Chew on This: Pros and Cons of Online Prop Firms

Last updated January 30, 2024

Modern day trading is evolving quickly, with online proprietary (prop) trading firms remaking the landscape. These digital platforms provide an open pathway to the thrilling pursuit of trading. If you've been exploring prop trading or online prop firms, this is the perfect pitstop for you. While other articles delve into the meat and potatoes of prop trading in general, here we'll focus on the pros and cons of trading with online prop firms, so you can quickly decide if it's something you want to try.

trader showing one of the pros of online prop firm trading, sitting at his desk at home with a beautiful sunrise view in front of his floor-to-ceiling windows.

The Pros of Online Prop Firms

Online prop firms are making futures trading more accessible than ever. What exactly makes them shine versus the alternatives (like trading your own capital, or not trading at all, if you don't have the capital)? Let's dig into the benefits:

1. No Capital Contribution: The prospect of trading without risking your own capital is enticing and opens up a world of possibility.

  • This eliminates a roadblock for countless traders. The capital required to trade in a normal brokerage account makes it inaccessible to most people on the planet, unfortunately. But this erases that barrier.
  • Trading with firm capital versus your own can also help to make trading more objective. When you only stand to lose your subscription fee, and not tens of thousands of dollars, you get to focus on trading, not on the money.
  • Because you don't have to put up capital, you can put a lot more hours into practicing your trading and developing your skills, while still having "a bit of skin in the game". Having that bit of commitment is important for you to grow as a trader.

2. Earning Potential: Profitable traders can greatly increase their earning potential by using an online prop firm. Of course, you have to be profitable to make money.

  • Winning traders can scale up indefinitely using the capital from online prop firms, making winning trades, days, weeks, months, and years, potentially much larger.
  • Working with multiple online prop firms and/or multiple accounts at one firm can increase this potential.

3. Risk-Free Evaluation: You can dip your toes in the trading pool without fear of immediate loss. Online prop firms often provide a risk-free evaluation period where you can hone your strategies with demo accounts.

  • This allows you, for a small evaluation fee, to get use to the platform and the rules, before you're trading with real money. 
  • You can also try out multiple firms at the same time without a great big commitment to any of them.
  • The best online prop firms don't place a time limit on how long you can take to pass an evaluation, so you can take your time and trade your plan.

4. Accessibility and Flexibility: 

  • Almost anyone can join and give it a shot. Although there are some countries whose residents can't participate due to regulations or sanctions, these online prop firms don't discriminate. Young, old, educated or not, as long as you're legally able to participate, you're allowed in.
  • Trading is open nearly round the clock 6 days a week. So if you have a job or other schedule commitments to work around, you can usually find a market open to suit your needs, starting at 6pm ET on Sunday, through 5pm ET Friday.

5. Educational Resources and Community: Some online prop firms offer a wealth of resources to help you arm yourself with trading knowledge.

  • From instructional videos to live 1-on-1 coaching, these resources may help you anywhere along your trading journey.
  • Many prop firms also have their own online communities, where you can share ideas and get moral support from other traders. Just remember to take a grain of salt with any advice you receive.

The Cons of Online Prop Firms

Despite the potential benefits, you have to understand the unique challenges and downsides to trading with an online prop firm.

1. Profit Split: With a prop firm, you'll be sharing your victories. Since you get to use their capital, they get to keep a cut of your profits.

  • With most of the online firms I take seriously, their cut is 10%-20%. This isn't bad, in my prop trading career I've received as little as 40% at times.
  • You may not see this as a problem, since you're also getting to trade with more capital than you probably would otherwise. If you make a profit, 90% of a bigger profit can easily fetch you more earnings than 100% of a smaller profit.

2. Subscription fees: Online prop firms typically charge a monthly fee for evaluations, and sometimes a data fee once they fund your account.

  • This means you are risking some money, even if it is much less than you would have to put up as trading capital. You must maintain discipline and not spend more on evaluations than you can afford to lose.
  • Data fees for online prop firms vary. Some charge a one-time fee, some charge monthly, and some give you a choice. Either way, it's a cost to factor into your decision.

3. Rules and Requirements: While these guidelines often follow good trading principles, they can limit your trading, so you need to pick a program that has reasonable rules.

  • You'll have to follow the rules in order to keep your evaluation account, and in many cases you'll have to follow rules to keep your account once you're funded.
  • Some rules make more sense than others, and some favor certain styles of trading more than others. It's important to be aware and pick your poison - choose a prop firm evaluation with rules that fit your style.

4. You May Never Get Paid: You've heard the disclaimer. Trading is hard, and most traders don't make money. You have to be profitable and follow the rules to get paid.

  • Access to more capital doesn't help you if you aren't profitable in your trading. You may spend many months or years without making anything from trading.
  • Although I haven't personally heard of one of these prop firms going out of business and/or failing to pay their traders, that's always a possibility with a trading firm just as with any company.

5. Limited Trading Instruments: Depending on the firm, you may face limited choices of what you can trade. 

  • Most firms focus on either futures or forex, due to leverage. They can leverage their funds to give their traders more margin than they could with stocks or options. Most professional traders prefer futures because it's a regulated market, rather than an over-the-counter dealer market like forex.
  • This means you won't be able to trade individual stocks (yet, at least) with most of these companies.

Online prop firms offer a great opportunity for traders looking to explore professional trading without investing a large chunk of trading capital. These firms can provide a great training ground for traders of all levels of experience, allowing you to grow in your trading without risking it all - while still having an unlimited potential upside and a little bit of skin in the game.

Check out the best prop firms for beginners and best overall online prop firms if you want to compare the top firms. Navigating the world of prop trading can be exciting but also confusing at times. With the right knowledge and resources, you can be confident in your decisions and move forward, making the most of the opportunities available to you. 

Daniel Larsen

Daniel created to help new and experienced traders level up. He began trading in 2002, and has spent over a decade trading professionally, for prop firms and clients. When he's not at a computer, you can find him on the ocean, in a canyon, or in the mountains.