Is Prop Trading a Good Idea?

Oct. 27, 2021

I get more emails about prop trading than any other subject.

Maybe more than any other subject combined.

And that makes me very nervous.

Because I feel like people are being taken advantage of.

Most of the emails I get are from people without a lot of saved capital. They are intoxicated about the allure of trading a prop firm’s money without having to use any of their own.

It reminds me of people being told to buy five houses with no money down during the Great Housing Crisis of 2008.

I don’t want people getting hurt.

At the same time, a prop firm like FTMO could be a savior. Passing Challenges and becoming a Verified prop trader theoretically means a trader could receive payout checks for the rest of his/her life — while only having to put up a small amount of money at the start.

It’s like buying a house with no money down and then having the house skyrocket in value. In that case, someone originally had no money and then has a lot of money. That could be life-changing.

Prop trading can make a big positive impact.

So, which is it? Should we all try to become prop traders?

The first step to answering this question is to know all the information. To become an FTMO Verified Trader (we don’t get paid until we’re Verified), we have to pay money to play. It costs anywhere from €155 to €1,080 to just get started.

Then, in one month, we have to make at least a 10% profit without losing more than 5% in one day or 10% in one month. Make no mistake, that’s really hard. Doable, but hard.

If we pass that high hurdle, we then have to make 5% more in the next sixty days to become Verified (without losing 5% in a day or 10% in a month, of course).

If we don’t make that 15%, we forfeit our money. In fact, even if we pass initially, if we break the drawdown rules at any point, we have to start all over and pay more money to try again.

Passing is hard, and even if we pass, we’ll be under pressure for the rest of our trading career due to the unrelenting drawdown requirements.

You can see how the math can get tricky. If it takes a long time to pass a Challenge, or if we end up never passing at all, we’ve given up a pretty substantial amount of money. Money that could have been put in a savings account, an index fund, or (my favorite) a personal trading account.

Plus, trading a small personal account can potentially make about twice as much as passing a $10k Challenge. (I did a video on that subject and you can watch it here).

That said, what if we pass?

What if we pass, say, a $100k Challenge and get to profit-share an account of that size? If we get Verified and trade this account indefinitely, making 30% annually, we could receive $24,000 of checks per year for a mere $1,257 USD investment. Plus, if our account grows, so do our checks. And if we passed two accounts, we’d get twice as much.

That’s potentially a big deal and a significant return on investment.

So, is it worth it? Is the reward worth a possible big initial outlay of money?

If so, then we need to answer the big question.

How could we pass the Challenge?

And we’ll talk about that in the next Newsletters.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.