How to Start Prop Traditional (Traditional vs Forex & CFD)

If you’re a trader looking to take your investment to the next level, or simply looking for an alternative investment, trading for a prop trading firm can be a great option.

However, with so many firms out there, it can be difficult to know which one to start with. In this blog post, we’ll explore some key concepts that you should know before you start, which are similar for all prop firms, although with slight differences that will decide which one best suits your trading style and needs.

Prop Firm Reputation

New firms are constantly appearing, willing to attract talented traders. But not all of them will survive over time, in fact, some have already disappeared.

That is why it is important to work with those that have been offering their services for more years.

It is also a good idea to check its reputation on specialized websites and read what other users say about it.

For instance, we get our fair share of criticism on FPA, however a healthy discussion is an integral part of any investment approach, a healthy review score is a good initial indicator of the firm authenticity.

Evaluation Process

If you choose a prop firm with an evaluation process, as a general rule, you will have to achieve a profit of 10% in 30 days. This means, there is standard each prop firm should behold if they are expecting serious investors.

If a candidates trading pass this test, they will have another challenge ahead of you with a profit objective of 5% but in a longer time, 60 days.

If they choose a direct funding prop firm, they will not have to pass any test, and can start trading directly.

The downside is, a usually a profit split with worse conditions than the firms with evaluation process.

Becoming a money manager in Forex and CFD for instance, doesn’t always require an evaluation process beyond a regular KYC, but some brokers that provide the service, will only display your managed account publicly if you hit their specific requirements.

If you need help brokers where you would like to start you managed account, feel free to reach out to us.

Account Size

Joining a prop firm requires you to choose the initial size of the account you are going to trade with, as well as the initial amount required to join it, but the larger the size, the higher the initial fee you end up paying.

There are accounts from €1,000 to €500,000, which can be scaled up to several million over time.

For some of our methods we charge as low as 25%, in general, the profit share in forex and cfd for instance varies from 25% to 50%.

There’s also usually 0% management fees, some money managers and prop firm choose to collect extra rebates, depending on the agreements with liquidity providers and brokers.

The Access Fee and Conflict of Interest

To participate, you must pay a fee, which is proportional to the size of the trading account you choose.

In some cases, they will return it to you when the first distribution of benefits is made, but in others, you will have to pay it.

You should also know that some prop firms will require a management fee – a monthly payment from you to have access to their capital.

As you may have noticed, the interests of the prop firms and the traders are not fully aligned because when a trader is eliminated for breaking a rule, he must pay the fees again.

As already mentioned, in Forex & CFDs, thanks to increased competition among brokers, and a more high risk environment, the management fees are usually omitted.

One of the benefits of investing in Forex & CFD prop firm is the relevant maturity of money management software, as well as flexible funding methods and polished investor experience.

If you are to start money management in Forex and CFD, chances are, you will not have to pay any fees, and can start trading day one.

The Profit Sharing Scheme

In the case of challenges with an evaluation process, the distribution scheme is quite beneficial for the investor and can reach 80% or even 90% of the profits obtained.

However, for direct funding accounts, it is established around 50% or 60%. Although it usually increases over time if the trader proves to be good.

When investing in Forex & CFD prop trading, an investor should expect to pay anywhere around 25% to 50% of profit.

Since there are no management fees, Forex and CFD prop firm are motivated to turn higher profit.

This comes with its own risk, hence a rigid evaluation process should be adhered to before making an investment.

Scaling Plan

Even if you choose a small account, there are scaling schemes that will allow you to access larger capital in the future. In some, they can increase the capital by 25% every several months until reaching $2M.

In others, the capital will be multiplied by 2 each time a 10% target is achieved. Also, the profit split can scale up to 90/10.

When starting a Forex and CFD managed account, you will only be able to get the capital you can bring in via broker money management leader board, as well as your own promotional efforts.

Objective and Time to Achieve It

Once you have passed the tests and become a qualified trader for that prop firm, the time limit factor disappears.

This means that you can carry out a more relaxed trading, adapting to the rhythm of the market and focusing on not exceeding the limits of the DD.

The Allowed DD

One of the most important rules that we must respect, if we do not want our account closed, is to stay within the allowed DD range at all times.

There is a maximum daily DD limit set at 5% and another limit for the general DD, which cannot exceed 10% of the initial balance of the account.

Keep in mind that the calculation of the DD the open trades are taken into account, that is, the equity.

Trading During the News

As a general rule, it is not allowed to open or close positions during the interval between the two minutes before and after the news.

This can be a problem, even if your strategy is not based exclusively on the news, since it is difficult to control the trades that an expert advisor opens. Make sure you understand the requirements of the prop firm. Usually, they are in place to protect the investors.

You can find other types of challenges in which it is allowed to open trades in the news, although you will find other restrictions such as the minimum duration of a trade, which will also complicate your operations.

When comparing it to Forex and CFD money management, usually the restrictions only depend on the broker, and usually are minimal, this makes this approach more flexible, but has also is open to abuse by unexperienced traders.

Keep Positions Open Over the Weekend

Another of the rules that complicate your operations and that leaves swing traders out is the impossibility of leaving trades open during the weekend. Some modalities do allow it but in exchange for lowering the leverage or the DD allowed.

From compliance with this rule and the previous one, it is clear that prop firms look for intraday traders or with a system that looks for a few pips in a period of time between a few minutes and a few hours.

Minimum Trade Duration

Since the main goal of a prop firm is to replicate your trades in their own real money funded accounts, they are not interested in you opening trades that last a few seconds.

For this reason, even if it is not clearly specified, it is possible that five trades that last less than 5 seconds will send you to the starting box, and you will have to pay the fee to start over.

No such restriction is applied to Forex and CFD money managers, unless specified by a liquidity or execution providers (brokers).

The Platform and Assets That You Can Choose

Regarding the platforms available to carry out the challenge, you will find the most popular such as Metatrader4, Metatrader5, cTrader or FIX API.

And as for the assets in which you can operate, you have at your disposal a wide range that includes Forex, Indices, Crypto, and Commodities.

The Leverage of the Account

In this aspect, there are important differences between the different prop firms. While some limit leverage to 1:20, others offer up to 1:100. It is an important detail that affects, above all, the size of the positions.

With Forex and CFD a money manager can get an up to 1:1000 leverage, although, there are rare occasions with this amount of leverage can be justified. The standard for forex is x100, with some instances of x500 (we use it on Athena EA).

Educational Material

The educational material that many prop firms make available to you is of great value to most traders, with videos that explain the rules of the challenge in detail, as well as more general trading concepts. It is also possible to participate in social content and get advice from other users.

A serious prop firm wants you to achieve your goal because they are looking for successful traders to work with in the long term, so they will invest in you.

However, you will also find others that just want you to stay out so you can pay a new fee and try again. They will focus the investment on advertising to get new traders every day, who pay new fees to participate.

There is a bunch of free education materials, this should strengthen your basic understanding of the price formation, news impact and other nuances of day trading.

Try to not get overwhelmed at this stage, as a lot of knwoldge comes through experience on demo and especially live accounts.

Demo Account or Real Account

You will be surprised that, although these companies promise to provide you with accounts funded with large capital, in reality, they provide you with demo accounts with imaginary money.

However, you should not worry about this detail, your trades will be copied to other accounts that do have real money and that will generate the desired benefits.

From a legal point of view, this detail makes things easier since you will not be managing large capitals, just operating an account with fictitious money.

In Forex and CFD you either choose to manage capital with MAM/PAMM or through a copy trading. Usually brokers offer both and it really comes to the matter of preference.

Support Quality

When you have open trades in Forex or Crypto, if you have a problem with your trading or your platform, you need a quick response, because the market moves very fast. A quality support team, who trusts you and wants you to achieve your goal, will answer your questions in less than an hour, even in a few minutes.

Manual or Automatic Trading

The use of trading robots is allowed in most cases. But before you pay the fee and start a challenge, you should get similar results on your account with your favorite broker. Use your capital, even if it is small, to understand the underlying strategy and learn to strike a balance between profit and DD.

Some expert advisor creators have developed specific robots to pass the challenges, in which the maximum daily DD can be adjusted, for example, so that all operations are closed before reaching the allowed limit.

Getting a 10% profit in 30 days is an ambitious goal, and the risk we take is proportional to the goal.

You’d need a Algos(s) with a high win rate and many trades with a small TP because we cannot leave trades open on weekends, and we will also have to turn it off during the news, unless we choose a swing-type challenge.

Many traders choose a robot with a grid and martingale scalping strategy. This is an aggressive strategy that can work if we are lucky that during that month, the price does not turn against it, and the grid levels remain low.

But it does not stop being a more risky approach. Our top grid trading robot Athena EA, has made above 400% in 2.5 years, but has due to no-stop loss methodology, despite the outmost risk management precautions is still trading allowed to trade with 10% of our total equity.

Conclusion

Choosing the best prop trading firm can be a challenging task, but by understanding the key concepts, you can make an informed decision that suits your trading style and needs.

Keep in mind that each firm has its own rules and requirements, so it’s essential to do your research and assess which one best suits your goals.

With the right strategy, risk management, and dedication, you can succeed in a prop trading challenge and take your trading to the next level.

Reach out if you are interested in trading for us or already do your own prop trading and have interest in working together.

Safe Trading
Team of Elite CurrenSea 🇺🇦❤️