If you’re trading futures, working with a proprietary trading firm (prop firm) can open doors that individual trading accounts often can’t. From increased buying power to a professional support system, prop firms offer several advantages that can help you take your trading to the next level.
But how does it all work, and what are the key benefits—and potential downsides—of trading with a prop firm? Let’s dive into what makes prop firm trading so appealing for futures traders.
What Are the Benefits of a Prop Firm?
Prop firms offer more than just capital—they provide an ecosystem designed to support and grow your trading career. Here are the main benefits of partnering with a futures prop firm:
1. Access to Capital
Prop firms provide traders with significantly more capital than they’d typically have on their own.
Why it Matters: Futures contracts require margin, and having access to larger capital allows you to hold bigger positions, potentially increasing your profit potential.
Example: Instead of trading one micro E-mini contract, you could trade several contracts, maximizing your gains during high-volume sessions.
2. Risk Management Support
Prop firms have robust risk management systems designed to help traders stay within safe parameters.
Guidelines and Limits: They set drawdown limits and daily loss caps to prevent significant capital erosion.
Why it’s Beneficial: Having guardrails in place keeps you from making emotional decisions that could blow up your account.
3. Lower Costs and Higher Leverage
Futures prop firms often offer lower fees and provide leverage that retail brokers can’t match.
Lower Commissions: Some firms pass on lower transaction fees, improving your overall profitability.
Increased Leverage: Leverage allows you to control larger positions without tying up all your own capital.
4. Advanced Technology and Tools
Prop firms often invest in advanced software, faster execution, and data analysis tools.
Benefits for Futures Traders: Faster order execution can make the difference during volatile trading sessions.
Proprietary Tools: Many firms offer custom-built dashboards and trading platforms to help you track key data points in real-time.
5. Education and Mentorship
Many prop firms provide educational resources and mentorship programs.
Why it’s Valuable: New traders can shorten their learning curve with guidance from experienced mentors.
What’s Included: Live coaching, webinars, and recorded lessons focused on futures trading strategies.
What Are the Pros and Cons of Prop Firm Trading?
Pros:
Access to large capital allocations.
Lower fees and increased leverage.
Risk management support.
Access to proprietary tools and advanced platforms.
Profit-sharing without risking personal savings.
Cons:
Performance targets can add pressure.
Strict rules for drawdowns and daily losses.
Profit splits—traders don’t keep 100% of their earnings.
Evaluation fees to prove your skills before gaining access to capital.
Why Do Prop Traders Make So Much Money?
Prop traders can make significant profits because they’re trading with more capital and benefiting from:
Leverage: The ability to control larger positions amplifies potential returns.
Profit Splits: While the firm takes a share, many prop firms offer competitive splits (e.g., 80% to the trader, 20% to the firm).
Scalability: Successful traders often receive larger capital allocations, which means more profit potential.
What Happens if You Lose Money in a Prop Firm?
If you lose money while trading with a prop firm:
During the Evaluation Phase: Your account may be terminated, and you’ll need to reapply or reset your evaluation.
After Being Funded: You typically don’t owe the firm for losses. Instead, your account balance resets, and you may need to meet new performance goals.
How Does a Prop Firm Make Money?
Prop firms generate revenue in several ways:
Evaluation Fees: Traders pay for access to evaluations to prove their trading ability.
Profit Sharing: The firm takes a percentage of trader profits.
Account Resets: If a trader violates rules, they may need to pay for an account reset to continue trading.
Do You Have to Pay a Prop Firm Back?
No, in most cases, you don’t have to reimburse the prop firm for losses. Instead, the firm absorbs the losses as part of their risk structure. However, failure to follow the rules may lead to account suspension or termination.
How Much Does a Prop Firm Pay You?
Prop firms typically operate on a profit-split model. The exact percentage varies but commonly ranges from:
70%–90% of profits go to the trader.
The remaining 10%–30% is retained by the firm as their share.
For example, if you earn $5,000 in profits with an 80/20 split, you’d keep $4,000 while the firm takes $1,000.
How Much Does It Cost to Join a Prop Firm?
The cost depends on the firm and account size - find out the true cost to a funded account here:
Evaluation Fees: Usually range from $50 to $500+ depending on the program and starting capital.
Reset Fees: If you violate the rules, resets typically cost $50 to $150.
Monthly Fees: Some firms charge ongoing fees for funded accounts, while others do not.
How Do You Succeed in Prop Trading?
Success in prop trading requires a blend of skill, discipline, and strategy. Here are key steps:
1. Follow the Rules
Stick to the firm’s drawdown limits and daily loss caps. Consistency builds trust and increases your chances of scaling up.
2. Manage Risk
Use stop-loss orders and position sizing to stay within your risk tolerance. Avoid taking oversized positions that could trigger an account reset.
3. Stay Patient and Focused
This is often the most difficult aspect of trading. Avoid revenge trading after losses. Stay calm and stick to your strategy, even when the market gets volatile.
4. Take Advantage of Resources
Use the firm’s educational tools, mentorship programs, trading courses, and software to improve your decision-making and execution.
Why Trade Futures with a Prop Firm?
Futures prop firms provide unique benefits for futures traders:
Lower Margin Requirements: You can control large futures positions without tying up all your personal capital.
24/5 Market Access: Futures markets trade almost around the clock, offering more opportunities for trades.
Diverse Contracts: Trade everything from E-mini S&P 500 contracts to crude oil futures and currency futures.
Final Thoughts
Trading with a prop firm offers futures traders access to larger capital, better tools, and a professional support network. While there are challenges—such as performance targets and evaluation fees—the benefits often outweigh the costs for those who approach prop trading with discipline and a solid strategy.
If you’re considering joining a prop firm, make sure to understand their rules, payout structures, and reset fees. Find a firm that matches your trading style and goals, and you could unlock new levels of trading potential.
Ready to get started? Compare prop firms, choose the right one for you, and take that first step toward a funded futures account.