Are the Top Prop Firms Starting to Fail?

  • August 15, 2022
Are The Top Prop Firms Starting To Fail

Forex prop firms are popping up online each and every week, promising huge amounts of funded trading capital, with very little risk for traders. Although this offers plenty of opportunities for profitable retail traders, the firms themselves present a huge level of risk to traders.

You may have noticed that prop firm withdrawals are appearing to be getting much larger…

Is this a good thing?

Well, no, it’s not.

In this article, we are going to break down all of these huge withdrawals we’re seeing in the prop firm industry and walk through all the potential red flags and risks you need to be aware of when seeking funded trading accounts. Let’s get into it…

Forex Prop Firm Withdrawals Are Getting Larger

Since 2021 there has been a surge in new companies with shiny logos, offering millions of dollars in funded trading capital to budding forex traders around the world. It’s so simple. You prove you can make 8% in the forex markets, without losing 8%. If so, you get a funded account. In some cases, you don’t even need to prove you can trade, you can have the capital regardless!

 Due to the lower barrier of entry into the forex markets, the lack of trading capital is a very common issue, and it’s clear to see how online prop firms have boomed since inception. Now that the industry is starting to mature, and all firms are focusing on their long-term marketing strategies, we’ve seen a trend… 

Withdrawal proof.

The majority of the online prop firms are now posting withdrawals from traders each week, with some companies even having a public leaderboard, so you’re able to watch traders making money!

In principle, we love the idea! However, it’s now become a race with prop firms to show the most ridiculously large withdrawals, with no proof of them actually being real money withdrawals anymore. 

 Circling back to 2021, seeing a $20,000 withdrawal in a month from a prop firm trader would be great. Inspiring for traders, and it’s actually realistic if the trader had been awarded $1,000,000 in funded trading capital. A 2% monthly return is great – no problems here. Fast forwarding to 2022, we are seeing “withdrawals” of $150,000, $500,000, and now even a $1,200,000 withdrawal from a trader.

This has quickly become a race within the prop firm industry. Which firm can show a larger withdrawal? Whether legitimate or not…

Why Are Larger Prop Firm Withdrawals Concerning?

These huge withdrawals are very concerning for the longevity of the prop firm industry. Let’s break down the various reasons as to why.

  • A Lack Of Risk Management

If we are working on the assumption that the withdrawals are legitimate, which we will, in this case, there would need to be a substantial lack of risk management from the trader and the prop firm.

To be using a funded trading account for a few hundred thousand, and net over a million dollars in profit, you would need to be leveraged to the eyeballs and certainly not worried about losing capital.

This type of trading behavior is incredibly dangerous and should not be done by any trader, funded or not.

  • Purely Marketing Tactics

Whether the withdrawals are legitimate or just to entice new traders, this is clearly an effective marketing technique being blasted across social media, email marketing campaigns, and websites alike.

The issue with this predatory marketing strategy is the fact it lulls new forex traders into thinking this is at all possible… It’s not. These are not realistic returns in forex.

You will never see a regulated forex broker posting the withdrawal sizes of clients, as this would be against their policies when it comes to marketing.

Traders need to be aware of this when choosing which prop firm they receive funding from.

  • Cash Flow Concerns

If you’ve read our article about the dangers for forex prop firms, you’ll know that the majority of the prop firms online don’t actually use real money accounts. Even some bigger names in the industry are well known for having traders using demo accounts, and maybe even running their operation like a pyramid scheme.

They know that the majority of their traders will never pass a challenge and most traders that do, will lose their accounts soon enough anyway. Therefore, they make their profits from selling challenges and lose money from profitable traders taking withdrawals. To that end, profitable traders actually destroy the cash flow of demo account prop firms. If these substantial withdrawals of millions of dollars are to be believed, we need to be questioning the cash flow of the prop firms. They’re operating on the basis that traders should be losing money, not making money. It’s the same as everyone taking huge withdrawals from a casino – it will quickly crumble.

The only way to secure your future as a funded trader is to work with a company that provides real-money accounts, such as Lux Trading. This way, you’re rewarded for being a profitable trader, and everyone wins together. This is opposed to the prop firm systemically creating your failure, as to avoid paying you.

The Race To The Top

If you look from afar, the industry is quickly becoming very cutthroat and competitive. This ultimately leads to prop firms lowering their thresholds and slashing their profit margins to remain relevant within the market. The downside to this, for traders, is the fact we are seeing more prop firms going bust due to their mismanagement of company funds and inadequate business practices. Like DT4X Trader and Funded Trader, to name a few. We’re seeing some ‘leading prop firms’ stopping traders from taking withdrawals and manipulating slippage to force traders to fail, exactly as some B-book brokers do.

This will, sooner rather than later, lead to regulatory pressure within the online prop firm industry. We saw this exact situation happen with brokers and prop firms will be next… Regulators won’t take too kindly to the predatory marketing techniques and demo trading accounts being offered to hopeful traders. Only the real money prop firms and brick & mortar businesses will stand the test of time.

How To Stay Safe When Using Funded Trading Accounts

With the risks in mind, there are ways to safeguard yourself against the potential risk whilst still leveraging funded trading accounts to increase your profits within the markets.

The best option for retail traders is to seek funding from companies that offer real money trading accounts. This is how prop firms have always operated and how traditional firms still do, to this day. By doing this, you manage to avoid all the dangers of working with a “Ponzi scheme” style prop firm, and instead work with a legitimate company with high levels of capital. Not only are you trading for a firm with healthy cash reserves, you know that the company only makes a profit when you do. With that being the case, the prop firm will do everything to provide you with the tools and support you need to be profitable.

That’s what we do for our Lux Trading Firm Elite Traders. Since offering support, real money accounts, and analytical tools, we’ve seen funding rates rise from 1% to 20%, which we see as a very substantial growth.

Ultimately, as with any scam, it’s important to avoid the opportunities that look too good to be true. For instance, if a company is offering ‘instant funding’, they know the chance of you ever earning any money is incredibly small – hence why they can afford to offer this.

In Summary

 In conclusion, the online prop firm industry has brought a lot of new opportunities for retail forex traders and given a lot of profitable traders a way to earn more profits from the market. However, the industry is now more of a circus than a regulated market with more and more firms popping up, showing million-dollar withdrawals each month, and lowering profit margins to compete with the larger firms. As more and more of these prop firms fail, you need to look at longevity within your trading career. The only prop firms that have stood and will stand the test of time, are those offering real money trading accounts, not demo profits.  

If you’re interested in working with a real money prop firm and taking funding, feel free to check out Lux Trading Firm.