Why I think prop firms are not technically scams but obfuscate how they make a profit in their business model.
Ever since learning the No Nonsense Forex method and my discovery of the prop firm business I have thoroughly enjoyed understanding how everything works.
I always like to dissect on how a business makes money and I always approach anything forex related with skepticism.
A prop firm would like you to believe that they make their money by:
- Finding talented traders without capital.
- Providing those talented traders with capital to trade.
- Profit sharing with those talented traders.
The reality is that whether the trader wins or loses they will make their money as they collect fees (sometimes one-time payments, monthly payments, tuition fees for education, and they also make you put up the total drawdown risk so that they never risk anything).
They advertise that they are looking for great traders but in reality most people lose at trading forex so the most common occurrence for a prop firm is for someone to lose their evaluation.
In fact, when you start your evaluation with the 5%ers prop firm, they make it clear that your money is not for a live account with real money but an evaluation account for you to obtain funding.
They would also lead you to believe that you are part of a team and that you work for them but that is simply an empty title with no benefits.
The reality is you either pass or fail their evaluation. So when any prop firm calls you for an ‘interview’ these are just conversations to confirm a sale and make sure you understand that they are not liable for anything after you lose your evaluation.
The odds are stacked against you in forex, especially a beginner forex trader, statistically you are likely to fail, and a professional trader who has the skills that is highly likely to pass the evaluation is unlikely to be applying to these companies in the first place.
The reality is that all applicants eventually fail either immediately on the evaluation or from one of the structured levels and the prop firm business structure is built on this reality. It is not built on the success of traders but the failure of them.