Futures Prop Firms. [2024] - Edge in Markets (2024)

Online Futures prop firms have become very popular among traders in recent years. They are helping traders who don’t have the funds to meet the margin requirements to trade. So, what is an Online prop firm? How do they work? Are they scams? Let’s have a look.

What is a Futures Prop Firm

Futures prop firms are specialized entities that provide traders with the capital to trade futures contracts in exchange for a share of the profits generated, unlike traditional prop firms that might deal in a wide range of financial instruments.

These firms focus specifically on futures trading, which involves buying and selling contracts based on the future price of commodities, indices, and other financial instruments. The allure of futures trading lies in its leverage, liquidity, and the potential for significant returns, making it an attractive proposition for the firms and their affiliated traders.

How Futures Prop Firms Operate

It’s tough to determine precisely how much of their revenue comes from which source. However, most firms charge an Evaluation fee; upon passing the evaluation fee, some firms have “Setup” or “Data fees.” Some portion of their revenue also comes from splitting the profit from their successful traders

These firms typically make money by setting up a profit-sharing arrangement with their traders. For instance, a firm might take a 10% to 30% cut of the profits, although the exact ratio can vary based on the trader’s performance, the level of risk, and the agreement terms

Becoming a Funded Trader

Most funded programs work similarly. A trader is given a profit target and a maximum drawdown before failing the evaluation. Traders must hit the target within 30 days or extend their trial by paying for an extra month.

Some will have consistency rules, such as where the trader can’t make more than 30% of their total profit required from a single trading day. These rules are usually made to ensure traders don’t go all in and pass by strike of luck

When traders fail, they are usually offered” Resets” by paying a small fee, depending on the platform.

Trailing Drawdown:

Trailing drawdown is probably the most controversial aspect of the futures prop firm scene. Drawdown is the maximum amount you can lose before failing the evaluation or losing the live account. It trails as you progress. The trail usually stops at the trader’s starting balance of +100.

There are three types of drawdowns that most firms use

• END OF DAY Trailed Drawdown

The drawdown is pegged to your positive account performance, adjusted at the end of the day, and updated after the market closes.

• Realized Profit Trailed Drawdown

The minimum trailing balance increases with your highest realized balance. It increases with profits, but it does not decrease with losses.

• Unrealized Profit Trailed Drawdown

The minimum trailing balance increases with your highest unrealized balance. It increases with profits, but it does not decrease with losses.

Consistency Rule:

When doing an evaluation, one of the biggest concerns for many traders is the consistency rule. The consistency rule varies from prop firm to prop firm however mainly, there are two types

• Minimum Days

Most prop firms, except a few, will have a minimum trading day of 8 to 15 days. Even when traders reach their profit target, they must trade for at least 8-15 days.

• Maximum Profit per day

Most firms will have a consistency rule. Traders can’t make more than 30% in a single given day. If this is exceeded, the profit target will also be increased automatically to accommodate the extra profit

Why Choose Futures Prop Firm

Prop firms became famous for many reasons,

1. Low entry cost

In a traditional brokerage account, the margin requirement is usually high for trade instruments such as CL ( crude oil ) and NQ ( Nasdaq futures). As of August 2023, the margin requirement to trade CL in TD Ameritrade is 5800$. The micro crude oil margin was at 580$.

Meanwhile, in Futures Prop Firm accounts, you can get an account to trade up to 10cl contracts for less than 200$. This attracts many traders from different levels of experience

2. Lower Risk

When trading a prop account, the firm takes all the risk. The only risk the traders have is losing their evaluation fees if they blow a live account.

3. Platforms

Most platforms use rithmic to set up their accounts, which gives you access to platforms like Ninja Trader and Quanttower.

4. Copy trading

Some firms allow you to have multiple accounts within the same rithmic login; this means you can have 10 different 100k accounts or a mixture of different accounts.

You can trade all the accounts simultaneously using a copy trader. Traders tend to do this to spread their risk between accounts and compound their wins.

Algorithms in Futures prop firms

Algorithmic traders or “quants” can also enjoy the privileges of a prop firm; however, there are some restrictions. When FFN ( Funded network futures ) support was asked about this, they said as long it was an automated trading bot and not an HFT bot (High-frequency trades)

Given the nature of evaluation in a demo environment, using algos that take advantage of the infinite liquidity and instant fills can game the system and tip the scales to the trader side. That is why some firms introduce an amount of trade limit and minimum time in a trade limit. To stop the hyper scalpers from taking advantage of a strategy that won’t work in live markets.

Apex Trading wrote this about Automation:

(source)

Payout

Payout timing and structure are different from firm to firm. Some will allow daily payouts, while others will limit them to weekly and monthly. Most prop firms use DEEL to process their payouts, and traders can choose their preferred withdrawal method through DEEL.

Prop firms to check out:

There are many players in this industry, some better than others. Here are the prop firms that I tried and my experience with them:

EARN2TRADE:

Earn2trade was the first company I got funded with. Their rules are simple, and their career path is too good to pass. The withdrawal screenshot above was from Earn2trade account.

In the Career program, you start with a 50k account. Once you pass, you can choose a live sim account or a live account, start trading

when you reach the profit target of the account and withdraw your money, you can get upgraded to the following account, and so on

this scales to a 400,000$ account.

You also get a free Journalytix License and a simulator account to try it out before doing the evaluation.

Click here to get 40% Off their ALL their plans.

BLUSKY:

One of my favorite firms out there is Blusky. Everything was very smooth, from the sign-up to the evaluation. After passing the evaluation, you are offered one-on-one coaching, which is nice.

Click here to Open your Blusky account

Conclusion

Prop firms provide extreme value for skilled traders who can’t fund a traditional brokerage account. However, the extremely low barrier of entry also incentivizes many traders to gamble their accounts away and not take the challenge too seriously.

Good luck to you all!