drawbacks as well like:
- Firms with hidden rules and terms that never pay profits - Restriction on certain trading styles like HFT, news trading, etc - Mental pressure to meet objectives
Top Prop Firms for Forex Day Trading
If you are an old trader but new to prop firm trading, you may find signing up with a legit firm for your day trading challenging. Here’s a comparison of the top four firms that offer you several great features:
The5ers
It’s one of the oldest prop firms that offer diverse programs suitable for day traders. You can start with as low as $39 to get a $5,000 account. By gradually completing the profit target, you can scale your account up to $4 million.
FundingPips
FP is a relatively new firm, but it has gained such a massive response from traders that it now ranks among the top five prop firms. You can start with a $36 challenge fee to get a $5,000 account. You can ask for a payment every Tuesday at 60% split ratio while if you demand bi-weekly payment, the split is 80%. However, monthly payout ratio is 100%.
As you progress, you get a chance to scale up your account. FundingPips' unique selling feature is its trading competition, which gives you the opportunity to grab a funded account for free.
FTMO
FTMO is a popular prop firm that started in 2014. They offer a $10,000 account with €155. They also offer stocks, forex, and crypto so you can diversify your day trading portfolio.
FundedNext
FundedNext is perhaps the youngest firm among the four. For $32, you can get a $5,000 account. They also offer a monthly trading competition.
Final Thoughts
Day trading is fast-paced and needs keen focus and suitable trading conditions. Prop firms provide you with substantial capital at a low cost. You can benefit from their resources and support to sharpen your trading skills. You may also adapt to become a disciplined trader.
