Whether you have burnt money on prop firms that you haven’t passed, or threw good money after bad in a personal trading account, this guide outlines the key differences between a prop firm and personal trading accounts and which one might be better (depending on your trading).
Prop Firms Overview Pros and Cons
For prop firms, you need to be able to pass the challenge and verification phases to get any value out of them.
This means hitting a target before hitting a drawdown, sometimes on 2 accounts before you get a shot at the real deal.
There are also other rules to contend with along the way.
IF you can confidently pass over a series of challenges (say 3 out of 5) and expect a certain return once you have a funded account, you can basically reverse engineer your value and compare that to a personal account balance of the same dollar value as the cost of getting funded.
Personal Trading Overview Pros and Cons
Personal trading accounts are more flexible than prop firm accounts because they aren’t governed by strict rules and drawdown limits.
For those willing to test and trial their strategy on a small live balance, this can ensure the risk and reward settings are stacked before forking out for challenges.
The cost of testing can be reduced heavily to ensure you are hitting your targets (that would pass a challenge) without reaching drawdown limits. This can be achieved by trading with say, 100 instead of 100,000 on relative lots sizes to determine outcomes on small amounts of money.
You can build up history over the long term, rather than by each challenge and then have to start again with your history buildup.
If your strategy doesn’t suit the rules of prop firms due to drawdown limits etc. then a personal trading account may be a more flexible way to trade your system. There are plenty of strategies that don’t work well with prop firms due to drawdowns or holding periods.