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Forex Prop firm vs Personal High Leveraged Account

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  • First Post: Edited 11:06am Oct 15, 2022 5:46am | Edited 11:06am
Hi there. I failed to see how the new breed of 'prop firm' is helpful to traders. If you are a good trader you would be much more profitable trading your own account.

Below is a compounding calculator for a 100k account. The risk here is 0.5% per SL for a 1:2 RR trade(assuming 5% maximum drawdown, so we risk a tenth of that). So, 1% per TP. Say, per day you would win 3 trades. That is 3% per day. Calculator is here https://www.myfxbook.com/forex-calcu...ing-calculator

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Below is a 499usd account(price of 100k challenge). Risk here is 10% per SL for a 1:2 RR trade(assuming 100% maximum drawdown, so we risk a tenth of that). So 20% per TP. Per day, you would win 3 trades. 60% per day.
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The amount you would gain with personal trading account is astronomically better than you would if you were to trade using a prop firm taking the same amount of risk. I compared 40 days to 40 days. In reality prop firms evaluation on average would set you back about 10 to 20 days which would reduce the Gain even further.

Can someone please enlighten me why prop firm is better and if my logic is wrong?
Thanks for starting this thread and topic; I'm sure it will generate a lot of interesting opinions.

What you present is certainly one way to look at it, but what if...

If and when you are able to generate profits with a prop firm, try it with the next level accounts

And keep on increasing the account size to the Maximums?

How else do you explain these types of payout claims?

I seriously doubt it was from the very 1st attempt and going for broke with the largest, most expensive account.

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If you trade like me, you'll be homeless and broke within a week.
Texas-2-Step All Time Return: -1.0%
Hi erebus.

To get to 48k profit you need to do roughly 4 steps of 3% to pass evaluation and another 7 steps of 3% with a 'funded' account. So, a total of 11 steps.

If you do 11 steps of 60% with a 998 usd account. You would get 174.5k usd.

So, personal account still gives better returns.
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One problem with Prob firms is that you are not really trading with 100k or some other amount funds supposedly allocated to you. Instead there are numerous traders using the same liquidity which the prob firm then tries to protect by setting unreasonable demands and margin requirements. In worst case also the allocated funds are being b-booked which makes the situation even worse.
There is another point to consider.

1. Risk your own money with a broker that may/may not be above board and who may/may not be around tomorrow. Crypto case in point.
2. Risk some money, gain an account, your own money returned, now trade not using your own money? Stay within the rules, get paid.


If you cannot afford for a broker to disappear with your money, what would be the safest option!
prop firms are only here to make money off dreamers. Something like 99.95% of traders fail so its pure profit for them.
Quoting Redbaron81
prop firms are only here to make money off dreamers. Something like 99.95% of traders fail so its pure profit for them.
Dreamers ..... And what are brokers providing?
Can you show the source of where you saw the analysis regards 99.95% fail with prop firms? Not disputing it but that is interesting when compared to the
90+% who fail with a standard broker.
Quoting moodybot
There is another point to consider. 1. Risk your own money with a broker that may/may not be above board and who may/may not be around tomorrow. Crypto case in point. 2. Risk some money, gain an account, your own money returned, now trade not using your own money? Stay within the rules, get paid. If you cannot afford for a broker to disappear with your money, what would be the safest option!
I would go for the point 2. If you trust your process, it does not matter where the money comes from as long as your process works.
I'm definitely on the side of a personal account. I have tried and tried various different type of prop firm, direct funding (with some success), 2 step challenges ( with zero success).
I finally bit the bullet and thought to myself why not trade my own capital and touch wood things have gone really well.

Its interesting if you do a search top hedge fund performance no 1 comes in at annualised 3y weighted return of ~52% and these " prop firms" want people to " prove" their trading by hitting 10% per month.
I don't know why that figure has become something of an industry standard among these firms

IMO if they wanted to find profitable traders they just traders a demo account with a dd limit and trade for 3-6 months and judge their performance something like that.

I do think people should not get down or upset if they don't pass or fail or don't perform well with these firms it might not be the strategy, or the trader, but maybe the environment they are trading in.
If someone is good at trading but have "insufficient" fund to trade properly then prop firm is the way. Or if he's good but still doing it part time due to his day job. These are the only scenarios that makes sense.

If someone is not good at trading then he must go with a demo account.
If someone can produce double digits profit per trade then it's the personal account route that's better.
If you want to make a lot of money, go to where money is in abundance.
If I have $500 in my personal account and achieve 10% profit in a month, I make $50.
If I spend $500 and buy a $100,000 challenge which I pass, then go on to make 10% as a funded trader, I make a trading profit of:
$10,000 of which I receive $8000 after the profit split.

I then transfer the $8000 into my personal account and do the same again next month. I make another $8000 which goes into my personal account.
If I had just traded in my personal account I would have $605.

I can't see how the idea of just trading your own capital makes sense, unless you have a large enough amount, which is exactly why prop firms are used?
Quoting Supertrader9
I failed to see how the new breed of 'prop firm' is helpful to traders. If you are a good trader you would be much more profitable trading your own account.
I don't think many people are suggesting that a funding company (they're not actually prop firms) is better than trading your account.

They're for different groups of people.

Funding companies are not targeting people with enough capital to trade their own accounts.

Quoting Supertrader9
Can someone please enlighten me why prop firm is better and if my logic is wrong?
I don't think your logic is wrong. I think you've just missed the point about who funding companies ("prop firms", as you've called them) are designed for and whom they're trying to attract.
I have been thinking about it also a lot. I know personal account is much better 100% but it's difficult to conceptualise. It's just a mindf*ck for new people to attract.

I was thinking about it in terms of repackaged leverage:

So example prop firm challenge costs like 500$ and you get 100K to trade with.
Effectivily this is 10K because only 10K you are allowed to lose.
And most prop firms are on 1:100 margin.
So you can trade for 500$ with 1M capital (10Kx100)

Prop firms have bigger spreads, more slippage etc. You pay also a lot other hidden fees.


Second senario
You take Raw Spread IC markets for example, tight spreads
(only with raw spread accounts you can do the 2-3 pip SL)

With offshore broker you have easy 1:500 or 1:1000 margin

If you deposit 500$ into your account this 250K or 500K to trade with.

And you have no stress, no trading restrictions, no evaluations etc.

See the difference?

Please do the math, it's an illusion

That calculation is only if you succeed your challenge, imagine also more than 90% fails the challenge

It's made to fool people really, they just give lower margin and make it look like you are trading with big capital, it's no difference
===

And the 10% myth is also not correct;
10% on 100K = 10K
10% on 500 = 50

500 to 10K = X20


——

100K = 1M (1:100) prop firm
TRADES 1% risk = 10K = 100K capital per trade
BUT you trade 1% risk = basically 10% risk because you can only lose 10%

500 = 250K (1:500) offshore broker
TRADES 10% risk = 50 = 25K capital per trade

500 = 500K (1:1000) offshore broker
TRADES 10% risk = 500 = 50K capital per trade
Quoting monetary
I have been thinking about it also a lot. I know personal account is much better 100% but it's difficult to conceptualise. It's just a mindf*ck for new people to attract. I was thinking about it in terms of repackaged leverage: So example prop firm challenge costs like 500$ and you get 100K to trade with. Effectivily this is 10K because only 10K you are allowed to lose. And most prop firms are on 1:100 margin. So you can trade for 500$ with 1M capital (10Kx100) Prop firms have bigger spreads, more slippage etc. You pay also a lot other hidden fees....
Hello monetary
I think you missed it. with prop firm you get 10k drawdown with $500. but you only get $500 drawdown with your broker.
So with prop firm we can enter 5 lot with 100 pips stoploss, that would cost us %50 of the allowable drawdown. whereas with personal account you can enter 5 lot with only 10 pips stoploss and you lose %100 of your deposit.

Now you can calculate when your 100 pips takeprofit hit with prop firm account.
With prop funding, you get big capital right off the bat (assuming you pass the valuations phases).
With your own fund, you start with small capital.

With prop funding, you are restricted very much on how you can trade. 5% a day might be a joke to many people because they start with 2% risk per trade and especially if they do intra-day trading.
With your own money, you are free.

$100,000 with 5% profit in a month is $50,000
$1,000 with 30% profit in a month is $200 (if you can make 5% in a month on a prop firm then you can definitely make 30%++ on your account. But if you don't have access to an offshore broker then it's might be tough to get this kind of return).

Compounding is also a big problem with prop funding due to the daily loss limit. Let's say someone made 6% profit by risking 2% and on the next trade he wants to use 2% from that profit and add that to the initial risk, making the risk for the next trade 4%. This is impossible to do because at one point you will be using the maximum risk allowed for the daily limit.

So, if the trader don't have enough fund then go they can go with both. Trade his own account while adding the profit gained from prop firm. Using this technique, at one point, he will have enough fund to equate the gains from using prop firm's capital.

$400,000 x 5% = $20,000 (prop firm)
$100,000 x 30% = $20,000 (own fund)

There are ways to bulk up trading capital as long as you have good trading skills.

*This scenario is good as long as you have access to a good offshore broker.
If you want to make a lot of money, go to where money is in abundance.
I love this topic and signed up to FF just to weigh in. I used to think personal accounts were better.

Supertraders original argument is unrealistic. It's not wrong but to achieve it would be extremely hard on a personal account to compound your way to 50k+ from $500. Sanity would be lost on the way

I have 900K of funded accounts with prop firms. If I'm feeling cautious I'll go for 1-2% which is 9-18K per month. Because I learnt the skill to trade I applied it to trading prop firms. I adjusted my risk reward to fit the challenges. I only need a 50% or even 30% hit rate of passing the challenges to be overall profitable.

The psychological aspect of having a funded account is easier to handle than growing and compounding a personal account. Unless the strategy is solely based on flipping accounts, I actually believe it's not healthy to attempt to compound because it can cause burnout, disbelief and an unhealthy relationship with money.

Prop firms use mostly losing traders money to payout and that's just the way it is. This is how most brokers started and some still operate this way.

Whilst traders in general are still losing I strongly advise everyone to work on their weaknesses. If you are not consistently profitable stop trading real money, stop doing challenges. Get a challenge free trial from FTMO and work your way up to passing 50% of the time. Once you've done that go with any prop firm of your choosing I suggest someone like MFF because they have better rules, cheaper prices and have paid out alot of traders including myself.

Buy a cheap 5k account to see if you can still pass a challenge under pressure. Once passed scale up buy a 10k then 20, 50, 100 etc.

You'll be amazed how quickly you can scale up your overall account size once you're in the flow of it.

A trading friend of mine has $1.2M in funding and he's pocketed $200K since July. He's currently passing more challenges in his girlfriend's name because he wants to stick with the same prop firms that he's getting payouts from. They all have some kind of max allocation usually about 500-600K.

Good luck everyone!

Trader Jono
Quoting JohnKeith
If I have $500 in my personal account and achieve 10% profit in a month, I make $50. If I spend $500 and buy a $100,000 challenge which I pass, then go on to make 10% as a funded trader, I make a trading profit of: $10,000 of which I receive $8000 after the profit split. I then transfer the $8000 into my personal account and do the same again next month. I make another $8000 which goes into my personal account. If I had just traded in my personal account I would have $605. I can't see how the idea of just trading your own capital makes sense, unless...
It doesn't make sense. These people are just bad at math. They want to YOLO trade and think it's the only way to have any success. If the only way you know how to trade is to risk blowing your account then prop firms are not the best option for you.
  • Post #18
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  • Edited 2:15am Jun 29, 2023 2:01am | Edited 2:15am
Quoting Feelas
{quote} Hello monetary I think you missed it. with prop firm you get 10k drawdown with $500. but you only get $500 drawdown with your broker. So with prop firm we can enter 5 lot with 100 pips stoploss, that would cost us %50 of the allowable drawdown. whereas with personal account you can enter 5 lot with only 10 pips stoploss and you lose %100 of your deposit. Now you can calculate when your 100 pips takeprofit hit with prop firm account.

That is the mistake he made. You should take max drawdown. The issue is can you pass the challenge? With no time limit you have more chance, but still it is easier to make mistake as it is some demo setup.
You have 10% total drawdown before you lose the entire account with prop firms. Say you risk 1% per trade, 10 net losses and you lose your account. Same should be said for a personal $500 account. If you are going to risk 1% per trade then you would be willing to risk 10% per trade on the personal account, which would make the personal account much better when you consider compounding.
The personal account is 100% better than having a funded account. If you can't trade a personal account successfully then I doubt you'd be able to trade a funded one, with all its restrictions, any better. (especially considering you have to pass a 2 step evaluation before you can even become a funded trader)
Quoting RichOffEU
You have 10% total drawdown before you lose the entire account with prop firms.

Well, this isn't actually quite right: some allow a lot more than that; some allow a lot less.

By the way, the companies you're referring to in your post are not actually "prop firms" at all: they're spot forex/ CFD funding companies. They're actually two very different things!


Quoting RichOffEU
Say you risk 1% per trade, 10 net losses and you lose your account.

Well, no, actually that's not quite right, either. If you risk 1% of the account-size per trade, and lose 10 in a row, at that point you'd be down a bit less than 10%, unless you forgot to reduce your position-size after each loss, of course, but that would effectively be increasing the position-size as a percentage of the account-size after each loser, and nobody's going to be silly enough to do that, surely?


Quoting RichOffEU
Same should be said for a personal $500 account. If you are going to risk 1% per trade then you would be willing to risk 10% per trade on the personal account

No, sorry but that really doesn't follow at all. The point you seem to be missing, there, is that people's risk-tolerance varies according to whether they're risking their own capital or someone else's. Don't dismiss that concept as "pedantic," as some people might, because it's actually one of the underlying truths behind the entire success of the funding companies' business model, over recent years.


Quoting RichOffEU
The personal account is 100% better than having a funded account.

The mistake you're making with that assertion (just like the one the OP made in his first post) is its underlying assumption that you're comparing like with like, on an equal basis. You're not, of course: the funding companies offering their nominal "$100,000" or "$200,000" or whatever-sized accounts are clearly and obviously aimed at people without equivalent capital of their own, to trade with.


Quoting RichOffEU
If you can't trade a personal account successfully then I doubt you'd be able to trade a funded one, with all its restrictions, any better.

On the contrary: many people have found (and commented publicly) that the fact that they're trading someone else's capital has removed the stresses enough from them to enable them to achieve a steady profitability they've never previously managed, and/or that the discipline imposed by funding company rules are exactly what they were lacking on their own.


Quoting RichOffEU
you have to pass a 2 step evaluation before you can even become a funded trader)

Nope - many funding companies are now offering single-step evaluations.

But apart from those few little points, well done with your first post here, and welcome to the forum!
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