TL;DR:
To choose the best prop firm, look for a strong reputation, favorable profit splits, low spreads, flexible trading style options, and transparent rules. Ensure they offer good support, educational resources, and scale-up opportunities for successful traders.
Main Points:
- Check the firm’s reputation and reviews.
- Review profit splits, drawdowns, and time limits.
- Ensure the firm supports your trading style.
- Look for low spreads and transparent costs.
- Evaluate their support and resources for traders.
- Choose firms with clear account evaluation processes.
When it comes to prop firms, there are plenty of options to choose from. This industry has seen significant growth in recent years, and plenty of firms want to partner with individual traders.
So, now that you know what prop firms and prop trading are, thanks to the first chapter in this guide, how do you find the best prop firm? What makes one prop trading firm better than another?
Keep reading to learn about reviewing what prop firms have to offer. We’ll focus on the benefits that are most important to traders. Why? Because this guide is all about helping traders, just like you, find the best prop firms for their needs.
Qualities of the Best Prop Trading Firms
There are certain traits you can look for in prop firms that show reliability and a general sense of trustworthiness. Similarly, there are some factors that tend to help traders, which are vital for earning a profit split through successful trading.
We don’t want to just make a list of the prop trading firms that have these qualities – we want to explain what they are, so you can make an informed choice for yourself. Let’s take a closer look.
Reputation and Track Record
Over time, prop firms build a reputation. And it’s not too hard to see what that reputation is. From casual conversations in trading forums to vetted reviews on well-regarded sites like TrustPilot, it’s a good idea to see what others have to say about a firm you’re interested in.
These reviews won’t always give you the most specific info or in-depth comparisons, like which prop firms have the best spreads. However, they will give you a sense of other traders’ experiences and satisfaction (or lack of it) with a given prop firm.
Take a little time to look at reviews and important information about the firms you’re interested in. It’s always worth it to find the best prop firm instead of choosing the first one you come across.
Profit Split, Payout Guarantees, Drawdowns & Time Limits
The best prop firms for Forex and all other assets should make their profitability splits, drawdown structure, and challenge time limits clear. Our suggestion is to see what the firms you’re considering have to say.
Here are some questions to ask (and the answer to all of them should be a clear “Yes!”):
- Does the prop firm offer payout guarantees?
- Does the firm explain its payout schedules and profit splits clearly?
- Prop firms with balance-based drawdowns give traders a more flexible loss limit. Does the firm offer a balance-based drawdown?
- Prop firms with no time limit challenge models make it easier to stay compliant with trading rules, even if you can’t focus on trading every day. Does the firm have challenge options with no time limit?
Registration and Regulation
To ensure that a prop firm is actually trustworthy, traders should check two things: whether the firm is registered or not, and whether the firm is properly regulated or not.
Registration demonstrates that the firm is recognized by financial institutions or governing bodies. It shows the firm’s commitment to lawful operations and establishes trust with traders. A registered firm is less likely to engage in unethical practices, as it is subject to oversight.
Regulated prop firms adhere to stringent rules designed to protect traders’ funds and maintain fair trading practices. Regulatory compliance ensures that the firm operates with integrity, safeguarding your investments against fraud or mismanagement. Additionally, working with a regulated firm often means access to clear dispute resolution processes, should issues arise.
Thus, before committing to a prop firm, verify its registration and regulatory status. This can usually be done through financial regulatory bodies or directly on the firm’s website. Be wary of firms that lack clear information about their regulatory credentials, as this could be a red flag.
Flexibility in Trading Style
There are plenty of different ways to be a successful trader. From scalpers, who focus on trades lasting for just seconds or minutes, to swing traders, who hold assets for days or weeks, traders have many styles.
Our best advice is to look for firms that align with your trading style. Whether you prefer algorithmic trading, copy trading, or any other specific trading method, look for a list of restricted or prohibited trading styles and strategies. This will inform the trader whether their way of trading is viable or not. If a firm doesn’t offer that information, it’s a major lack of transparency.
What to Look for When Choosing the Best Prop Firm
The factors we listed in the previous section can help you make sure a prop firm is reliable and well-suited to your trading style. The factors we are about to discuss now will establish how good the prop firm really is.
Spreads and Execution Costs
Spreads are the difference between the price of selling an asset and buying an asset. On a practical level, it represents the cost of a transaction when trading.
Low spreads help traders keep more profit from successful trades, so they’re an important consideration. The best prop firms make their spreads clear to traders before they purchase an account.
At FundedNext, we commit to offering consistently low spreads, among the very lowest in the prop trading world. That means traders spend less on each transaction and keep more of their funds.
Capital and Funding Requirements
One of the most basic and important benefits of prop firms is their ability to offer a variety of account sizes — in other words, simulated trading capital — far above the available assets of most individual traders.
While traders still have to purchase an account, that cost is fixed and provides simulated capital much larger than the account cost itself. This empowers the trader to trade at a scale that wouldn’t be possible with traditional retail trading, providing valuable flexibility and additional options.
So, as you review different prop firms, compare the account cost to the account size. For example, check out the account size and account fee options for our Stellar, Evaluation, and Express challenge models.
It’s also important to look for scale-up opportunities. The very best prop firms give successful traders the option to increase their account size when they consistently meet scale-up rules and requirements.
Account Evaluation Process
Prop firms depend on successful traders to earn their profits as a business. So, most reputable prop firms require prospects to complete a challenge phase before gaining full access to an account.
As you evaluate different prop firms, ask yourself these important questions:
- Do you only have so much time each day, week, or month for trading? If so, does the prop firm offer challenge models without any time limits?
- Does the firm offer rewards during the challenge phase?
- If I fail the challenge and want to try again, is there a reset option and discount?
- Does the prop firm make the rules, requirements, goals, and rewards for each challenge clear?
Support and Resources
The best prop firms offer more than just an opportunity to trade and earn a profit. They also provide leading trading platforms, consistent trader support, and educational resources related to trading.
Make sure the firm you choose doesn’t just give you the bare minimum and leave you to figure out the rest. They should have these support structures and resources in place to help traders. Ultimately, the best prop firms want their traders to be successful, and these assets play a key role in supporting good trading performance.
Finding the Best Prop Trading Firm for You
This information can help you find exceptional prop firms and focus on the details that really matter when spending your hard-earned money on a challenge account.
Now that you know how to find a reliable prop firm, learn more about choosing the right type of challenge account for your schedule, trading style, and more, in the next chapter of our guide.
Ready to prove your trading skills? Take a closer look at our Evaluation Model and start trading with a FundedNext Account.
