Broker or modern prop trading firm? Which is better?

Modern prop trading is changing the world of financial market trading today. What in the past was the domain of investors and traders with large amounts of investment funds is now available to virtually everyone thanks to the modern prop trading industry.

Just a few short years ago, a potential Forex trader had to have a relatively large amount of funds to ensure that his trading made any sense. Today, the situation is vastly different, as modern prop trading firms, with FTMO as the leader in the this industry, are operating in the market, offering virtually all traders options they never dreamt of only a few years ago.

In order for a trader to trade, say, a hundred thousand dollars account, he had to have a very good job where he could earn that money, be lucky in the lottery, inherit a large sum of money, or, and this was really the worst case scenario, borrow money to trade. Today, all he needs is a few tens or hundreds of dollars, a good trading plan, a few days to meet the requirements of the Evaluation Process, and he can easily have an account of a few hundred thousand dollars.

The traditional way is not for everyone

For those traders who did not have the aforementioned hundred thousand dollars needed to trade, there was a relatively high probability that their trading would be unsuccessful. The need to achieve returns at any cost usually leads to a violation of one's trading plan and risk management rules, which sooner or later leads to an account reset. When a trader feels that every trade has to end with a high return because otherwise he will not make any money, it is a very disadvantageous starting point for him. The psychological pressure thus increases with each successive losing trade, and eventually the trader is not afraid to lose anymore (he holds losing trades unnecessarily long in the belief of a turnaround), but he is afraid to take profits (he closes every profitable trade prematurely because he is afraid of a reversal). Alternatively, it leads to a “revenge trading” after a series of losses as well as increased position sizes, which only leads to the road to hell in the form of an account deletion.

After all, a trader may have a fairly good strategy that he has backtested and tested on a demo account. In Forex, however, everyone has to accept that it is impossible to trade without having losses. Then, when a series of losing trades comes at an inopportune time, when a trader starts on a real account, with each additional loss being almost existential for the trader, a problem is brewing.

Modern prop trading as a solution for all?

Modern prop trading firms have virtually solved this problem of small accounts and psychological pressure on traders over the last few years. It is true that this way of trading will not make everyone who tries it a Forex professional overnight, but it has certainly helped many traders.

A trader who chooses to use the services of a modern prop trading firm needs a relatively small capital compared to what he or she may end up with trading. For a few tens or hundreds of dollars, a trader gets an opportunity to trade an account of the size he could never afford, which leads to a financial as well as mental boost.

Of course, the trader has to meet some conditions that firms set for providing a demo account with fictitious funds, from which he can be rewarded for his performance with up to 90% of the simulated profits he generates. Within these conditions, the trader must achieve a set return and follow the rules of risk management and money management.

There is no harm in rules

For some, these conditions may seem like a problem at first glance, because traditional brokerage companies do not require anything like this. On the other hand, it can be said that when a company provides someone with a trading account, it wants to know if its potential client is able to compete in a market such as the Forex market.

Moreover, these rules will help many traders to actually reach the stage where risk management and discipline will be the main factors in their success. There are many traders who have hardly addressed any trading plan or risk management rules before trying a modern prop trading firm. All they saw was the possibility of making a quick buck and the expensive toys they could buy with the money they earned. It was only the rules set by the modern prop trading firm that forced them to become disciplined traders with a clearly defined plan. Then they have no need for revenge trading, they go for their goal and after meeting the conditions and getting the account size they want, they know that a losing trade will not ruin them.

It is this psychological well-being that is probably the biggest positive factor that modern prop trading firms offer their clients and traders. Some may not like the fact that a trader has to share his profits with the firm. The aforementioned psychological well-being, which inevitably leads to potentially better long-term results, is then an extra bonus that is almost priceless.