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Best Forex Prop Firms for Beginners

Best Forex Prop Firms for Beginners

Written by

Justin Cox

Written on

Jan, 2024

Updated on

Apr, 2024

Table of content

Forex proprietary firms or prop firms involve financial firms trading foreign exchange markets using their own capital to generate profits. Forex prop firms usually allow traders to trade on funded accounts and take a small portion of profits in return. If a trader is profitable, they can trade with larger accounts than what they would normally afford to acquire.

Forex prop firms are crucial for beginners, offering access to significant capital, and mentorship, and allowing novices to learn and trade without risking personal funds. The best FX prop firms provide advantages such as increased liquidity, lower trading costs, and accelerated learning. Traders benefit from a collaborative environment, advanced technology, and profit-sharing models.

Understanding Forex Prop Trading

Forex prop trading offers a unique opportunity for Forex traders to trade on large trading accounts without the need to invest their money. This provides great flexibility, especially for beginners and traders who have a low capital for FX trading. Understanding what prop trading is and how prop firms operate will help beginners define how to find the most suitable firms for their trading development.

What is Forex prop trading?

Forex proprietary trading or FX prop trading refers to a trading arrangement where retail traders trade the foreign exchange market (Forex) using a proprietary trading firm’s capital rather than their own. Traders who are operating these funded accounts are called prop traders, and they usually employ the firm’s resources to engage in currency trading and generate profits. Prop traders aim to generate profits while operating in specific risk parameters. These risk parameters include daily and maximum loss limits and other rules set by prop firms to protect their capital.

How Forex Prop Firms Operate

The top Forex prop firms typically provide traders with access to large trading capital, advanced trading tools, and a user-friendly trading environment. Many top firms also offer expert training courses and mentorship to help their traders succeed. Traders receive a profit split for generating profits, where they keep a percentage of the money they make in trading. Some FX prop firms also offer additional incentives and bonuses based on the trader’s performance to promote long-term relationships.

Prop firms often utilize various trading strategies including algorithmic trading bots, EAs, day trading, swing trading, and much more. Risk management is a critical aspect for every prop firm, as both the trader and the firm aim to protect invested capital. Traders must operate within specific risk levels to ensure the firm’s capital is properly managed.

Key Features of Forex Prop Trading

Forex prop trading is different from Forex brokers and other financial institutions in their key features:

  • Capital leverage — FX prop trading firms allow traders to access substantial capital, enabling them to take larger trading positions in the financial markets.
  • Advanced technology — Most prop firms are also fintech companies, providing their traders with a variety of advanced tools, including cutting-edge trading platforms. With these tools, traders can execute trades swiftly and efficiently. Top FX prop trading firms typically have automatic trade closure systems to close all open positions during news and protect traders from breaching news trading restrictions.
  • Profit-sharing models — Traders receive a considerable portion of profits made in their trading. This creates a performance-driven environment where success is greatly rewarded. The majority of popular Forex proprietary firms offer between 75-90% profit split, meaning traders can withdraw up to 90% of their profits.
  • Risk management — Effective risk management is a cornerstone of successful prop firms. They employ various risk controls and strict risk management rules for prop traders to protect their capital. These rules also promote more responsible risk management practices from prop traders.
  • Training, support, and mentorship — Top proprietary trading firms offer training programs, excellent support, and mentorship programs to their prop traders. This can help traders enhance their skills and stay competitive in the dynamic FX trading market.

Understanding the key features of prop firms is crucial for beginner traders to develop trading strategies that are suited to prop trading.

Criteria for Selecting the Best Forex Prop Firms for Beginners

The criteria for selecting the properly suited prop firm for a beginner trader is not always the firm’s reputation and safety. Despite this, safety being among the prioritized training resources and available trading assets might also be a concern. Let’s discuss exactly which criteria to take into account when selecting a perfect prop firm for beginners.

Regulatory compliance, safety, and reputation

When choosing a reliable Forex proprietary firm, novice traders should prioritize firms that are known for their reputation and experience in the industry. Together with adherence to local regulations, top firms should have at least 3 years of experience. Prop firms are not typically required to get regulated like brokers do, as they do not directly manage client funds or provide trading services. This is why reputation can be a key factor for defining whether the prop firm is safe. Another critical point in defining if the firm is secure is to check if they offer trading services through regulated Forex brokers. This ensures that the firm is partnered with a reputable broker that is known for a good track record of being honest and fair with its clients.

Trading platforms and technology

It is super important that the prop firm offers trading services through a broker that offers any of the advanced trading platforms including but not limited to MT4, MT5, cTrader, WebTrader, TradingView, etc. These platforms are super popular among the trader community, and there are more than enough tutorials and guides to start learning and use them in practice. An efficient trading platform like the ones mentioned above coupled with advanced technology is crucial for beginners. Popular platforms offer user-friendly interfaces, real-time data, and essential tools to properly execute trading positions. Popular Forex prop trading firms often provide traders with advanced tools and market analysis data to help them become profitable.

Educational resources and support

Beginners rely on quality educational resources and useful support to resolve any challenges and issues as quickly and efficiently as possible. Among top prop firms, the majority have a decent amount of learning materials and offer trading courses. Comprehensive learning resources, webinars, and mentorship programs help traders build their skills and confidence.

Funding options and withdrawal policies

Transparent, diverse, and ,often, instant funding options ensure traders have a clear understanding of how much their prop firm can give them for trading and what are the options. Diversity is important for beginners to select the amount of capital they are comfortable with. Trading psychology is not a joke and if a trader operates a larger account balance than they can afford to cope with, the emotional stress might jeopardize their trading performance.

Every prop firm has a different withdrawal policy. Some Forex prop firms allow only once-a-month withdrawals, while others may allow weekly, or even be-weekly withdrawals of profits.

Performance evaluation and profit-sharing schemes

Prop traders, especially beginners, must clearly understand how performance is evaluated and which necessary rules to follow. Profit-sharing models are another pivotal part of prop trading. Imagine trading and making huge profits only to discover your prop firm only pays a small portion of your profits.

Top Forex Prop Firms for Beginners

Below, we have researched and sorted the best Forex prop firms for beginners:

 

Firm Overall Score Min funding Max funding Min funding fee Profit share Daily loss limit Max loss limit Action
Funded Trading Plus 4.05 5,000 USD 250,000 USD 119 USD 70-80% 3-4% 5-8% Register
FTMO 4.03 10,000 USD 200,000 USD 164 USD 90% 5% 10% Register
Blue Guardian 3.95 10,000 USD 200,000 USD 87 USD 85% 4% 8% Register
Fidelcrest 3.5 15,000 USD 1 million USD EUR 99 80-90% 5% 10-20% Register
E8 Funding 3.18 25,000 USD 300,000 USD 138 USD 80% 5% 8% Register

Risks and Considerations for Beginners in Forex Prop Trading

Like any form of financial trading, Forex prop trading, too, comes with several risks and considerations every newbie trader should learn about. The most important and obvious challenges on the path of becoming a pro prop trader are market risks, psychological challenges, and proper risk management strategies and plans.

Market risks

When trading financial instruments, the most significant risks are related to currency exchange rate fluctuations. If there is something very critical happening on the macroeconomic scale, the prices might start moving too fast for beginners to gauge their meaning. This usually leads to losses and frustration. It is a daunting task to develop a working trading strategy and test it properly, as it requires time and patience. We will touch on patience and discipline in the psychological aspects of trading in more detail. Prices move constantly as Forex markets are active 24/5 without interruptions. Forex trading sessions tend to overlap with each other, leading to constantly active trading hours except for weekends. Any significant data such as macroeconomic events, news, or geopolitical events can have a sudden and powerful impact on FX price rates resulting in a loss.

Psychological factor

The psychological pressure when trading with real money and experiencing sudden, unpredicted movements can be very dangerous for beginner traders. Maintaining a balanced mind and still executing a trading strategy even after losing 2 or 3 trades in a row puts tremendous emotional pressure on traders. In fact, psychology is one of the main factors why the majority of traders lose money. The only antidote to a proper psychological state is to be a disciplined trader. Discipline is the most important skill every trader needs to aim for. With discipline, traders can generate consistent profits.

Beginners are typically more susceptible to emotional challenges during prop trading, as it requires even stricter risk management skills to maintain the funded account.

Risk management strategies for beginners

Effective risk management is number one for beginners in Forex trading. It is even more important for prop trading, as traders usually have to abide by even stricter risk management rules set by prop firms to preserve their capital. Implementing strategies to protect capital and minimize potential losses is crucial. The basic steps for implementing effective risk management are to always use stop loss and take profit orders. Stop loss orders are trading order types that close opened positions automatically when the price hits a certain level, effectively stopping ongoing losses to controlled levels. Other methods include diversification, position sizing, and proper risk-reward ratios.

Always use stop loss orders

Stop loss ensures the losses are stopped at a predetermined level and protects the trader’s account from unexpected losses. Trading without stop loss guarantees the trader loses money in the long term. It is a must not to make stop loss bigger than a certain amount to ensure losses are controlled, and they can not damage the trading account significantly. Most prop trading firms have a daily loss limit of 4-5% meaning traders must not lose more than the allowed amount on any single day. Proper stop loss ensures traders can take losses and stay in the game without breaching this rule.

Position sizing matters!

Position sizing refers to determining the amount of currency units to buy or sell in any single trade. We already mentioned how critical it is to set stop loss, but selecting the proper position size is no less important in FX prop trading. While many experts suggest not to risk more than 1-2% on each trading position, traders should risk the amount they are comfortable with. This risked amount should not be more than 5-6%, in the case of prop trading the 1-2% position sizing might be a sweet spot to ensure you won’t breach daily loss limits with one bad trade. For example, if a trader is operating a 100,000 USD account they must not lose more than 5,000 USD in any single day (5% daily loss limit rules).

Risk-to-reward ratios explained

One way to ensure losses are less than profits is to calculate the risk-reward ratio for your trading strategy. Risk reward simply refers to how much a trader risks for each trade and how much they expect to gain if the trade is profitable. Dividing the potential profits by risks (risk = difference between the entry price and stop loss) is the way to calculate the risk-reward ratio. Many day traders suggest using a 1:2 risk-reward, meaning traders should aim to make double the losses when profitable. This way, with even a 50% trading strategy, traders will be profitable. However, this might not always be the case, as scalpers usually opt for lower risk-reward ratios of 1:1 and even lower.

Tips and Advice for Beginners Entering Forex Prop Trading

Beginner traders need to be consistent and determined when starting a prop trader career. There are several expert tips to propel their efforts to new heights.

Setting realistic expectations

Put simply, avoid thinking about getting rich quick terms and focus more on long-term trading skill development. Try to have realistic expectations, as it is not possible to start trading today and become a millionaire tomorrow. It takes time and patience to build the necessary mindset and skills to become consistently profitable. Acknowledge that trading involves risks, and avoid unrealistic profit goals. It is critical to understand that losses are a natural part of the learning process, and risking small can save lots of money and time.

Continuous learning and skill development

Consistent commitment to continuous learning and skill development is the cornerstone of a professional Forex trading career. The foreign exchange market is dynamic, and ever-evolving, and staying updated on market trends, strategies, and economic indicators and events is essential. Markets are complex and there is always something new to learn.

Again, build a trading plan!

You need a well-developed and tested trading plan to be disciplined and consistent. There is no other way to profitable forex trading other than developing your trading strategy. Develop a comprehensive trading strategy that outlines your goals, risk tolerance, and strategies. Define entry and exit points, risk management rules, and position sizing.

FAQs on Best Forex Prop Firms for Beginners

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