Proprietary trading firms have become increasingly popularover the last few years, with retail traders all looking to increase theirtrading capital and become funded traders.
This begs the question, are prop firms good for beginners?The short answer is yes, prop firms are great for beginner traders to learnrisk management, discipline and grow their trading capital.
So, let’s find out more…
Prop Firms - Are They Good for Beginners?
Prop firms are often thought of by new traders as somethingthat is only reserved for traders with a huge amount of experience and yearsunder their belts. The reality is, this isn’t true!
The barrier of entry to becoming a funded forex trader islower than ever and this is providing a huge amount of opportunities fortraders, both new and experienced.
In fact, there are more benefits of prop firm trading fornewbie traders and beginners, due to the strict risk management and disciplinethat is pushed upon you by the rules set out by prop firms.
The Benefits of Prop Firm Trading For Beginners
So, what are the benefits of prop firm trading for newbietraders?
TeachesRisk Management
All prop firms have rules that limit traders with respectto losses, drawdown, risk and trading performance. This forces traders to learnand consider risk management in their trading strategy - something that mosttraders do not consider when trading their own capital.
LimitsPotential Losses
When traders are trading their own capital, there are nodrawdown rules or limits - meaning an inexperienced trader can easily blowthrough their whole account in just weeks. With prop firms, your losses arelimited to just the money you spend on the prop firm challenge - meaning youcannot get into a position whereby you lose your whole trading account.
Education
Prop firms usually provide education resources andmaterials for traders to upskill in their craft and further developthemselves.
AccessTo Higher Levels of Capital
The majority of newbie traders are coming into the industrywith a few thousand dollars. With conservative risk management, it’s notpossible to earn a considerable income with this money. Therefore, prop firmsallow traders to have access to much larger volumes of capital than they wouldbe able to deposit - increasing their potential earnings if profitable.
AvoidGetting Scammed By B-Book Brokers
Newbie traders struggle to differentiate a reputabletrading broker from a scam trading broker, of which there are many! By using areputable prop firm, you can avoid the risk of being scammed by one of theseunreputable brokers, whilst still finding your feet in the industry.
The Drawbacks of Prop Firm Trading for Beginners
Although there are a huge amount of benefits, you must alsobe aware of the potential drawbacks for new traders looking to trade with aprop firm:
TradersCan Lose Their Funded Accounts
If traders violate the rules, for example, maximumdrawdown, they will lose access to the funded trading account. This would meana trader looking to be funded again would need to pay for another tradingchallenge. Obviously, this can prove costly if you are not a profitable traderand lose many accounts.
It MayBe Challenging to Hit the Profit Targets
If you’re an inexperienced trader, it can be hard to hitthe profit targets required by the prop firm. However, firms like The5Ers donot have a maximum timeframe, meaning you can take your time and focus on goodquality trades - without the stress of trying to get funded in 20 days.
It MayBe Stressful
New traders might find trading a prop firm account morestressful and emotionally challenging. Although, I would say that it should beless stressful as it’s not all of your money on the line, as it would be if youwere just trading a brokerage account!
What Should You Check Before Starting to Trade With A PropFirm?
Although prop firms are clearly very beneficial for newbietraders, you should still check a number of factors before you jump in anddecide to pay for a trading account challenge!
Firstly, you should understand the rules set out by theprop firm as some prop firms will be better suited for you than others. It’seasy to violate the rules and lose your trading account if you don’t fullyunderstand them - so ensure you take time to sit down and familiarize yourselfwith the rules of engagement.
Secondly, you should have a trading strategy in place. Propfirm trading will be very stressful if you don’t have a trading strategyfigured out. We’d recommend taking your time to research, backtest and build atrading strategy before you pay for your trading account challenge.
These two steps may take a little while but they’re veryworth doing prior to becoming a funded trader!
Tips To Trade with Prop Firms
Although trading with prop firms is a great idea - it’s notalways easy! Here are some tips for trading with a prop firm…
RiskManagement
Ensure you brush up on the risk management rules offered bythe prop firm you’re looking at working with. Once you understand the rules,you can set your risk per trade at an appropriate level for the prop firm -meaning you stand a good chance at managing your risk properly and notviolating any rules!
Price OfChallenge
Ensure you shop around and take a look at the price of thechallenge account too. Some prop firms are charging extremely steep prices forprop firm challenges, whilst the offering is no better than some otherfirms!
TradingPlan
Make sure that you put a solid trading plan in place, withas many rules as you can - to avoid subjectivity. You want the trading plan tobe easy to follow and allow you to focus on just executing the trades, ratherthan stressing about whether a trade fits your strategy or not.
Reliable Prop Firms for Beginners
Whether a beginner or experienced, it’s crucial to workwith a reputable prop firm.
ForexProp Firms -
The5Ers
The5ers is one of the most reputable prop firms in theindustry, with over 1600 reviews on Trustpilot, up to $4,000,000 in realtrading capital for traders and one of the most complete offerings in themarket for traders!
Out of the numerous offerings, the best option for newbietraders will be the Bootcamp program. Thebootcamp program is extremely cheap and offers traders the opportunity to starton a lower amount of funded capital, whilst scaling up to a much larger amountin a relatively short time frame.
StockProp Firms -
TradeThePool
Trade The Pool is themost reputable stock trading prop firm in the industry, with over 12,000stocks, ETF’s and penny stocks to trade. They’re a relatively new firm but havea great reputation and are leading the way for stock trading prop firms!
FuturesProp Firms -
TopStep
TopStep is the most reputable Futures trading prop firm inthe world, offering traders funded capital to trade the Futures markets.TopStep have a glowing reputation and have long been known in the industry asthe best prop firm for traders that use NinjaTrader to trade Futures.
Alongside capital, they offer some educational materialsfor traders looking to upskill and take their trading to the next level.
In Summary - Are Prop Firms a Good Idea For BeginnerTraders?
In conclusion, prop firms are a great option for beginnertraders looking to grow their skillset and reduce their potential risk in themarkets.
Prop firms force risk management and discipline upon newbietraders, whilst giving them the potential to increase their capital undermanagement.
If you’re looking to become a funded trader, work withThe5Ers now!
Insights, advice, suggestions, feedback and comments from experts
Proprietary trading firms have gained popularity in recent years, attracting retail traders who want to increase their trading capital and become funded traders. These firms can be beneficial for beginners as they provide opportunities to learn risk management, discipline, and grow trading capital. Prop firms have certain advantages for newbie traders, such as teaching risk management, limiting potential losses, providing education resources, granting access to higher levels of capital, and helping traders avoid scams by unreliable brokers.
One of the main benefits of trading with prop firms is that they enforce strict risk management rules. These rules limit traders' losses, drawdowns, and overall risk, which forces traders to consider risk management in their trading strategies. This is something that many traders overlook when trading their own capital.
Another advantage of prop firms is that they limit potential losses. When traders are trading their own capital, there are no drawdown rules or limits, which means that inexperienced traders can easily blow through their entire account in a short period of time. However, with prop firms, losses are limited to the money spent on the prop firm challenge. This ensures that traders cannot lose their entire trading account and provides a safety net for beginners.
Prop firms also offer education resources and materials for traders to upskill and further develop themselves. This can be particularly beneficial for beginners who are still learning the ropes of trading. Access to higher levels of capital is another advantage of prop firm trading. Most newbie traders enter the industry with a few thousand dollars, which may not be enough to earn a considerable income. Prop firms allow traders to have access to much larger volumes of capital than they would be able to deposit, increasing their potential earnings if they are profitable.
Additionally, prop firms can help beginners avoid getting scammed by unreliable brokers. It can be challenging for newbie traders to differentiate between reputable and scam trading brokers. By using a reputable prop firm, traders can mitigate the risk of being scammed while still gaining experience in the industry.
However, there are also potential drawbacks to consider when trading with prop firms as a beginner. If traders violate the rules set by the prop firm, such as maximum drawdown limits, they can lose access to their funded trading account. This means that if a trader wants to be funded again, they would need to pay for another trading challenge, which can be costly if they are not consistently profitable.
Another potential challenge for beginners is hitting the profit targets required by the prop firm. Inexperienced traders may find it difficult to meet these targets, especially within a specific timeframe. However, some prop firms, like The5Ers, do not have a maximum timeframe, allowing traders to take their time and focus on quality trades without the pressure of meeting strict deadlines.
Trading with a prop firm can also be more stressful and emotionally challenging for new traders. However, it should be noted that trading with a prop firm is generally less stressful than trading with one's own capital, as the risk is spread across the firm's funds rather than solely the trader's money.
Before starting to trade with a prop firm, it is important to check certain factors. Firstly, it is crucial to understand the rules set out by the prop firm and ensure that they align with your trading style and goals. Violating these rules can result in the loss of the funded trading account. Secondly, having a well-defined trading strategy in place is essential. This will help traders navigate the challenges of prop firm trading and increase their chances of success.
When trading with prop firms, it is important to focus on risk management. Understanding and adhering to the risk management rules set by the prop firm will help traders manage their risk properly and avoid violating any rules. Additionally, it is advisable to compare the prices of different prop firm challenges to ensure that you are getting a fair deal. Finally, having a solid trading plan with clear rules can help traders execute trades effectively and reduce subjectivity.
There are several reputable prop firms in different trading markets. For forex trading, The5Ers is considered one of the most reputable prop firms, offering a bootcamp program that allows traders to start with a lower amount of funded capital and scale up over time. Trade The Pool is a reputable prop firm for stock trading, offering a wide range of stocks, ETFs, and penny stocks to trade. TopStep is a well-known prop firm for futures trading, providing funded capital for traders in the futures markets.
In summary, prop firms can be a good option for beginner traders looking to learn risk management, discipline, and grow their trading capital. These firms provide opportunities for education, access to higher levels of capital, and protection against scams. However, it is important to be aware of the potential drawbacks and to thoroughly understand the rules and requirements of the prop firm before starting to trade with them.
