Do prop firms really need talented traders?

[AriaS]

For a long time I have believed that the business model of retail prop firms is as follows:
They attract lots of challenge buyers, who trade demo accounts. 99.9% fail and the prop firm is left with huge revenue. But what do they do with those who passed the challenge? Those lucky bunnies need to get paid real money. No worries.As “funded traders” they still trade demo accounts and most of them fail before they need to get paid. Those rare geniuses who consistently don’t fail, get paid: it’s okay, the firm has millions from the challenge fees. But if a trader keeps being profitable for longer than usual, they add them to a pool of other profitable traders. This diversified pool is copied by the firm on its live accounts.


At least that’s what I had thought…


But now it suddenly hit me! Copying traders, even if they are super-talented, and even if it’s a diversified pool, is still riskier than simply grabbing the thousands challenge fees. So why would they do it? If you have so much risk free money, why would you still get involved in a risky business. I don’t know… What do you think? I will be glad to be mistaken…

 

[emil_b_g]

I am prop trader and do get payouts, but don't think they will risk to bet on profitable traders. Eventually even profitable live traders blow up. I mean look at the statistics of hedge funds how much they fail and that is big money.

So as long as their sales are much higher than they have to pay out they will stick to that profitable model. That is ok to as long as they pay ok the profitable traders no problem. I think the problem is guys trying to get a million dollar payout from a single prop firm that they look for a way of rules breach.

Also look at Topstep what has done last few weeks they were the biggest claiming to have live traders and if they were profiting from them why are they having liquidity issues and restricting new live traders their full capital which means they never profited from live traders or so many live traders blew up.

Which means the business model profiting from profitable traders doesn't work in prop trading

I stick to firms with medium rules and restricted payouts like 2k -3k per account stack a few firms so they don't notice and carry on getting payouts 🙂

 

[AriaS]

I am prop trader and do get payouts, but don't think they will risk to bet on profitable traders. Eventually even profitable live traders blow up. I mean look at the statistics of hedge funds how much they fail and that is big money.

So as long as their sales are much higher than they have to pay out they will stick to that profitable model. That is ok to as long as they pay ok the profitable traders no problem. I think the problem is guys trying to get a million dollar payout from a single prop firm that they look for a way of rules breach.

Also look at Topstep what has done last few weeks they were the biggest claiming to have live traders and if they were profiting from them why are they having liquidity issues and restricting new live traders their full capital which means they never profited from live traders or so many live traders blew up.

Which means the business model profiting from profitable traders doesn't work in prop trading

I stick to firms with medium rules and restricted payouts like 2k -3k per account stack a few firms so they don't notice and carry on getting payouts 🙂

Interesting, thank you for this info. Would you reveal what firms do you trade with? Recently I changed my mind and would like to try. Thinking to buy an FTMO challenge.

 

[emil_b_g]

I trade Futures prop firms. It depends on your style of trading. Choose a firm that the rules are ok with your style of trading. I am scalper and futures suits me better. I trade currently Funded Futures Network and DayTraders both payout promptly and are much cheaper than CFD firms. But very very important to make sure which suits your style of trading. FTMO offer you 10% drawdown so more room to play with. Futures are usually $3000 which is about 3% on 100k account. I try to have a high win rate and have gotten more payouts with futures. If its first time with prop firms buy the cheapest smallest account they offer to test the rules they have once you prove to yourself you pass all the challenges and get a payout use that to buy bigger accounts. No point trowing money at large accounts off the bat. Prop firms are great way to scale up trading and capital but dangerous if you don't have discipline to follow rules and your trading plan. Hope this helps.