Instant Funding Forex Prop Firms – What’s The Catch?
It’s no secret that the online funded account industry has boomed over the last few years. In this growth, various different types of prop firms have been popping up. These range from traditional prop firms to B book firms.
The latest addition is the instant funding prop firms.
These prop firms offer traders vast sums of funded capital, without ever needing to pass a challenge criteria. But are they legit? What’s the catch?
Well, let’s find out…
In this article, we are going to break down everything you need to know about instant funding prop firms, so you can make an educated decision about whether they’re worth risking in your trading strategy.
Instant Funding Forex Prop Firms
I’m sure that you would have seen advertisements for prop firms over the last few months, offering funded accounts seemingly overnight. They promise you a funded account with no catch and no challenge needed. These are obviously fairly appealing to new traders with very low trading capital. Without needing to prove you can trade profitability, you can suddenly have access to hundreds of thousands of dollars of trading capital. However, they aren’t really what they seem.
In fact, one of the most popular instant-funded prop firms has just gone bust and shut its doors after making a huge amount of money from traders like you and me.
There are certainly pros and cons of taking advantage of these companies whilst they last, so let’s break them down…
The Cons Of Using An Instant Funding Prop Firm
Despite seeming like a good idea, in principle, there are many drawbacks to using a firm that offers instantly funded accounts…
1. Where Is The Upside For The Prop Firm?
It’s easy to gloss over the reality of what is happening when a prop firm hands you $200,000 of capital, instantly. There is a 0% chance that the capital is going to be real capital. The account will be a demo account. So, in essence, you’re paying real money to be given a demo account. How do we know the capital is not real? Well, obviously the company would not survive or even have the necessary funding if they gave out $200,000 to traders with no KYC and very limited checks to see if you’re even profitable. Therefore, we know the capital is non-existent.
You may be thinking, “well as long as I get withdrawals, I don’t care”. And that’s fine, but then you need to think about where the prop firm is actually making money from…
2. These Firms Go Bust
If you look at the prop firm industry over the last few years, it’s important to look at the business model of those companies that have survived and those that have failed. DT4X comes to mind when looking at instant-funded prop firms. They failed overnight and left all traders high and dry without their withdrawals – all funded accounts were lost. This is a risk that must be taken when acquiring any kind of third-party capital, but it’s important to work with stable firms to minimize your exposure.
3. These Prop Firms Need You To Fail
Let’s look at the business model of the prop firms offering instantly funded accounts. If you’re trading on a demo account, the prop firm makes no money from your success. What do we mean by this? Well, we fund our traders with real funded accounts. This means when they lose, we lose. When our traders take withdrawals, we also get paid. Therefore, it’s in our best interest to not manipulate stop losses, not manipulate spreads, provide the highest quality trading environment possible and give our traders the support, education, and risk parameters needed for them to succeed.
However, when prop firms are selling instantly funded accounts, they’re only getting paid from that initial account sale. If you make any withdrawals on the account and try to take your profits out, this will be a loss for that company.
Here you see the goals are not aligned. In fact, you and the prop firm are trading with opposite goals. When working with firms like this, you’ll notice a few things start to happen…
- Withdrawals get delayed
- Excuses are made to remove your funding
- Spreads get larger and more aggressive
- Stop losses might be missed
- Latency is increased
- Further KYC is suddenly required when you attempt a withdrawal
We’ve seen this time and time again. If the prop firm is not aligned with your goal of making money, they will do everything they can to stop that from happening… Remember that. We have a whole article breaking down the dangers of trading with prop firms, here.
4. The Risk/Reward Is Not There
You need to look at why you are choosing to go with a risky prop firm. The main reason why traders choose to use a high-risk strategy like this is to save themselves a few weeks of a trading challenge. Bearing in mind a trading challenge only lasts around 30 days, if not less, the risk of using an instant funding prop firm is not worth it, in my opinion. If you cannot wait an extra few weeks for a huge amount of real trading capital, the foreign exchange markets are most likely not going to be a great fit for your personality.
5. These Accounts Are Expensive
These instantly funded forex accounts are typically sold to traders at a premium rate, much higher than a usual prop firm challenge. I’ve seen instantly funded accounts of $50,000 being sold at $5,000. This is incredibly expensive when you consider the fact you’re exchanging your real money, for a third-party demo account. When/if the firm goes bust, you lose your $5,000; that’s $5,000 of trading capital that could have been in your own trading account. Likewise, if you violate any of the trading rules, which is highly likely, the firm will take your funded account from you and will certainly not offer any kind of retry. This is something to be very aware of, as a trader.
The Pros Of Using An Instant Funding Prop Firm
1. Instant Funding For Those That Are Not Profitable Traders
If you aren’t yet a profitable forex trader, the benefit of not using a prop firm with the standard challenge model is that you’re still able to obtain funding. The instant funding prop firms obviously completely bypass this step. The upside to this is the fact you can have hundreds of thousands under management. However, this is short-lived. There is very little point in having any funded trading accounts if you aren’t a profitable trader. If you’re sure that you cannot pass the standard prop firm challenges, then you really aren’t ready to become a funded trader. As a wise man once said, “shortcuts get cut short”. It takes a long time to learn to trade forex and a long time to scale your trading capital. I’ve listed this here as a pro-argument, but the jury is still out on this one.
If you’re serious about progressing within your trading career, and you’re interested in managing real trading capital, I’d highly recommend working with a prop firm that allows you to do this. At Lux Trading Firm, we only provide our traders with live funded accounts. We don’t offer an instant funded account because simply put, this would not be viable for our business. We only make money from our traders succeeding, so we need you trading live funds. This is exactly why we have a challenge pass rate of around 20%, rather than the industry average of less than 5%. This is due to the simple fact that we need our traders to succeed. We offer training, great trading conditions, risk management tools, and a personal trading mentor to give our funded traders the highest possible chance of success.
Work with a prop firm that aligns with your personal goals – of making money trading!
In Conclusion – Are Instant Funding Forex Prop Firms Legit?
In summary, instant funding prop firms are not known for their reliability. No traditional prop firm or investment house would ever trust a random trader with a lump sum of real trading capital. If you’re looking to scale your assets under management and grow your trading career, work with reputable prop firms offering live trading capital.