Futures Prop Firms - Ponzi Scheme or Legit Business Model?
I'd love to get BFI's take on the futures prop firm industry - Apex, TopStep, My Funded Futures, etc, etc. For those who are unfamiliar... You pay a small fee for an evaluation account. You then trade that account and have to achieve a profit target (usually 5-6%) while avoiding a max drawdown (usually 2.5-3%). There's also consistency rules to eliminate windfall/gamble trading.
When you pass an evaluation, you get a "funded account" which I put in quotations because even at this stage you are still trading a demo account, albeit they pay you for whatever you make on this demo, usually to the tune of around a 90/10 profit split.
Clearly, there's a conflict of interest here. They can't have too many profitable traders because they are paying them out with the money they make off the bad traders who buy/fail/re-buy evaluation accounts. Or is it the case that they are also copy trading off their top tier traders?
I recently passed my first evaluation account and will start trading a funded account in the coming week. It's a 50K account that I will be trading (MNQ, MES, and MCL scalping)... Would love to hear from anyone else who may have experience with it.
8 Replies
https://www.reddit.com/r/Daytrading/comm...
Sounds like the well is drying up and the ponzi stall tactics are starting
https://www.reddit.com/r/Daytrading/comm...
Sounds like the well is drying up and the ponzi stall tactics are starting
Hah. That was the thread that prompted me to start this one (I'm not a member on reddit)... Definitely a little concerning. But it does seem like the ones who are having issues are using Rithmic as their broker (you have the choice of that or Tradovate). Fortunately I'm using Tradovate and haven't had any problems thus far. But if they're invalidating payouts based on broker issues outside of the trader's control, that's a bad sign for everyone involved :(
Goodbye 50K. You should be more worried about the return 'of' your money than the return on your money.
These futures prop firms always pop up and somehow disappear in the silence of the night every few years.
My guess would be that modern day prop firms are scams and/or ponzi schemes. That said, I started my trading career in prop firms. But that was in the 80's and the prop firms were legit back then. All of the Chicago pits (CBOT, CME, CBOE) needed market makers and prop firms could provide them. The prop firms filled a need.
Now? Now there is no need to provide market makers. These days markets are made by algo's. Now? There are no barriers to entry in any market. No need for a pricey floor badge and minimum balance (25K+) trading account. Now? Now anybody who wants to trade can with little money and access to any online account. Now? If you can't make it on your own now with no barriers to entry and no minimum $ required you aint gonna make it with a prop firm either.
My guess would be that modern day prop firms are scams and/or ponzi schemes. That said, I started my trading career in prop firms. But that was in the 80's and the prop firms were legit back then. All of the Chicago pits (CBOT, CME, CBOE) needed market makers and prop firms could provide them. The prop firms filled a need.
Now? Now there is no need to provide market makers. These days markets are made by algo's. Now? There are no barriers to entry in any market. No need for a pricey floor
All good points. Although... I don't think traders are drawn to the modern prop firm because they can't make it on their own, rather because the ability to scale up is much more attractive. Most of these firms offer the ability to trade up to 20 accounts (through a copier obviously), so making 2% a month on a 50K account multiplied by 20 accounts is 20K a month. No one is going to make that starting out in a small personal account.
Granted, there's a lot of "ifs"... If one can play by all their rules, if one can be consistent enough, etc. I think some of these stories of prop traders getting denied payouts is because they don't read the fine print in terms of how you can and can't trade. You're not allowed to DCA or scale into positions. You can't use mental stops. Things of that nature. I've seen plenty of traders get payouts from them and they usually all have the common denominator of being extremely rule-oriented and process driven.
Or maybe that was in the past and as coordi said, the well is drying up... I suppose we'll see. I don't think anyone can sustain modern prop trading as a career. But if you can perform and follow their rules, get a handful of payouts, that can be a spring board to trading a meaningful amount on your own.
Interesting article... But I would disagree with his opening remark that the SEC/CFTC needs to shut this industry down immediately. There's no deception going on. If you read the terms and conditions, they make it plainly clear that you are not trading a live futures account. And I'm a firm believer that people should be allowed to do what they wish with their money. It's supposedly a free country, right? Unless you want to trade CFDs and then you have to be based somewhere else 🙄
If you're a competent trader, I think they're a useful tool for now but obviously shouldn't be relied upon. I wouldn't get a payout and then hand in my 2 weeks notice at work or anything. But Apex, for instance, has been around for 3 years and has paid out literally in the hundreds of millions to traders. I don't think they're going anywhere barring some insane black swan event.
Also, I find it a little hypocritical that this guy is lamenting the poor "Sham Shop clients" getting fleeced when the entire trading landscape operates based on a sizeable percentage of participants being fleeced due to lack of skill, knowledge, resources, etc.
It's similar to playing a low stakes tournament versus low stakes cash games. You can torch a lot of money very quickly playing cash. But in a tournament you can get a lot of play, with a chance to 20x your buy-in, for a much smaller amount. Apex routinely has 80% off sales. I bought my evaluation account for $35. When I passed I paid a one time $160 fee for the funded account. I'm in for less than $200 of actual dollars and have $2,500 of simulated drawdown to work with. If I blow that up, I'm out $200. If I was trading a personal account, I'm out $2,500 real dollars.
