Proprietary trading firms have become increasingly popular
over the last few years, with retail traders all looking to increase their
trading 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 learn
risk 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 something
that is only reserved for traders with a huge amount of experience and years
under their belts. The reality is, this isn’t true!
The barrier of entry to becoming a funded forex trader is
lower than ever and this is providing a huge amount of opportunities for
traders, both new and experienced.
In fact, there are more benefits of prop firm trading for
newbie traders and beginners, due to the strict risk management and discipline
that 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 newbie
traders?
Teaches
Risk Management
All prop firms have rules that limit traders with respect
to losses, drawdown, risk and trading performance. This forces traders to learn
and consider risk management in their trading strategy – something that most
traders do not consider when trading their own capital.
Limits
Potential Losses
When traders are trading their own capital, there are no
drawdown rules or limits – meaning an inexperienced trader can easily blow
through their whole account in just weeks. With prop firms, your losses are
limited to just the money you spend on the prop firm challenge – meaning you
cannot get into a position whereby you lose your whole trading account.
Education
Prop firms usually provide education resources and
materials for traders to upskill in their craft and further develop
themselves.
Access
To Higher Levels of Capital
The majority of newbie traders are coming into the industry
with a few thousand dollars. With conservative risk management, it’s not
possible to earn a considerable income with this money. Therefore, 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 profitable.
Avoid
Getting Scammed By B-Book Brokers
Newbie traders struggle to differentiate a reputable
trading broker from a scam trading broker, of which there are many! By using a
reputable prop firm, you can avoid the risk of being scammed by one of these
unreputable 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 also
be aware of the potential drawbacks for new traders looking to trade with a
prop firm:
Traders
Can Lose Their Funded Accounts
If traders violate the rules, for example, maximum
drawdown, they will lose access to the funded trading account. This would mean
a trader looking to be funded again would need to pay for another trading
challenge. Obviously, this can prove costly if you are not a profitable trader
and lose many accounts.
It May
Be Challenging to Hit the Profit Targets
If you’re an inexperienced trader, it can be hard to hit
the profit targets required by the prop firm. However, firms like The5Ers do
not have a maximum timeframe, meaning you can take your time and focus on good
quality trades – without the stress of trying to get funded in 20 days.
It May
Be Stressful
New traders might find trading a prop firm account more
stressful and emotionally challenging. Although, I would say that it should be
less stressful as it’s not all of your money on the line, as it would be if you
were just trading a brokerage account!
What Should You Check Before Starting to Trade With A Prop
Firm?
Although prop firms are clearly very beneficial for newbie
traders, you should still check a number of factors before you jump in and
decide to pay for a trading account challenge!
Firstly, you should understand the rules set out by the
prop firm as some prop firms will be better suited for you than others. It’s
easy to violate the rules and lose your trading account if you don’t fully
understand them – so ensure you take time to sit down and familiarize yourself
with the rules of engagement.
Secondly, you should have a trading strategy in place. Prop
firm trading will be very stressful if you don’t have a trading strategy
figured out. We’d recommend taking your time to research, backtest and build a
trading strategy before you pay for your trading account challenge.
These two steps may take a little while but they’re very
worth doing prior to becoming a funded trader!
Tips To Trade with Prop Firms
Although trading with prop firms is a great idea – it’s not
always easy! Here are some tips for trading with a prop firm…
Risk
Management
Ensure you brush up on the risk management rules offered by
the 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 not
violating any rules!
Price Of
Challenge
Ensure you shop around and take a look at the price of the
challenge account too. Some prop firms are charging extremely steep prices for
prop firm challenges, whilst the offering is no better than some other
firms!
Trading
Plan
Make sure that you put a solid trading plan in place, with
as many rules as you can – to avoid subjectivity. You want the trading plan to
be easy to follow and allow you to focus on just executing the trades, rather
than stressing about whether a trade fits your strategy or not.
Reliable Prop Firms for Beginners
Whether a beginner or experienced, it’s crucial to work
with a reputable prop firm.
Forex
Prop Firms –
The5Ers
The5ers is one of the most reputable prop firms in the
industry, with over 1600 reviews on Trustpilot, up to $4,000,000 in real
trading capital for traders and one of the most complete offerings in the
market for traders!
Out of the numerous offerings, the best option for newbie
traders will be the Bootcamp program. The
bootcamp program is extremely cheap and offers traders the opportunity to start
on a lower amount of funded capital, whilst scaling up to a much larger amount
in a relatively short time frame.
Stock
Prop Firms –
TradeThePool
Trade The Pool is the
most reputable stock trading prop firm in the industry, with over 12,000
stocks, ETF’s and penny stocks to trade. They’re a relatively new firm but have
a great reputation and are leading the way for stock trading prop firms!
Futures
Prop Firms –
TopStep
TopStep is the most reputable Futures trading prop firm in
the world, offering traders funded capital to trade the Futures markets.
TopStep have a glowing reputation and have long been known in the industry as
the best prop firm for traders that use NinjaTrader to trade Futures.
Alongside capital, they offer some educational materials
for traders looking to upskill and take their trading to the next level.
In Summary – Are Prop Firms a Good Idea For Beginner
Traders?
In conclusion, prop firms are a great option for beginner
traders looking to grow their skillset and reduce their potential risk in the
markets.
Prop firms force risk management and discipline upon newbie
traders, whilst giving them the potential to increase their capital under
management.
If you’re looking to become a funded trader, work with
The5Ers now!