When comparing personal vs prop firm, you really need to ONLY consider the DD allowed. For example, if your “risk of ruin”, for arguments sake, is 20 trades, you’re risking 5% per trade in a personal account. With the prop account you can only risk 5% of DRAWDOWN allowed. So when you make 10% on the prop account of $10K ($1K) but your DD is only $500, you’re actually making 200%, you would make that same $1000 in the personal account as you will be trading the same size positions assuming the same risk of ruin. In other words with a prop account of 10K and max DD of $500, you’re not risking 5% of the 10K per trade, but 5% of the $500. It is absolutely of no value to the trader to use those models.
The only value to the trader is the challenge/eval models where you are getting 10-12K in DD for a fee of $500-$650 per 100K.
I’m sorry, but you are wrong. I have outlined the reasoning clearly. To say that one should only consider DD allowed is erroneous thinking. Nonetheless, you are free to think however you like and give preferences accordingly.
I think grandpipmaster is correct.
If you go to any stock forum, ask the same question, people will tell you grandpipmaster’s understanding is correct.
_METHOS is like to say buying a lottery ticket is better in risk and reward, because your loss is small and reward is big, but he forget when you buy a lotto, your chance of hitting a prize is tiny.
Maximum drawdown allowed is the amount of fund you get from a prop firm, not account value.
Compared maximum dallar value of drawdown with the fee you are charged, to see if you get a good deal.
I also feel MFF’s accelerated program makes no sense.
Take the $50000 account for example, since their drawdown is 5%, you get $2500 fund.But your fee is $2450, so you are in fact play with your own money. Now you need to share profit 50%-50% with MFF,so you get a big negative value from this program.
That’s my point. If you pay $2500 for a $50,000 “balance” with $2500 in DD, you need to trade the same size as if you put the $2500 in a personal account. With $2,500 in a personal account, let’s say you risk 2% per trade ($50) with an average stop of 30. $50/30 is $1.60/pip. What size are you going to trade in the prop account? Certainly not 2% of the $50,000 ($1,000), you’d be wiped in 2.5 trades. If you apply the same risk % with the same risk of ruin (x amount of trades), you cannot trade any larger sizes in the prop account than the personal account. Now, if you risk % is higher or risk of ruin is a lower number of trades, than sure, you can trade larger, but than you have a much higher % of violating the prop DD rule.
Having a larger account balance affords you more buying power without the need for more leverage, meaning less risk. This is indisputable, regardless of whether or not the draw-down is the same between the small and large accounts.
Keep in mind that the argument that you initially posed here is that there is no benefit to traders to make use of such programs over trading that same capital on a personal account.
We have to consider not only risk, but account growth and profit-potential over a given period of time, as well as technical factors where leverage and margin calls/stops come into play.
Then you have broker offerings/conditions to consider, as well as overall financial security that one might not be afforded if trading on a personal account via an offshore broker that operates outside of the legal jurisdiction of wherever you reside. Trading with a prop firm that is local to US/Canada adds an additional layer of protection, while also providing possible access to otherwise restricted brokerages.
If you have a $2500 personal account and a $50,000 prop account with $2,500 allowable DD. If you use 20:1 in personal account to trade $5 pip and you use 1:1 in prop account to trade $5 pip, the result of that trade is going to be the same. No matter how you look at this, if you blow $2500 in personal account…it’s done, if you blow $2,500 in prop account…it is done as well. I encourage you to plug the numbers into a spreadsheet. I really cannot explain this any simpler, so I will respectfully bow out of the debate.
I am all for prop firms, 100%. I am funded with both FTMO and MFF. I agree the biggest benefit is I have NONE of my money at risk. The conditions on both of their servers (they both have their own) are better than any broker I’ve ever used. I view the 10-15% I give them as an insurance policy to not have any of my own money in the market. I am just providing my been there, done that experience to demonstrate and try to help folks getting into the prop firm world.
-But it’s not. The difference is, you are taking on more risk with more leverage, so your margin call/stop will hit sooner on the smaller account. You have less room to recover. The problem is, you are looking at this too simply. But, as I said before, that is your prerogative to do so.
We agree that there is much value offered in the way of these prop firms. But to say that accelerated accounts and similar do not offer any benefits to traders is simply not true.
Prop firm discussion is useful. It is my plan B. However, Powell says the US is not going to ban crypto. I don’t see crypto transfers getting cut off anytime soon.
Also, are we sure prop firms are immune to the regulators’ overreach? They have not been hit yet, but it does not mean it isn’t coming.
All said, I am very much appreciating the info. Prop firms provide another way for USA citizens to continue to trade. The more choices we have, the better.
It might depend on how a prop firm has everything structured, where they are located and where the broker that they use is located, as well as how the relationship is defined between the ‘trader’ and the prop firm.
We have regulatory, licensing/registration requirements in the US that can apply to signal service providers, copy-trading, proprietary traders, brokers, prop firms etc. depending on how things are structured, but when you start talking about offshore entities, I suppose that it may all depend on each, specific situation, but I’m really not sure.
Although this may be the result of a very poorly-planned effort to curb tax dodgers and offshore tax havens etc., the inevitable outcome will likely be something very different, that will adversely impact and violate the rights of honest, tax-paying citizens, while doing very little, if anything, to deter the ultra wealthy from taking advantage of legal, tax-related loopholes. The only benefit that I can foresee from such a measure might be wider cryptocurrency adoption.
Given the kind of advertising they do and the popularity they are earning, it seems they are structured in a ‘secure’ way from a regulatory standpoint.
However, as a trader I’d be rather wary of the fact that the main source of income of these firms is just the participation fees because of the strict cut off rules.
