What Are the Key Parameters to Consider When Choosing a Prop Trading Firm?


Jeremy BiberdorfBy: Jeremy Biberdorf

June 2, 2023June 2, 2023

Proprietary trading firms or “prop firms” are companies where professional traders trade the company’s money to make a profit. They’ve been increasingly popular among both beginner and experienced traders alike. If you’re considering a career in this field, it’s essential to understand the key parameters to consider when choosing a prop trading firm.

1. Trading Platform

The trading platform offered by prop trading firms is paramount to your success as a trader. It should be user-friendly and offer the necessary features to execute your trading strategies efficiently. Some firms offer their proprietary trading software, while others might use commonly known platforms. Ensure the platform fits your trading styles and needs.

2. Training and Support

A reputable prop firm should provide comprehensive training programs and ongoing support to help you become a successful trader. This includes education on various trading activities, such as day trading and macro trading, and more sophisticated strategies like merger arbitrage and volatility arbitrage.

3. Evaluation Process

Prop firms usually have an evaluation process or evaluation program that traders must pass before becoming a professional trader with the company. This often includes a two-phase evaluation period, like the FTMO challenge or a standard challenge on practice accounts. The evaluation model is designed to assess your trading skills and ability to manage trading risk.

One great example of an effective evaluation process is SurgeTrader. For an in-depth understanding of how their evaluation process works and what it means for traders, consider reading our SurgeTrader Review. Their system is well-regarded in the industry and might give you a better perspective on what to look out for in an evaluation process.

4. Profit Share

The profit split or profit share offered by a firm is a significant consideration. Successful traders would want a fair share of the profits they generate. Most prop firms offer a profit target to aim for and then split the profits between the firm and the trader. This ratio can vary, so it’s crucial to understand the terms before signing.

TopstepTrader is one such firm known for its competitive profit share structure. To gain more insight into their profit share policies and how they compare with others in the industry, check out our TopstepTrader Review. This review could give you valuable information on what to expect from a prop trading firm’s profit sharing arrangement.

5. Capital Provided

One of the significant advantages of joining a proprietary trading firm is the provision of substantial trading capital, which proves beneficial for undercapitalized traders. Prop firms step in to bridge this gap, providing the resources necessary for a trader to maximize their potential returns. The extent of funding can, however, differ across firms.

When evaluating a prop trading firm, consider the amount of capital they are willing to provide. Is it adequate for your trading style and the strategies you intend to employ? It is crucial to find a firm that offers a funding level you would be comfortable and confident trading with. This provision of capital can be the determining factor between a profitable trade and one that falls short.

6. Trading Autonomy and Rules

Proprietary trading firms that lead the industry tend to provide their traders with relaxed trading rules and a significant degree of autonomy. Freedom to navigate different market conditions, experiment with strategies, and trade across various asset classes, including Forex funds, can empower traders to make the most of every opportunity.

When considering a prop firm, review their trading policies and rules. Are you confined to trading certain assets, or are you free to explore as you see fit? Are there restrictions on the trading strategies you can implement? A firm that offers flexibility in these aspects could be a better choice, providing you with the space to grow as a trader.

7. Firm’s Reputation and Regulatory Adherence

A firm’s reputation in the financial markets is an essential aspect to consider. It gives you an idea of the firm’s reliability, success rate, and the value they place on their traders. Look for firms that have built a strong reputation in the industry, such as City Traders Imperium.

Alongside reputation, the firm’s regulatory adherence is also vital. A reputable firm should be a registered market maker and should comply with all trading regulations. This adherence ensures a safe and secure trading environment for its traders. Researching the firm’s history, its regulatory compliance, and success stories can offer a comprehensive understanding of what to expect from the firm.

To gather deeper insights into a firm’s reputation and operational ethics, consider reading reviews or seeking feedback from traders associated with the firm. These first-hand accounts can often provide valuable, unbiased insights into the working of a prop trading firm.

8. Location

Some prop traders might prefer to work in a bustling financial hub like Hong Kong, while others might prefer trading remotely. Consider the location of the firm’s proprietary trading desk and whether this aligns with your preferences.

Final Thoughts

Choosing the right prop trading firm is essential to your trading success. It’s recommended to do your due diligence and weigh all these factors before making a decision. Furthermore, if you are interested in the role of cutting-edge technology in prop trading, you can learn more about it here. For those looking to break into prop trading, we also have an article detailing the essential skills, qualifications, and experience required here.

Are you ready to take the next step in your trading career? Visit Modest Money’s best-funded stock trading accounts to find the right prop trading firm for you. With the right firm, you’ll be well on your path to financial independence.

Jeremy Biberdorf
Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. He's a father of 2 beautiful girls, a dog owner, a long-time online entrepreneur and an investing enthusiast.

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