Debunking 6 Popular Prop Firm Myths

  • July 3, 2023

The prop firm industry has grown dramatically over the last few years, with hundreds of thousands of retail forex traders obtaining funded trading accounts and trading much larger volumes of capital than ever before. With this influx of new prop firms and traders, there has been a huge amount of misinformation and rumors in the prop firm space which need to be debunked!

In this article, we will be looking at the most popular rumors we hear daily surrounding the prop firm industry and setting these right. So, let’s get into it…

Debunking Prop Firm Myths – A Sea Of Misinformation

As with any industry or sector that experiences rapid growth, the prop firm industry is now filled with misinformation and content from folks without too much experience in the space. Although this can easily be ignored by traders with experience or those that understand how the industry operates, many new traders can be swept into believing a lot of misinformation, which can greatly impact their experience with prop firms. We’ve been operating in this space for many years now and feel very well-placed to bust some of these myths you would have been seeing online!

Myth 1 – Prop Firms Are A Scam

The most common misconception we hear daily is the fact that all prop firms are a scam. Prop firms aren’t a scam, in general. However, like in all industries, there are prop firms designed to scam traders and pull the rug on funded traders! When selecting the prop firm you would like to work with, you need to exercise a huge amount of due diligence and ensure you’re working with the right firm to meet your needs.

We recommend looking for:

  • Firms offering real trading capital.
  • Firms with transparency of leadership and address.
  • Firms with many years in the industry.
  • Firms with strong reviews and online presence.

Of course, we are biased, but working with Lux Trading Firm will tick every single box!

Myth 2 – Prop Firms Give Traders Demo Capital

This myth is partially true. Many prop firms in the industry will place their funded traders on demo accounts. These traders, whether profitable or not, will have no access to live funds within the markets. These prop firms are a scam, in our eyes. The firms only generate revenue through traders failing their funding challenges, rather than through enabling profitable traders to succeed and sharing the profits.  

Firms offering demo capital funding to traders also do not have the traders’ best interests at heart. If a firm only generates revenue through traders failing challenges, it’s in their best interest for traders to fail as many challenges as possible. Profitable traders taking withdrawals just eat into their profits.

Lux Trading Firm is one of the few, if not the only prop firm in the industry, providing real funded capital to traders. This means that we make profits from profitable traders taking withdrawals, due to the profit share. For this reason, our goals are entirely aligned with that of the trader, meaning we provide fair trading conditions, mentors, and a range of tools to allow traders to actually succeed!

Myth 3 – All Traders Fail Prop Firm Trading Challenges 

We constantly hear it: ‘All traders fail with prop firms, there’s no point’. Is this actually true? 

No, it’s not true! Of course, many traders do fail prop firm trading challenges in the same way that many traders are not profitable within the financial markets. However, not all traders fail! A key takeaway would be to work with a prop firm with a high pass rate.

Lux Trading Firm has the highest pass rate in the industry in our Elite Traders Club. This is down to a few simple factors:

  • A personal trading mentor
  • A risk desk to help manage risk within the markets
  • No time limit on challenges

 We strive for our traders to focus on the long term and managing their risk, rather than crash and burn with quick profits.  

So, this rumor is a myth!

Myth 4 – Prop Firm Traders Have To Be Well-Experienced Traders

 Historically speaking, prop firm traders have had to be well-experienced traders with years of experience under their belt. Usually, these traders had worked in prestigious financial institutions and had a background in financial services.

However, this is no longer the case with online prop firms.

When we fund traders, we are not interested in their background and don’t ask for a CV! We just want to see consistent trading results in the trading challenge set. This lowers the barrier of entry drastically and allows traders from all industries and walks of life to succeed, obtain larger capital and make more money from their trading.

Myth 5 – Prop Firm Traders Need A Track Record Of Consistent Profits

If we reflect on the years before online forex prop firms for retail traders, brick-and-mortar proprietary trading companies always required traders to have years of consistent track records before making it through the door. However, this is not the case with the new wave of prop firms.

Let’s take Lux Trading Firm for example – we don’t require traders to have any track record of verified profiles on MyFxBook before taking on funding. The point of the trading challenge is to verify your trading results over a period of time. This means traders with no track record that have only just reached profitability in the markets can trade and get funded, without waiting years! 

Myth 6 – Prop Firm Trading Is High Risk

With traders obtaining a large volume of trading capital, it can seem like prop trading is extremely high risk. 

However, this isn’t actually the case.

Let’s take our Elite Funded Traders, for example. Although our traders are managing up to $10,000,000 in trading capital, we have risk management rules and guidelines in place to keep our traders safe. These include maximum loss rules and risk limits. This, along with our risk desk, allows traders to make sensible trading decisions with low-risk positions in the market, ensuring the longevity of their trading careers.

Having external risk management parameters set by a prop firm keeps traders on their toes and very much reduces the overall risk.

It’s also worth noting that prop firms do not fine traders or invoice traders for losses on their trading accounts. For example, when some of our funded traders lose beyond their loss limits, we take back access to the funded capital, but there is no financial burden placed upon those traders.

Thus, the rumor that prop firms are more risky than trading your own capital, is untrue!

In Summary – The Prop Firm Industry Is Rife With Rumors

In conclusion, stay clear of the rumors and misinformation within the prop firm industry. Your best bet at success in becoming funded is working with a reputable prop firm that has their interests perfectly aligned with your own, as a trader.

Are you looking to become a funded trader? Work with Lux Trading Firm now!