The Pros and Cons of Day Trading in a Prop Firm

Day trading in a prop firm can be an exciting and potentially beneficial career path but it’s not without complexities. If you’ve ever thought about joining a proprietary trading firm then you’ve probably heard all sorts of claims—some make it sound like a dream job where you rake in cash daily while others warn it’s a cutthroat industry that can chew you up and spit you out. The truth? It’s somewhere in between. Let’s discuss the pros and cons of day trading in a prop firm so you can get a clearer picture of what to expect.

The Pros of Day Trading in a Prop Firm

Access to Capital

One of the biggest advantages of trading with a prop firm is that you don’t need a large personal bankroll to get started. Instead of trading your own money, you’re using the firm’s capital which means you can take bigger positions than you could on your own. This access to leverage can amplify profits but also risks more on that later.

Low Personal Risk

Unlike retail trading where you’re putting your own money on the line, most prop firms use an evaluation model where you prove your skills before getting access to their funds. If you blow up an account then it’s their money, not yours. However, keep in mind that many firms do require a refundable or non-refundable fee to take their challenge or evaluation so there’s still some financial commitment involved.

Structured Environment

Prop companies give traders a controlled setting that may be quite beneficial, particularly for beginners. You get access to risk management resources, expert trading platforms, and occasionally even mentorship. You can stay disciplined and steer clear of some of the common mistakes made by single traders with the support of this framework.

PDT Rules and Regulations Are Not a Concern

The notorious Pattern Day Trader (PDT) regulation which requires you to maintain a $25,000 account balance in order to conduct more than three-day trades each week, is likely to have come up if you have ever tried day trading in a prop firm with a retail brokerage in the United States. That regulation does not apply to a prop business. Without having to worry about account minimums or regulatory hassles, you are free to trade as much as you choose. 

Profit Splits Can Be Lucrative

Profit splits provided by many prop firms are quite advantageous. Profit-sharing models where traders retain 70–90% of their profits are not unusual. It’s simple to understand why so many individuals are tempted to prop trading when you compare it with typical jobs where you work for a set pay.

Possibilities for Learning and Networking

You are surrounded by other traders when you work for a prop business which may be a great learning opportunity. A lot of companies provide training materials, mentoring programs, or chat rooms to assist traders improve their skills. Having a community may be quite beneficial because trading alone can be a lonely activity. 

The Cons of Day Trading in a Prop Firm

Profit Splits Mean You Don’t Keep Everything

Profit splits might be generous but ultimately you are still giving the company a piece of your earnings. You would keep all of your gains with fewer commissions and costs if you were trading with your own money. Many people find this trade-off to be worthwhile but if you have the resources and know-how to do it alone then you should think about it.

Evaluation Fees and Challenges Can Be Tough

It’s not like prop firms just give you a funded account. Usually, you have to pass an evaluation or challenge which is not an easy task. Strict guidelines like limit drawdowns and profit objectives are frequently included in these 2-step evaluations which can be frustrating sometimes to achieve. Additionally, you could have to spend more to try again if you don’t succeed. 

Pressure to Perform

Being in a prop firm adds to the already stressful nature of trading by putting you under extra pressure to produce. Some firms have policies that require you to meet specific profit goals within a given time frame and if not then your account can be closed. This pressure can cause traders to overtrade or take unwarranted risks which rarely ends well.

Risk of Losing Your Funded Account

Even if you pass an evaluation and receive funding for your account, you still face challenges. You risk losing your account and having to start over if you reach the firm’s drawdown limit. This might be annoying particularly if you were doing well but experienced some setbacks.

Limited Trading Freedom

There are limitations on what and how you may trade at some prop firms. For example, they could restrict certain methods like scalping, set daily drawdown limitations, or prohibit trading during news events. This could feel constrictive to someone who prefers total trading flexibility.