What is a prop firm? How does prop trading work? - FT Mogul (2024)

Online prop trading is a type of trading where a trader uses a prop firm’s capital to trade in the financial markets, such as forex. Prop firms such as FT Mogul provide traders access to trading capital, software, and other resources in exchange for a share of the profits. A prop firm lets you trade with their capital and shares the profit with you, but at the same time covers your losses as long as you stay within the allowed loss limits.

Why do you need a prop firm’s capital for forex trading?

Lack of capital is the biggest burden for traders.

Let us explain why.

Let’s say you have a hundred dollars to invest in forex. You open an account, start trading and manage to make a 10% profit. Congratulations, you made 10 dollars – minus costs such as fees for managing the account and commissions!

Let’s see how far a hundred dollars can get you if you start trading with FT Mogul.

With $99m you can open a $10,000 account. This means you can have access to $10,000 worth of trading capital. If you pass a simple challenge, you will be entitled to a minimum of 80% of the profits you make while trading on your funded account. So, taking the 10% profit as an example, you will make $800. That’s 80 times more than trading with a traditional forex broker. Not to mention that FT Mogul does not charge any hidden fees such as monthly fees.

A prop firm gives you the power of leverage

Let’s examine what happens if you use leverage. A traditional forex broker will let you have access to 1:50 leverage. This means you can open a $5,000 position with your hundred dollars. 10% profit means $500 for you (minus costs). But what happens if the market goes the wrong way? Your hundred dollars act as insurance for that case. With just a 2% per cent move in the wrong direction, your total capital is blown away.

A prop firm gives you more opportunity

With FT Mogul, we allow a generous drawdown (total loss). If you lose 2% of your trading capital, you may continue trading, open another position and make a profit. And oh, we let you have a 1:100 leverage in most cases. This means that with just a $99 investment, you’ll have the possibility to open a million-dollar position. Imagine a 10% profit on that…

Advantages of trading with a prop firm’s capital

1. Increased potential profits: Traders with more capital can take larger positions with the prop firm’s capital, which increases their potential profits.
2. No loss of own capital: Prop firms cover all trading losses. This way trader don’t risk their own capital.
3. Reduced risk of margin calls: Traders with more capital are less likely to receive margin calls, which can force them to close their positions at a loss.
4. Ability to withstand losses: Traders with more capital have a larger buffer to withstand losses, making it easier to recover from a losing streak.
5. Ability to diversify: Traders with more capital can diversify their portfolios more effectively, reducing their overall risk. Therefore, they are less likely to be wiped out by a single losing trade.
   
6. Here are some specific examples of how having big trading capital can be advantageous:

Disadvantages of not having enough trading capital

1. Small capital limits the size of positions that can be taken: with limited capital, you can only take small positions, which limits your potential profits.
2. Increases the risk of margin calls: Traders with limited capital are more likely to receive margin calls, which can force them to close their positions at a loss.
3. Reduces the ability to withstand losses: Traders with limited capital have less of a buffer to withstand losses, making it difficult to recover from a losing streak.
4. Limits the ability to diversify: Traders with limited capital may not be able to diversify their portfolios as much as they would like, which can increase their overall risk. A single losing trade can wipe them out.
   

Why trade with a prop firm?

Online prop trading is a great opportunity for traders who want to start trading with a large amount of money without having to risk their own money.

1. Access to trading capital: Online prop trading firms provide traders with access to trading capital without requiring them to invest their own money. This allows traders to start trading with a larger amount of money than they would be able to on their own.
2. No risk to the trader: Traders who lose money while trading with an online prop trading firm do not have to pay back the firm’s losses. This means that traders can trade without worrying about losing their money.
3. Performance-based compensation: Online prop trading firms compensate traders based on their performance. This means that traders can earn more money if they are successful traders.
4. Mentorship and training: online prop trading firms such as FT Mogul offer mentorship and training programs to their traders. This can be a valuable resource for traders who are new to the markets or who want to improve their trading skills.

How to choose the right prop firm?

Choosing the right prop firm is a crucial step in your trading journey. The prop firm you choose will define your access to trading capital, trading platforms, and customer support. Here is what you have to pay attention to.

1. Understand your trading goals and style
   Have a clear understanding of your trading goals and style. What markets do you intend to trade? What is your risk tolerance? Do you prefer a discretionary or systematic trading approach? Identifying your strengths and preferences will help you narrow down your options and find a prop firm that supports your trading approach.
2. Evaluate profit-sharing structures
3. Assess capital allocation and leverage policies
4. Evaluate educational resources and mentorship opportunities
5. Ensure reliable trading technology and tools
6. Understand risk management policies and support systems
7. Check the prop firm’s reputation
8. Make sure you fully understand the evaluation criteria
9. Engage with the prop firm directly: