Are Forex Prop Firms Legit? (2024)


  • What are prop firms?
  • How do prop firms make money and are they legit?
  • Why are prop firms not regulated?
  • How to tell a good prop firm from a bad one?
    • Ratings and reviews
    • Prop firm's website
    • Requirements and limitations
    • Customer support
  • Is it possible to earn money with prop firms?
  • How to earn money with a prop firm?

Prop firms are becoming more and more popular with Forex traders. They seem to be a good option for traders, especially new ones. In fact, they seem to be too good to be true. Therefore, many Forex traders ask the question: are prop firms legit or they are just a scam?

What are prop firms?

Before deciding whether prop firms are legit or not, we should establish the terminology. What are prop firms? Prop firms, or proprietary firms if we are to use the full name, are companies that employ and fund traders who then participate in markets on the company's behalf.

The type of prop firms that retail Forex traders are most likely to encounter, and the one that is discussed in this article, is scouting firms. Scouting firms are online prop firms that allocate capital to traders who then use it to trade on markets, and the resulting profits are split between the company and the trader (with the trader usually taking the sizeable chunk of profits).

So, any trader can request funding from a prop firm, get it, and trade without any risk, with any of his mistakes harming only the firm? That indeed sounds too good to be true. Of course, things are not that simple.

How do prop firms make money and are they legit?

The simple answer to the question "are prop firms legit?" is: yes. In principle. There is nothing inherently scammy about the business model of prop firms. But how do they make money then?

For starters, prop firms, of course, do not give money to just anyone who asks. Typically, they have a multi-stage evaluation process to make sure the traders they employ know what they are doing. The evaluation process usually has strict requirements and limitations that traders have to adhere to pass. Those requirements and limitations can include a profit target, a drawdown limit, a time limit, etc. For example, a trader may need to achieve a profit target of 10% of the account size in 30 days with a maximum drawdown of 10% of the account size. Such requirements ensure that only the most successful traders, who are unlikely to cause big losses for the company, can get funds from the firm.

Additionally, prop firms also collect fees from their traders. It can be evaluation fees, fees for trading a live account for those who have passed the evaluation, or both. The fees often ensure that even a failed trader can be profitable for the prop firm.

Buy if prop firms are legit, then another question arises.

Why are prop firms not regulated?

The vast majority of prop firms are not regulated. If they are dealing with money, why they do not have the same obligations as Forex brokers, for example?

For starters, prop firms are dealing with their own money, not someone else's. This alone allows prop firms to avoid the lion's share of regulations.

On top of that, many prop firms do not give traders real money to manage. In these firms, even traders who have passed evaluation and got access to a "live" account are actually still trading on a demo account with virtual capital. That means, technically, no trading or other financial transactions are taking place. Sure, the firm may replicate successful trades of the funded traders on the firm's real account. But, again, those are trades made by the firm itself with its own capital.

And in general, prop firms insist that they are not financial institutions and do not provide financial services. The most common way prop firms present what they are offering is "financial education". Some regulators find that questionable, and it is possible that in the future new legislation will demand Forex prop firms be regulated in a similar fashion to Forex brokers. But for now, prop firms for the most part manage to avoid regulations and still manage to stay within the bounds of the law.

Sometimes, the lack of regulations is not an entirely bad thing. It, at least in theory, makes getting funded by prop firms simpler and cheaper. At the same time, one should not forget the biggest problem with the lack of regulation— the lack of protections for traders. That means that traders are largely on their own when they have to decide whether to trust the specific prop firm or not. That makes the following question especially important.

How to tell a good prop firm from a bad one?

Do you remember that it was earlier said that the answer to the question "are prop firms legit?" was "yes" but with the added qualification "in principle"? That means that, while prop firms are not scams by their nature, it does not mean that there cannot still be plenty of scammers posing as prop firms. There are many beginner traders among those attracted by prop firms, and such traders are especially tempting targets for scammers. So how to tell a good prop firm from a bad one? There are several considerations.

Ratings and reviews

For starters, you can see what other traders say about the prop firm you are considering joining. Look for the firm on rating sites (such as TrustPilot). See if the firm is on lists of good prop firms (such as this one). Read what traders say about the firm.

Remember, though, that ratings sometimes can be manipulated, and reviews can be fake. If a review seems too positive, and especially if you see several such reviews written in a short space of time, you should be suspicious. At the same time, you should not listen to all negative reviews either. Traders can write negative reviews just because they have failed due to not understanding how prop firms work and what is required from traders that work with such firms.

Remember: just because a firm is popular and well-known, it does not guarantee that you will not have issues with it. Still, a firm that took years to build up a good reputation is less likely one day to decide to just take all the clients' money and run away than a firm that was created yesterday.

In conclusion: stick to well-known prop firms with good reviews and high ranking. And avoid firms with bad reviews or no reviews at all as well as with no online presence, including a website, posts or mentions on social platforms, videos from or about the firm on YouTube, etc.

Prop firm's website

Go to the prop firm's website. How good is it? A legit prop firm should have a well-designed site. If the firm's site looks poorly and full of spelling mistakes then it is likely a scam.

Requirements and limitations

You should consider how strict are requirements and limitations for the evaluation period as well as for traders that have passed the evaluation. Either extreme is bad.

If it is impossible (or almost impossible) to fulfill the requirements imposed by the prop firm, then it is a scam aimed to collect fees for failed evaluation attempts.

But if requirements are very easy to meet it is also suspicious. After all, legitimate prop firms want to protect themselves from losses and therefore fund only the best of the best. Giving money to just anyone is obviously an unsustainable business model. That means if almost anyone can pass the firm's evaluation, then most likely the firm just wants to collect money from as many traders as possible and does not intend to pay anything back.

If requirements and limitations described on the site are unclear and confusing it is also a worrying sign. It means that the prop firm likely wants to use the lack of transparency to interpret the rules the way that would allow it to close the trader's account due to a perceived violation of rules without paying anything back.

Customer support

Legit prop firms that want their traders to succeed should have good customer service. After all, online trading is very fast, and sometimes minutes or even seconds can mean the difference between profit and loss. Therefore, any issues a trader has should be resolved as quickly as possible. And if a firm has bad or non-existent customer service then it is probably a scam. And even if it is not an outright scam, it is still a bad firm to trade with.

Is it possible to earn money with prop firms?

Probably the most burning question Forex traders will have about prop firms is "can I earn money trading with prop firms?". Well, the same as with the question "are prop firms legit?" the answer to this one is not as straightforward as yes or no. The simple answer is: yes, you can. In theory. But the sad truth is that you will probably will not.

As was said previously, prop firms only fund the best of the best. It means that more than 70% of traders fail to pass the evaluation test. And less than 10% of traders get to the profits split.

Opponents of prop firms use the extremely low number of successful traders as evidence that the whole model of prop firms' business is a scam. But proponents of prop firms deflect such criticism by pointing out that less than 10% of Forex traders are successful when they are trading with their own funds. It means that the chance for successful trading with prop firms is about the same as trading on your own.

But if you are a successful trader with a working profitable trading strategy, why would you want to join a prop firm? Especially considering that it is usually more profitable in the long term to trade on your own account than with a prop firm. The answer is the lack of initial capital. Not all traders, especially if they have just begun their career, have several thousand dollars to burn.

So, you are a trader with a working strategy who still needs bigger capital to trade. Does that mean you should consider joining a prop firm? Well, you should consider the requirements and limitations that the firm has for the evaluation period as well as for funded traders. Typically, prop firms value consistency over big profits. That means their rules usually severely limit the risk a trader is able to take without losing their account. Additionally, there is usually a profit target and a time limit, especially during the evaluation period. That means prop trading favors short-term strategies over long-term ones. Are you certain that your strategy falls within these parameters?

In general, you should consider trading with a prop firm only if all of the following statements are true:

  • You have a working trading strategy.
  • Your strategy is able to produce consistent results.
  • Your strategy aligns with the requirements and the trading style of the prop firm you want to join.

How to earn money with a prop firm?

There are additional considerations that can maximize your profits and minimize your risks when trading with a prop firm.

One of the most important things to remember is that you do not have to trade exclusively with one prop firm. In fact, experienced prop firm traders recommend joining as many trustworthy prop firms as you can. That way you do not put all of your eggs in one basket. And if one firm experiences trouble or turns out to be a bad one you will not lose all your money.

The fact that you do not have to trade with one prop firm exclusively means another very important thing. That the answer to the question "whether I should trade with prop firms or on my own" is not a binary one. You can very well trade both on your own account with your capital at the same time as trading with a prop firm. And indeed, seasoned traders advise you to have your own account in addition to accounts of prop firms.

This is the common strategy successful prop traders employ:

  • Use your personal trading account that you fund with your own capital as your main account.
  • In addition, trade with at least two prop firms.
  • Withdraw funds from your prop firm accounts monthly to avoid losing them if the firm encounters some issues or turns bad.
  • Add the withdrawn funds to your personal account to grow your own capital.

That way, you minimize the risk of losing all your funds in case some of the prop firms have troubles while growing your personal capital at the same time. And if you are indeed a successful trader (and to trade with prop firms you have to be one), you can ultimately grow your capital to the point you no longer need prop firms and can trade completely on your own.

You can look at our list of selected prop trading firms if you are having trouble choosing a prop firm to trade with.

If you want to share your opinion, observations, conclusions, or simply to ask questions regarding Forex prop firm trading, feel free to join a discussion on our forum.

Are Forex Prop Firms Legit? (2024)


Are Forex Prop Firms Legit? ›

Legit prop firms don't offer capital to just anyone. To get funded, you'll need to complete a 1 or 2-Step challenge process that puts your trading to the test. Prop firms that are legit require specific profit targets, requirements, and maximum drawdowns that you must adhere to.

Do prop firms really pay out? ›

Statistics on Average Trader Payouts

Profit Split: The average prop firm will offer a 80-20 profit split once you become a funded trader. TFT, on the other hand, gives up to a 90% split, — even as high as 95% in some promotions — the highest in the industry.

How do I know if my prop firm is legit? ›

Look for the firm on rating sites (such as TrustPilot). See if the firm is on lists of good prop firms (such as this one). Read what traders say about the firm. Remember, though, that ratings sometimes can be manipulated, and reviews can be fake.

Is trading for a prop firm worth it? ›

Is working with a prop firm worth it? There are many unique advantages that make working with a prop firm worth it. These include access to unique software and information, trading with the firm's capital, and cashing in a large portion of your winnings.

Which prop firms are legit? ›

Funded Trading Plus is a well-known prop firm in India that offers funded trading accounts to traders. They have a unique approach where traders are required to pass a challenge before receiving a funded account. The challenge consists of two phases – the evaluation phase and the live trading phase.

What are the negatives of prop firms? ›

- Traders in prop firms often have limited control over the firm's capital. They may need to deposit their own money as collateral or risk management. - Additionally, payouts are subject to the firm's rules, which may restrict a trader's access to profits.

What is the failure rate of FTMO? ›

According to FTMO statistics, only about 10% of traders are able to pass the funded account challenge at any account level. This means approximately 90% of aspiring funded traders fail the evaluation and are unable to gain access to the firm's capital.

Are forex prop firms legal in the US? ›

Currently, online forex prop firms are legal, although there is lacking documentation and regulation for prop firms to follow. It is not illegal to operate or trade with a prop firm. However, where most online prop firms come unstuck is in their business practices and terms of service.

Are prop firms a pyramid? ›

There is a very slim likelihood that they will succeed if the prop firm does not have their best interests in mind. Actually, one could compare the 95% of prop companies to a pyramid scheme. They either set you up to fail or compensate you with other traders' losses.

What happens if you lose money in a prop firm? ›

Proprietary trading firms often provide evaluation accounts where you prove your trading skills. Usually, you pay a one-time fee to enter this “challenge.” If you lose money during this evaluation, you won't owe anything beyond the initial fee.

Can you make a living with prop trading? ›

Also known as “prop trading,” it offers higher earnings potential much earlier in your career than jobs like investment banking or private equity. It's arguably the most merit-based industry within finance: if you make millions of dollars for your firm, you'll earn some percentage of it.

What are the risks of prop firms? ›

You are trading with the prop firm's account. So, while trading, you don't risk your own money to potentially make a profit. If you lose the account due to violating any rules, you lose the account, but there are no additional consequences like losing extra money.

How many people make money with prop firms? ›

The percentage of profits that a prop firm takes can vary, but it is usually somewhere between 10-50%.

How to check if prop firm is legit? ›

Review The Evaluation Criteria

Legit prop firms don't offer capital to just anyone. To get funded, you'll need to complete a 1 or 2-Step challenge process that puts your trading to the test. Prop firms that are legit require specific profit targets, requirements, and maximum drawdowns that you must adhere to.

What is the best prop firm for beginners? ›

Apex Trader Funding is the best futures prop trading firm on this list for a variety of reasons, but most notably because it boasts the highest pass rate for its evaluation program out of all the futures prop firms on this list. It is also by far the most friendly option for beginner futures traders.

Is FTMO trustworthy? ›

Having successfully operated since 2015, we provided thousands of clients with their FTMO Accounts, and in total, we have paid out over $160 million. We've also been featured in Forbes and awarded by Deloitte and EY multiple times.

How much does a prop firm pay you? ›

Base salary: Most prop trading firms offer their traders a base salary, which is usually paid on a monthly or annual basis. This salary can range from $50,000 to $100,000 for junior traders and can go up to $500,000 or more for senior traders.

What percentage do prop firms take? ›

The percentage of profits that a prop firm takes can vary, but it is usually somewhere between 10-50%. So, for example, if a trader makes $10,000 in profits, the prop firm might take a 30% cut, leaving the trader with $7,000.

How do prop firm payouts work? ›

Profit split

Many will take 50% of the profits, but some have been known to take as much as 70% or more. That said, the best prop trading firms may start allowing traders to keep 80% or even 90% of the profits, but these programs might be slightly pricier upfront.

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