The futures market has become even more accessible with prop firms.
They take the risk and give you a chance to prove yourself.
With prop capital, the barrier to entry has gotten smaller for traders.
If you have 50-150 dollars, you can give yourself access to leverage up to $50k.
Here is how it works in a nutshell:
You buy an account often ranging between 50-150
They will give you an account valued at 50k or so and gives you some objectives
An example of an objective can be make 3k without losing 2k
Some have more rules, e.i. do it in 5 days minimum, others say you can only trade 5 contracts max, etc.
By abiding by the rules given, you enter into a “contract” to use their simulated funded account and trade it meet the profit goal.
When you do, they will pass your account and give you a similar account, that now you can withdraw from.
Of course, they also have rules for that too, often times separate and different than the testing phase.
They expect more from you and want you to adhere to stricter rules or payouts will become unavailable.
Here is an example of both stages below:
Tradeify has a 50k Growth Account for $90.
You pass if you make 3k without losing 2k.
After passing that first challenge, below are the rules for withdrawal:
Trade 10 days minimum
5 days have to be 150 minimum
The account balance must reach 52,100
The consistency of each day should not be more than 35%
By following these rules, you withdraw some of the profits into your bank.
Now you must be thinking, how is that profitable for the prop firm?
Well, they say 90-95% of traders fail their tests, and if they get to the passed stage known as Funded, they will likely not get to payout due to any of those rules above.
It’s designed to make sure the “losers” will pay the winners.
So it charges traders for a chance to get access to capital, but when they lose, the revenue becomes the pot that pays out the profitable traders who make it to payout.
Essentially, follow rules to get paid.
That’s what it boils down to.
Now of course, the accounts don’t actually give you the full amount, but they give you the leverage of said account value.
This means you can trade bigger size even if the the max you can lose in those accounts is 2k.
Now why is this important and why did I want to bring this up?
Leverage.
They say success is leverage and I really believe in that.
Regardless of the kind of leverage, it often translates into whatever you want.
Whether it be money, power, freedom, or a new iPhone.
It just gives you options and the ROI is 5-15x more with prop firms.
So for that $100 dollar fee you pay to pass an account, you can often withdraw $1500, 2000, that’s after having followed the rules, multiple times.
That’s about 15-50x leverage for you buck.
The only risk is the 100 dollars you put up.
This is very different compared to personal/live accounts.
In live, the risk you are putting up is the whole balance, whereas funded accounts are a fraction.
When you do the math, it becomes obvious why it’s a great starting place for new traders and those who lack capital.
You can scale massively and quickly, as long as you can follow some rules.
So the question is are the rules worth following?
You could just risk your own money and follow your own rules that are probably different and more flexible.
That’s a good point, but the risk still stays the same for live accounts.
You will lose the whole balance if you fail.
And saying I won’t fail in trading is hilarious.
You will, it’s just a matter of how much.
That’s the difference maker.
If you want to check them out yourself, here is a reputable firm — Tradeify.
Till next time,
Abraham