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…