Prop firms for futures trading (short for proprietary trading firms) allow traders to trade with the firm’s capital rather than their own. This can be an appealing opportunity for aspiring or experienced traders who want access to larger amounts of capital and leverage without risking significant personal funds. The firm provides traders with a funded account, and in return, the firm takes a cut of the trader’s profits. Here’s how they generally work:
1. Evaluation Process
Before providing traders with firm capital, most prop firms require traders to pass an evaluation or trading challenge to assess their skills and discipline. This typically involves:
- Simulated Trading: Traders are asked to trade on a demo (simulated) account following specific rules, such as:
- Meeting a specific profit target (e.g., $5,000 in profit).
- Staying within a predefined drawdown limit (e.g., not losing more than $2,000).
- Adhering to risk management rules, such as max position size or max daily loss.
- Time Limits: Some firms require traders to achieve the profit target within a given timeframe (e.g., 30 days), while others may allow more flexibility.
If a trader meets the profit target and adheres to the rules, they “pass” the evaluation and qualify for a funded account.
2. Funded Accounts
Once a trader passes the evaluation, they are given access to a funded account with the firm’s capital. The account size is often determined by the trader’s performance during the evaluation.
- Account Sizes: Prop firms typically offer various account sizes, ranging from $25,000 to $500,000+. The size of the account a trader is offered depends on the firm and the trader’s results during the evaluation.
- Leverage: Prop firms generally provide access to high leverage, which allows traders to control large positions with a relatively small amount of capital.
3. Profit Sharing
Prop firms earn revenue by taking a percentage of the profits made by the trader. The typical profit split is around 70-90% to the trader and 10-30% to the firm. Some firms offer scalable profit splits, where traders can keep a larger share of the profits as they demonstrate consistent performance.
- Example: A trader generates $10,000 in profits. With a 70/30 split, the trader keeps $7,000, and the firm takes $3,000.
4.Direct-to-Funded Accounts
Many prop firms now offer direct-to-funded or instant funding options, allowing traders to skip the evaluation phase entirely and start trading with a live funded account immediately.
- No Challenge: Traders don’t have to complete any evaluation or demo trading period, making it an attractive option for those who are already confident in their trading skills.
- Higher Fees: These accounts typically come with higher upfront fees compared to evaluation-based accounts because they involve more risk for the firm. For example, you might pay $500 to $1,000+ upfront depending on the account size.
- Risk Management Rules Still Apply: Even with instant funding, traders must still adhere to the firm’s risk management rules, such as daily loss limits or overall drawdown restrictions.
5. Risk Management
The prop firm’s main concern is ensuring that traders manage risk properly, as they are trading the firm’s capital. Traders must adhere to strict rules regarding:
- Daily Drawdown: Maximum loss allowed in a single day.
- Max Loss: The total drawdown limit on the account, often referred to as a “trailing drawdown.”
- Position Limits: Limits on the size or number of contracts traded.
If a trader breaches these rules, the firm may terminate the account or require them to requalify.
6. Evaluation Fees
Prop firms usually charge a monthly fee or one-time evaluation fee for the trading challenge or simulated account. The fee typically ranges from $100 to $300 per month depending on the account size.
- Example: Apex Trader Funding charges around $167/month for a $50,000 account evaluation. These fees help the firm cover costs and ensure traders are committed.
7. Activation Fees
Once a trader successfully passes an evaluation or gains access to a direct-funded account, many firms charge a one-time activation fee. This fee covers the administrative costs of setting up the funded account and sometimes includes access to trading platforms or proprietary software.
- Activation fees typically range from $100 to $200, though this varies depending on the firm and the account size.
8. Scaling and Growth
Many prop firms allow traders to scale their account as they show consistency. For example, if a trader proves they can manage risk well and consistently make profits, the firm might increase their account size or reduce the restrictions, allowing for greater earnings potential.
Example Prop Firms for Futures Trading(details and discounts in the prop firm section)
- ProfitTrade Funding https://profitradefunding.com
- Apex Trader Funding: Focuses on futures traders, offering various account sizes and profit splits.
- Topstep Futures: One of the most well-known futures trading prop firms, offering structured evaluations.
- MyFundedFutures: Also supports futures traders with a funded account and evaluation process.
7. Advantages of Prop Firms for Futures Traders
- No Risk to Personal Capital: Traders are trading with the firm’s capital, reducing personal risk.
- Access to Large Capital: Traders can access significantly more capital than they might be able to afford on their own.
- Leverage: Firms provide leverage, allowing traders to control large positions with minimal capital.
- Profit Opportunities: Successful traders can earn large sums by keeping a significant portion of their profits.
8. Potential Drawbacks
- Evaluation Fees: You need to pay upfront or monthly fees for the evaluation process.
- Strict Rules: Breaching the firm’s rules, such as daily loss limits or position size restrictions, can result in termination.
- Profit Sharing: You don’t keep 100% of the profits, as the firm takes a cut
Conclusion
Risk only what you can afford to lose!
Futures trading prop firms offer a range of opportunities for traders, from evaluation-based accounts to direct-funded options. Whether you choose to undergo an evaluation or start with instant funding, it’s important to understand the firm’s rules, fees, and profit-sharing model. Activation fees, risk management requirements, and account scaling options all play a role in how much capital you can control and how much profit you can keep.
If you’re confident in your skills, direct-to-funded accounts offer a fast track to trading live capital, while evaluation-based accounts provide a cost-effective way to prove your strategy before risking firm funds.
