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With increased globalization, technological advancements, and fluctuating geopolitical landscapes, the trading world has changed dramatically. Prop trading has emerged as a lucrative way for both novice and expert traders to make high-value moves and earn profits. But here is the bitter truth: Not all prop firms are the same, and signing up with the wrong one can put an end to your trading journey before it even begins. So, before you rush into signing up with a prop firm, consider the following aspects. 

Funding Requirements

Most prop firms require traders to complete a funding challenge before they have access to funds. These challenges are designed to test a trader’s skills and ability to follow predetermined trading rules. Traders are given a demo account and asked to make moves in a simulated environment using virtual funds. However, you will be required to trade under live conditions. Violations of any kind during the prop challenge phase can lead to delayed or reduced funds. 

The key rules and considerations of a prop firm challenge include profit targets, daily loss limits, and risk management. 

Profit targets – Traders must hit a profit target, typically between 8% and 10%.

Daily loss limits – Traders must limit their daily losses to 3-5%.

Risk management – Traders must adhere to predefined risk parameters to avoid maximum losses. 

Prop firms pay special attention to the trader’s emotional control and ability to keep up with high-pressure situations. Determine whether the profit targets are doable, keeping in mind drawdown and daily loss limits. Take help from external sources to successfully pass a prop firm challenge.

Profit Splits

Next, analyze the profit split policies of the prop firm. The typical split ranges between 80/20 and 90/10, with the trader keeping the higher percentage. Depending on your performance and experience, you can advocate for a higher profit split. Moreover, consider if the prop firm has scalability features. You can demonstrate good performance and earn higher profits. 

Firm’s Reputation and Reviews

Not every prop firm is legit, so carefully examine the firm’s reputation. Analyze the following factors: social footprint, customer service, transparency, and regulatory compliance. Look beyond the firm’s website and check its social media, such as Facebook, Twitter, and LinkedIn profiles. If the firm has a large number of negative reviews, it would be wise to consider another funding firm. 

Pro tip: If the prop firm is promising unrealistic profit amounts or quick-rich programs, it is most likely a scam. 

Support and Education

A reputable prop firm offers more than just capital. They connect traders with industry leaders and provide educational resources so they can polish their skills. For beginner traders, this can be the foundation for a successful trading journey. 

Conclusion

Finding the right prop funding firm is difficult, but not impossible. Analyze how doable the prop funding challenge is and whether you can abide by the predetermined trading rules. Make sure the prop firm is offering favorable profit splits. Lastly, a reputable firm with positive reviews and mentorship opportunities can help you achieve financial independence sooner than expected.