This was touched on briefly but let us get into the meat of this point. The best prop trading firms will give you an attractive split, especially as you grow your account. Moreover, it will teach you the value of money management. If you withdraw, you will have less in your account, making it more realistic. Meaning if you used your track record to apply for other sources of funding, other funders know you are aware of how to manage money under realistic scenarios.
Another thing that aspiring prop traders should be aware of when selecting a prop firm is that some prop houses offer too much risk. By this, I mean offering high profit share while offering high drawdown at the same time; which can include offering high levels of drawdown to no drawdown levels!
At first, this looks brilliant! It means you can trade how you like without any limits placed on you while getting a huge pay off. However, this is where you need to exercise some critical thinking, the same kind that creates profitable prop traders.
This can create situations where the prop house may not be able to pay the prop trader. Let us outline why this is the case, many of these prop firms find themselves in these high risk situations because they will not have enough to cover themselves from the losses made by the losing traders.
What goes in such prop houses is that they know many people will want to make many risky trades without any drawdowns.
So they tailor their prop trading marketing to tap into those while expecting to attract the majority of 95% of prop traders that fail and attract their participation fees.
That also suggests in such a scenario, they do not have the capital to pay off a profitable trader should they find one in such a situation. That is why prop houses which have a maximum risk amount they are willing to allow are a better bet because you have the peace of mind that they can pay you the capital owed to you when you are ready to withdraw your profits.
Another clever way some prop funds reduce their exposure is by paying you as soon as possible without giving you the option to decide when to withdraw. For example, they may decide to pay you your profit every month, no questions asked, rather than let you accumulate a larger profit sum than letting you withdraw. It makes a novice trader feel they are obtaining consistent income while keeping them in the dark of the larger profits they are forgoing.
The first thing you should do when seeking a prop trading firm is to ensure the company has been in business for a couple of years, that is the first test to see if they are a sound company. The second thing you should do is obviously check if they pay.
After all, at the end of the day, what matters is if you get paid or not.
These are all things a prop trader should keep in mind when looking for a prop firm.