[Forex] - Trader Scouting and Prop Firms Overview and Comparison

[jack]

UPDATE: We have migrated this resource to our new trader resource wiki: Volatility.RED

You can find current info, and all future updates, over on Volatility.RED's Trader Scouting and Prop Firms Overview page.


Scouting programs have grown in popularity in recent years and many are holding themselves out as full fledged prop firms. Let's dig into what they are, where they fit in this industry, and their advantages and disadvantages.

A trader scouting program is one that evaluates potential traders (for a fee) to qualify them for trading a firm's capital on behalf of the firm. These evaluations come in different shapes and sizes, but generally they aim to prove the trader can manage risk and be consistent in their approach to the markets.

Many of these companies call themselves "prop firms," and while not technically incorrect, it's important to not the distinction between various types of prop firms and scouting programs:

• Traditional prop firms
  • These are companies that have fully aligned their interest with their traders. The firms will typically pay a base salary, and bonus traders out at their discretion (based on performance but not strictly tied to it.) They typically require you to work on a trade desk, on a trade floor, in major financial centers around the world.​
  • These firms typically only hire fresh grades from top schools, or established institutional traders. For this reason, these firms are often inaccessible to retail traders looking to get into the institutional side of the industry.​
  • When people on the institutional side of the industry talk about 'prop firms' they typically mean this class of company.​
  • Examples include Jump, First New York Securities, Wolverine Trading, and Optiver (to name a few.) These days, most traditional props also are heavily involved in electronic market making or exotic markets.​
  • The firm's main source of revenue comes from trading operations and trading profits.​
• Depository prop firms / first loss / broker-dealers
  • A depository prop firm is one where the trader's interests are far less aligned with the firm. The trader isn't backed by the firm and has to put up a risk deposit. The trader also doesn't get a base salary, and will likely be charged a fee for using a spot on a desk each month.​
  • Should the trader lose money, they lose their own money first. This transfers the risk from the firm to the trader, and in return the payout percentage the trader gets from these firms is much higher than elsewhere (70%-95%.)​
  • Examples include T3 Trading, Bright Trading, and WTS (to name a few.)​
  • The firm's main source of revenue comes from marking up transaction fees and charging for training courses. Despite all this, many traders will go with a depository firm for access to institutional grade access to the markets (DMA, professional software and platforms, etc..)​
• Scouting firms
  • As mentioned in the beginning of this article, a scouting firm operates more like a service than a firm and evaluates traders for potential funding. The trader doesn't have to put up any risk capital, but they do have to pay an evaluation fee.​
  • There is no barrier to entry to these scouting firms; if you pay for an evaluation, you have the same chance of getting funded as anyone else and it's entirely dependent on your performance.​
  • Scouting firms are typically marketed toward retail traders, and as such, they focus on tools and software commonly found at retail brokerages. Unlike traditional prop firms, or some depository shops, these firms are typically virtual and do not have a trade floor to physically join.​
  • Some scouting firms will go further and offer guidance, training, mentorship, etc.. once you've passed their evaluation. Often these are the firms that hold themselves out as "prop firms" instead of just a trader scouting program.​
  • Examples include the firms listed in the table below.​
  • The firm's main source of revenue is the evaluation fees, and these fees can be substantially more than they make from profitable traders working for them. ​

With that said, when it comes to forex trading, the most accessible of the three categories above are scouting firms. There are many advantages here for retail traders:

• Access to capital / backing
• A risk system and risk monitor
• Mentors or supervisors who encourage positive trading habits
• Downside is just the evaluation fee and your time commitment

The above points will especially make a scouting program attractive to novice traders who are just starting out.

You can find the reset of this article, as well as a comparison table of some trusted and vetted firms, on our trader resource wiki here..

 

[rod178]

where does the WCC fit into this

World Cup Trading Championship Standings

CURRENT STANDINGS THE STANDINGS LISTED BELOW ARE THE ONLY OFFICIAL STANDINGS OF THE WORLD CUP TRADING CHAMPIONSHIPS. ANY USE WITHOUT WRITTEN PERMISSION IS PROHIBITED.Trading futures and forex involves significant risk of loss and is not suitable for everyone.Past performance is not necessarily...

www.worldcupchampionships.com

Also does Darwinex have anything similar, my impression is not.

 

[jack]

where does the WCC fit into this

World Cup Trading Championship Standings

CURRENT STANDINGS THE STANDINGS LISTED BELOW ARE THE ONLY OFFICIAL STANDINGS OF THE WORLD CUP TRADING CHAMPIONSHIPS. ANY USE WITHOUT WRITTEN PERMISSION IS PROHIBITED.Trading futures and forex involves significant risk of loss and is not suitable for everyone.Past performance is not necessarily...

www.worldcupchampionships.com

Also does Darwinex have anything similar, my impression is not.

Different business model. WCC and Darwinex usually need the trader to fund their own account and show performance first before attracting outside capital.. they act as middlemen and take a cut of the funds being allocated or returns from the allocation. In contrast, trader scouting programs, like the ones mentioned in this post, evaluate on paper accounts and if the evaluation is successful the trader gets live account funding (backed by the firm,) to trade on their behalf.

So.. one business model has the traders using their own money (risk) in an account that's hooked up to a ranking service (which is then marketd for others to copytrade,) and the scouting business model involves traders passing an evaluation to trade a corporate account that's in the firm's name (firm's risk instead of trader's risk,) and the trader gets paid by a profit split with the firm. The contrast I'm trying to highlight is who foots the risk.. having a firm fund you and cover your downside can be better in a lot of ways... heck, I know many prop traders who are cool as a cucumber when trading firm capital, but have issues keeping their head on straight when it's their own funds on the line.

Also, not sure if you noticed, but I heavily edited the post since you first replied.

 

[rod178]

Do these Prop Firms have (ie require) the new Traders located in the Prop office or do they Trade remotely?

 

[jack]

Do these Prop Firms have (ie require) the new Traders located in the Prop office or do they Trade remotely?

They are all virtual / remote.

 

[rod178]

They are all virtual / remote.

"...They typically require you to work on a trade desk, on a trade floor, in major financial centers around the world...."

Supposing this is for green new Grads only?

 

[jack]

"...They typically require you to work on a trade desk, on a trade floor, in major financial centers around the world...."

Supposing this is for green new Grads only?

Oh, I misread. I thought you were asking specifically about scouting firms.

Above I broke out three common types of prop firms, and in the scouting program category it is most common for everyone to be remote / virtual.

Traditional prop firms absolutely have physical offices to trade from, given they more often deal with institutional access to the markets there's a lot of reasons why physical trade floors aren't going away anytime soon. So yeah, if you're more interested in the 'traditional' prop firm category, you'd have to be local to their office.

 

[Mcquant]

FTMO is far worse option IMO. Actually those 30 days max are calendars days so the aspiring trader has to fulfill their assessment in 20 trading days, and IMO considering theirs other rules and constraints it's only possible with very aggressive and rather gambling type of strategy. Additionally they do not provide real accounts to the traders passed the evaluation, only demo account which is very suspicious, but they have got explanation for that ( ask them yourselfs )

T4T and The5ers are the best options to me.

 

[jack]

FTMO is far worse option IMO. Actually those 30 days max are calendars days so the aspiring trader has to fulfill their assessment in 20 trading days, and IMO considering theirs other rules and constraints it's only possible with very aggressive and rather gambling type of strategy. Additionally they do not provide real accounts to the traders passed the evaluation, only demo account which is very suspicious, but they have got explanation for that ( ask them yourselfs )

T4T and The5ers are the best options to me.

Yes, it's actually extremely common for a prop firm to interface with their execution partners as one giant pooled account instead of manage separate cooperate accounts for each trader. This allows them to internally control risk and set risk rules that might not be an option with their executing brokers.. not to mention the HUGE cutdown on administrative burden on the executing broker's end, which translates into better / reduced costs for everyone involved.

Heck, in some markets (equities and futures) and in some jurisdictions, a prop frim actually has to operate this way for compliance reasons. And I actually wouldn't be surprised if that's how most of the other firms on the list in this thread also operate, despite how they hold themselves out.

The only negative here is how FTMO presents this structure. Something that is well understood in the institutional world seems 'scary' or 'not normal' to someone coming from the retail trading world. FTMO would do well to better explain how it all works in a way that makes more sense to retailers...

In the end, it really doesn't matter if the account says one thing or another.. all that matters is they will pay out and honor their end of the contract, which they do.

 

[CraigLee]

Hi Jack, I agree that 5%ers are not worth it because of the risk they allow you to take but I'm curious why did you rate TopStepFX higher than Traders4Trader? TopStepFX needs you to double the account to get a real trading account am I right?

 

[jack]

Hi Jack, I agree that 5%ers are not worth it because of the risk they allow you to take but I'm curious why did you rate TopStepFX higher than Traders4Trader? TopStepFX needs you to double the account to get a real trading account am I right?

Well, I never said The 5%ers weren't worth it... their offering is just presented differently than other firms so I was contrasting it a bit better to what else is on the market.

Regarding TopStepFX, I'm considering this one on an upside/downside sorta basis. Given they let you earn your first $5k at 100% payout, and 80% after that, I'd view them more like a cheap 'call option' for traders who already have a plan and want to use some leverage. You're downside is a couple of months (let's say 3) of $165 in fees, and your upside is $3-5k, with a X% chance of failure (solve for X based on your strategy, then you can get an expectancy value on the whole thing.) Profits then get rolled into funding your monthly fees should you get kicked back to the qualification stage by losing.

This would be in contrast to the programs at FTMO, T4T, or The 5%ers, where the focus is on nurturing and growing the first account you have as you grow as a trader.

That's just my take on it after reading each program's terms. I'm not saying that makes TopStepFX good or bad.. just their higher initial payout opens up different ways to use them.

 

[CraigLee]

Thanks for reply Jack! It seems that 5%ers recently remove the 0.65 lot limit. So, maybe they are alright now?

 

[jack]

Edited with updated The 5%ers info in the table (they expanded their program,) which also changes my overall opinion at the end of the post.

Always pick the best tool for the job, and it seems The 5%ers fits in nicely for experienced traders.

 

[kai.hao]

Do you know anyone trading with t4tcapitalfm? The reviews I found on them are either really bad or really good (mostly bad). I'm interested in signing up with them because of the no time limit, cheap registration fee and better profit split if I reach the target set.

 

[kai.hao]

Anyone here have traded with t4tcapitalfm?

 

[jack]

Do you know anyone trading with t4tcapitalfm? The reviews I found on them are either really bad or really good (mostly bad). I'm interested in signing up with them because of the no time limit, cheap registration fee and better profit split if I reach the target set.

It's hard to go on reviews alone given the nature of trading and how people will externalize blame for their own mistakes.

I can say I know people who've been paid out by them.. so as long as the rules are being followed, they do pay out.. Not much more you can ask from a scouting firm aside from that.

And that's the key: If you and the firm both agree and follow by the contract between you, not much else matters.

 

[amtradingfx]

Anyone here have traded with t4tcapitalfm?

is that t4t as in traders4traders?

 

[amtradingfx]

Hi Jack nice summary, i was wondering whether i could post information about the the funding program i am with.. not advertising it just might be of some interest to some people cheers

 

[gon]

The last firm I worked for.

They paid me six months full salary while they were training me, plus a lot of extra bonuses, international flights, hotels and more (just while learning and not working). After the six months passed, then I started to work for them directly towards success because we were a big team, a single mind supporting one each other and doing together something that no one alone could ever dream to achieve. Instructors from several countries came to give us the proper foundations we needed to work in line with the company objectives.

When I see these firms asking you to put money to proof yourself I really do not find any interest in them.

I think a trader MUST be an unconventional obsessive and strong individual. If one is of those who accept servility and sitting 8 clock hours at a desk waiting for the monthly payroll, I think you will also be one of those 90% of the traders that, as the majority, lose money in the long run.

Those who have found a good trading edge, would you actually disclose your best methods it by less of seven or eight digits?

If a company has a proven and efficient trading system, elaborated through thousands of backtesting hours and years of brainstorming and team work, I am quite sure that 5K or 10K dollars to invest in each candidate would be breadcums for them. I would not trust a firm that is asking me 2K dollars to teach me something I am supposed to use to earn tens of millions per year.

I think this makes sense.

 

[jack]

The last firm I worked for.

They paid me six months full salary while they were training me, plus a lot of extra bonuses, international flights, hotels and more (just while learning and not working). After the six months passed, then I started to work for them directly towards success because we were a big team, a single mind supporting one each other and doing together something that no one alone could ever dream to achieve. Instructors from several countries came to give us the proper foundations we needed to work in line with the company objectives.

When I see these firms asking you to put money to proof yourself I really do not find any interest in them.

I think a trader MUST be an unconventional obsessive and strong individual. If one is of those who accept servility and sitting 8 clock hours at a desk waiting for the monthly payroll, I think you will also be one of those 90% of the traders that, as the majority, lose money in the long run.

Those who have found a good trading edge, would you actually disclose your best methods it by less of seven or eight digits?

If a company has a proven and efficient trading system, elaborated through thousands of backtesting hours and years of brainstorming and team work, I am quite sure that 5K or 10K dollars to invest in each candidate would be breadcums for them. I would not trust a firm that is asking me 2K dollars to teach me something I am supposed to use to earn tens of millions per year.

I think this makes sense.

I had to remove your other posts as they aren't contributing to the point of this thread (which is a comparison of trader scouting programs and info on the prop industry in general.)

In the first post of this thread, the differences between a traditional prop (what you are describing) and what these scouting firms are is clearly laid out... including what their business model means for the trader when it comes to conflicts of interest.

The model you are describing ultra competitive to get into these days thanks to an overqualified labor pool and decline of discretionary traders to make way for more algo traders and quants in the industry.

Scouting programs have a niche case where they fit pretty well in the current business landscape. They aren't perfect... and the companies running them are making healthy profits from the evaluation fees (though, you could look at The 5%ers as an example of where your max DD is basically your evaluation fee on a live account, so we are starting to see the scouting firm industry margins get tighter..)... but they are still a valid way to trade.