Prop trading firms are popping up left, right, and center, so they must be making a lot of money! It’s many a Forex trader’s dream to become a prop trader, so you’d be surprised how many people are taking trading challenges with prop trading firms.
How do prop firms make money?
Prop firms have two main ways they make money: from failed challenges and by copy trading their funded traders on their main capital account.
Most prop trading firms don’t give their funded prop traders access to a live account. Instead, prop traders get access to a simulated account and the prop firm will copy trades from the simulated account to their main account using an algorithm.
It’s unclear what percentage of traders they actually copy, or what volume they copy trades with.
How much do prop trading firms make?
Prop trading firms are usually very secretive about their revenue sources, so the best thing we can do to see how much they’re making is to extrapolate some data using information they publicly share.
My Forex Funds is very transparent and they share a lot of information and statistics.
In February 2022, they had total payouts of $6,202,217.52. This number is about 80% of the total revenue made by traders. That means we can deduce that the total trading revenue was around $7,752,771.
The next data point to extrapolate would be how much My Forex Funds made from trading challenges.
According to the stats they released, My Forex Funds had 7,018 new live accounts in February 2022.
Only 31% of traders passed phase 1, and 14% of traders passed phase 2 of verification.
This means that the 7,000 figure is just 14% of all traders who passed phase 1. Approximately 50,000 traders passed phase 1!
If 50,000 traders passed phase 1, then nearly 161,290 people took the challenge.
My Forex Funds has several challenges available, so assuming most people took the median challenge of $50,000 for $300, their total revenue would be somewhere in the area of $48,387,096.
Since about 7000 traders got a live account, we can assume their fees were refunded, so you can subtract $2,100,000 from that number.
Of course, $48,000,000 is total revenue. You’d have to subtract all operating costs from that such as rent, utilities, and salaries.
Still, this seems like a pretty solid revenue model, especially considering that they’re probably making many times more than what they’re paying out.
How much do prop traders with prop trading firms make?
So if you’re a prop trader with one of these firms, how much money can you expect to make?
My Forex Funds paid out $6,202,217.52 to 2708 traders. The largest single payout was $53,707.
Without considering the largest payout, that comes to an average of $2290 per trader. Of course, this is just an average, and the real numbers could very easily skew one way or another.
When My Forex Funds published their earlier statistics, there were some striking data points that shed a lot of light on the viability of making money by trading with a prop firm:
- Prop traders who received record payouts usually lost their funded accounts very shortly after due to taking on excessive risk
- Prop traders who were most likely to retain their accounts were those who stopped trading after hitting a given profit target for the month
- These prop traders also had very limited risk, never risking more than 3% of their capital per day.
There are many prop trading firms out there and it’s difficult to ascertain whether these numbers apply to all of them. My Forex Funds is fairly popular, so it’s safe to say that other popular firms like FTMO are probably making similar amounts of money per month.