The Rise And Fall Of Instant Funding Prop Firms

Over the last few years, you’ll surely have seen many prop firms come and go. During this time, ‘instant funding’ prop firms started taking the industry by storm, promising traders a large funded trading account instantly, without the need for a trading challenge. You may notice now that very few of these prop firms are still in business and there’s a good reason for this. In this article we’re going to dive into instant funding prop firms, why they failed and how to avoid being a victim to these failing prop firms as a forex trader. So, let’s get into it…

The Rise And Fall Of Instant Funding Prop Firms

In 2023, we were aware of at least 5 instant funding prop firms, with many other prop firms offering an instant funding programme for traders with deep pockets. We’ve seen instant funding trading accounts going for over £5000 – which is a very large ticket compared to the majority of prop firm funded accounts. The popularity of the instant funding prop firm model has since dwindled as many of these prop firms have since gone bust and the funded traders have lost out, after paying their huge fees.

The model did have perks – being able to skip the challenge process is definitely appealing as you can start earning money sooner – right? Of course. However, the drawbacks are huge. The drawbacks affect the prop firm owners primarily, which are then rolled down onto the traders. We’ll discuss this in more detail below…

What Is An Instant Funding Prop Firm?

An instant funding prop firm is a prop firm that offers traders a funding account without a need for a challenge or verification phase. This means traders can go from $0 under management to let’s say $100,000 under management within just minutes. Typically, these funded accounts are much more expensive than the usually ‘challenge’ funded accounts. You’re paying more due to the fact you get the account instantly (or within a few hours). This means traders can start trading instantly and not spend a few months trying to reach the profit milestones. This definitely sounds appealing, right? However, it’s not all sunshine and rainbows, primarily due to the business model that these prop firms have to operate with.

Why Do Instant Funding Prop Firms Fail And How Do They Scam Traders?

The reason the instant funding prop firms typically fail is due to the business model they operate. It’s important to understand that these prop firms typically offer ‘simulated capital’. This means that profitable traders cause the business to lose money and unprofitable traders cause the business to make a profit (on the initial fees).

 Let’s take an example:

•  100 Traders sign up to an instant funding trading account for £1,000 each.
• 70% of the traders manage to take a first profit withdrawal, averaging £1000 per trader.
• 30% of the traders lose their accounts before taking a first profit split withdrawal.

 The business would have had £100,000 in account fees, then paid out £70,000 to the traders. This is a £30,000 profit for the prop firm. Now you remove marketing costs, hosting costs, server costs, software costs and customer support for the month, the prop firm has made £0 for the month.

Now in month 2, some of those 70% of traders will make further profits, whilst some lose their accounts. Now the instant funding prop firm is losing money. They will go bust shortly.

Let’s take a typical prop firm challenge model (simulated capital), rather than instant funding:

• 100 Traders sign up for a challenge, for £500 each.
• 95% of the traders will lose their challenge accounts.
• 5% of traders will pass their challenge and take a first profit withdrawal, averaging £1000 per trader.

The business would bring in £50,000 in revenue, then pay out £5,000 to traders. This is a profit of £45,000. Minus the estimated £30,000 in costs, the prop firm will have made a profit of £15,000 for the month. 

In month 2, some of those 5% of traders will have lost their accounts. This business is much more sustainable.

Now, let’s take a real money prop firm like Lux Trading Firm:

• 100 Traders sign up for a challenge, for £1000 each.
• 50% of the traders will pass their challenge accounts, due to more support for traders being offered, one to one coaching, a risk management desk etc.
• Those 50% of traders take a first profit withdrawal, which is a 50% profit split, averaging £1000 per trader.

The business would bring in £100,000 in revenue from the challenge fees. Then, the business would bring in £50,000 in profit splits from the traders. It would then pay out £50,000 to traders, meaning a net profit of £100,000. Removing the same £30,000 in costs, the net profit would be £70,000.

The point of these scenarios is to showcase the benefit to you, as a trader, of working with a real money prop firm. Prop firms like Lux Trading Firm are the only prop firms that will stand the test of time. Real money prop firms rely on having profitable traders, so they stack the deck in your favor to help you achieve this. Conversely, simulated and instant funding prop firms need you to fail to make their profits.

The Benefit Of Instant Funding Prop Firms

There are a lot of negatives of working with an instant funding prop firm, that’s a given. However, are there positives?

Frankly, the only positive you could draw would be the fact that you are able to attain a funded trading account instantly, without needing to go through the challenge and verification process that most prop firms will ask traders to complete.  For traders in a hurry, this sounds great and if we were in a world where these firms didn’t go bust every day, that would be brilliant. This all boils down to the need newbie traders have to move fast and make as much money as fast as possible – usually leading to their financial demise.  It’s worth remembering the simple fact that there is little point obtaining a funded trading account today, if the firm goes bust tomorrow.

In Conclusion – The Fall Of Instant Funding Prop Firms

In summary, the instant funding prop firm model is failing and traders all around the world are footing the bill.

If you’re looking to seriously grow your profits from trading forex and have a long career in the industry, you must look to work with a real money prop firm that puts traders first.

Are you looking to become a funded trader? Work with Lux Trading Firm today.