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 very hard to find out exactly how much of their revenue is coming from which source, however, most firms charge an Evaluation fee, upon passing the evaluation fee some firms have “Setup” fees, 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, usually they are offered” Resets” by paying a small fee depending on the platform

Trailing Drawdown:

Trailing drawdown is most probably the most controversial thing about the futures prop firm scene. Drawdown is the maximum amount you can lose before you fail the evaluation or lose the live account. it trails as you progress. The trail usually stops at the starting balance of the trader +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 and is adjusted at the end of the day and updated after market close.

• 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, which ranges from 8-15 days. even when traders make their profit target, traders still need to trade a minimum of 8-15 days

• Maximum Profit per day

Most of the 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 popular for many reasons,

1. Low entry cost

in a traditional brokerage account, the margin requirement is usually high to 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 were to 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” also can 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 its an automated trading bot and not an HFT bot (High-frequency trades)

Given the nature of evaluation being in a demo environment, putting 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 others will limit to weekly and monthly. Most prop firms use DEEL, to process their payouts, and through DEEL traders can choose their preferred withdrawal method

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:

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 1 on 1 coaching which was nice to have.

Currently in my opinion one of the best in the market in my opinion. very active management and discord group, top-tier customer service, daily payouts, and reasonable rules. However, their Evaluation fee is higher than others in the market

Click here to Open you Blusky account

APEX TRADING

Apex Trading is one of the oldest prop firms out there. famous for their wild discount of 70-90% off now and then

My experience with Apex was decent, I had no complaints except for the fact you have to pay to get depth in the market which competitors offer for free usually. With their sales, you can scoop these accounts very cheaply which makes them attractive if you want to spend less than 100$ on an account.

Conclusion

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

Goodluck to you all!