Prop firms introduced a new form of trading called prop trading. This trading provides traders more opportunities to start and grow their trading career. After the success of prop trading, different prop firms are available in the market. All the firms have pros and cons as well, as each firm has their own criteria. But if you have a question about which firm is the best prop firm then we can’t specify the one because the best firms are those that align with your trading style. If you want to choose the firm according to your style then you need to have an idea about the factors that you consider while choosing a firm. So let's discuss these factors in detail and see how to choose the best prop firm for your trading style.
What are Prop Firms?
If you are a beginner and don't know about prop firms then let me tell you prop firms are those companies that provide the capital to the traders to start their trading journey. These firms also provide the resources and tools that traders need while trading. In return for this funding prop firms take a specific portion of traders' profit that is mostly 10-50% in the favor of firms.
How to Choose the Best Prop Firm
Trading style:
Each trader has its own trading style so traders always need to choose the firms that suit their trading style. If you know your strengths then you can better choose the firm according to your preferences. There are different types of trading styles:
Day trading: If you prefer quick trades and like to exit positions on the same day then you need to look for a prop firm that supports day trading and provides you with narrow spreads with low commissions.
Swing trading: if you want to hold a position for several days or weeks then you need to prefer a firm that provides flexible risk management and also provides access to different markets.
Scalping: if you like scalping where you can take advantage of small price movements then you need the faster execution so prefer firms that have low commission and low latency with faster execution rate.
After knowing your style you can better choose a firm that provides you tools and environment according to the needs of your trading style.
Check the Funding
The most important thing that a trader first considers is how much capital a prop firm will provide for trading. Prefer a firm that also aligns with your financial goals. Firms provide different funding models.
Cash-based account: Some prop firms provide upfront capital without any initial fee. Traders just need to complete an evaluation process to get access to a funding account. Here you need to prefer one-step challenge prop firm for simple evaluations.
Leverage-based account: These firms provide funding based on leverage in which the risk is higher.
Fee-based account: Some firms provide funding in return for a monthly fee or upfront fee. So here you need to understand the fee structure of a firm.
Profit Sharing:
Some firms also take a percentage of traders' profit in return for funding capital. This means how much profit you can take from your earnings. See their profit-sharing model and check whether it can align with your financial goal. The normal range of profit that firms provide is from 30-80%. Each firm has its profit-sharing model so prefer those firms that have fair profit-sharing.
Risk Management Rules:
Risk management plays an important role in trading. Prop firms take the responsibility of risk on their capital so they have very strict risk management rules. Check whether you can trade in these strict rules or if you need flexible rules. Firms implement drawdown limits that allow traders the maximum loss and will be terminated if they exceed this limit. The common range is 5-10%. A daily loss limit restricts traders to not lose a lot of capital in a day. Position limits define the maximum capital you are allowed for a single trade. Check these limits and see if you can trade under these limitations.
Evaluate Tools:
More of the traders rely on efficient trading tools. They need those tools that they use. So if they choose prop trading then they need to check the tools that a prop firm provides. Each firm provides access to different tools. It is important to evaluate these tools and also check whether you can easily trade with these available tools before choosing a firm. When you evaluate these tools consider important features like the order execution speed, charting tools and indicators, risk management tools, and customization options.
Conclusion:
The selection of the right prop firm is very important for successful trading. You need to consider the important factors that can affect your trading journey. If you want to choose the best prop firm then after evaluating all these factors discussed above see if the selected firm aligns with your trading style and strategies.
