Prop Trading and (Painful) Statistics: Only 7% of Traders Made Money

There are more and more on the market prop trading companies, which provide the possibility of trading in the Forex, options, indices and even cryptocurrencies market using their capital. However, it turns out that only a few traders achieve success, as shown by FPFH Tech data. The data has just been published by the Financial Magnates portal. It shows that only 7% of prop traders can boast of making a profit. Its amount is not impressive either – it is 4% of the capital they can trade.

Who are prop traders?

78% of prop traders are men. Interestingly, many of them try their luck at different firms. FPFX, which provides technology to prop trading firms, found that over 300 accounts belong to 100 traders from 10 different firms.

– According to the survey results, 14% of traders passed the challenge and got a funded account. Of this group, about 45% got a payout (7% of all traders) on their funded account, and the average payout was 4% of the plan (or account) value – comments Justin Hertzberg, co-founder and CEO of FPFX Tech in Finance Magnates.

It follows that most traders have only made money once. As a rule, at the first level, you earn about 4% of the capital you trade. Then - depending on the company - you can try to trade the same capital again, but in many cases it doubles. This is already a mental barrier that most people do not overcome.

Most clients of prop trading companies come from the United States. That's over 20% of active investors, despite the fact that after the restrictions MetaQuotes most companies do not offer their services in the US. In second place are the British (10%), and in third place the Indians (4%). However, the Asian and African markets are developing the most dynamically. People from Eastern European countries are also an increasingly large group. Significant growth is also expected in the Middle East, where prop trading companies are starting aggressive advertising.

However, it will be gradually limited. ESMA is already working on the subject of the broadest possible regulations, which will include prop trading, and above all its marketing, because it is sometimes advertised like a goose that lays golden eggs. Companies accept fees from those willing to use their capital, and most people drop out already in the demo phase. The more people, the greater the profit for the company. But more and more often the baby is thrown out with the bathwater.

– The recent wave of suspensions, bankruptcies and suspensions of prop trading firms is a direct result of their undercapitalization and poor management. Especially when it comes to risk management, which is the most important and most neglected factor in the success and profitability of prop trading firms. – emphasizes Justin Hertzberg, co-founder and CEO of FPFX Tech, on łamaxh FM.

READ: Prop Trading vs. Broker – Which Solution Should You Choose?

What is proptrading?

Prop trading is a model of cooperation between a trader and a company that provides them with capital. A prop trading company offers the possibility of trading on its account, sharing profits. Thanks to this, the company has the possibility of multiplying its own funds using someone else's skills, giving away part of the profit (usually in the range of 50-90%).

The most common model is based on so-called investment challenges. A trader pays for participation in a challenge on a demo account. If they meet the conditions, i.e. earn a certain amount and do not have capital drawdowns, as specified in the regulations, they will pass the verification stage and will receive an account with real money. On them, they can again achieve the goal and receive a part of the profits.

If they are eliminated, all their contributions are lost and they can (but do not have to) start over from the beginning – by paying for the challenge again.