Pros and Cons of Futures Prop Trading Firms in 2021

Retail vs. Prop Trading is the Question

Just like in any other business venture, professional private traders need to efficiently allocate their operating capital and minimize their operating costs. By definition, the purpose of remote prop trading firms should be to help professional traders in these areas and offer tangible benefits to differentiate themselves from retail brokers.

 

Futures vs. stocks

First we need to differentiate which product group you intend to trade, because the potential benefits differ greatly between stocks and futures. Since the main reason for considering a prop firm is to provide you with either more buying power than you could get in a retail account or lower trading commissions — or ideally both –, we will compare their offers to the equivalent capital requirements and trading commissions at retail brokers.

The idea is that you would be willing to forgo a certain percentage of your trading profits in return for these benefits. Let’s see how the numbers work out for both futures and stocks.

 

Futures remote prop trading

The most popular remote prop trading qualification programs in the futures space include market leader TOPSTEP, Liberty Market Investment, OneUp Trader, and Earn2Trade. Click here for a detailed comparison of the individual firms.

 

Effective trading capital

Since the leverage is built into the product itself in the form of margin requirements, futures prop trading doesn’t really offer any benefit in terms of BP as it is the same as in your retail account.

 

Contract ES | YM | NQ HG CL UB GC
Margin intraday $500 $1050 $1131,25 $1975 $2500
5 contracts $2500 $5250 $5656,25 $9875 $12500
Max. drawdown $2000 $2000 $2000 $2000 $2000
Effective trading capital $4500 $7250 $7656,25 $11875 $14500

 

If you lack adequate start-up capital, however, it could make sense to go through a trading challenges to qualify for an equivalent effective trading capital which ranges between $2,500 and $12,500 plus the maximum drawdown depending on the contract(s) of your choice.

There are many reasons why you should avoid stock index futures, which I will cover in another post, but it only seems to make sense to seek a funded account at said futures prop firms if you plan to trade products with relatively higher margin requirements such as the crude oil, copper, ultra-bond or gold contracts. Whether you’ll be able to stay within the defined risk parameters when trading these contracts is an entirely different story.

 

Trading commissions

This is another point where futures prop firms fall short in their promise of offering a benefit that would otherwise not be available to retail traders. The trading commissions are equivalent to retail FCMs such as AMP Futures.

 

You can check AMP’s commission structure here to compare it for yourself.

The only bright spot here is that you can trade with NO commissions in a Funded Account at TOPSTEP using TSTrader® because they essentially pick up the tab for Tradovate’s monthly membership fee. UPDATE: Topstep doesn’t offer this option anymore, so at this point you’re nothing but a glorified retail trader who volunteers to share trading profits for the non-quantifiable benefit of “learning to be disciplined”.

 

Profit share

On the cost side of the equation are professional market data fees and the sharing of your trading profits with the prop firm. The common maximum profit split for futures is 80%, which is due to CME requirements on member firms taken from CME Group’s Application for International Incentive Program (“IIP”) which include the following:

Traders cannot be responsible for losses beyond their share of profits earned and maintained in the account which have not yet been distributed to the trader.

The firm must be allocated both a portion of the profits and losses of the IIP firm account.

The profit split on agreements with any trader, including owners acting as traders, may not exceed 80/20 (i.e. 80% to the trader/20% to the firm).

The firm is prohibited from:

Setting minimum account balances for its traders.

Charging margin on positions to traders.

Charging fees on draws taken by traders.

Requiring or accepting security deposits from its traders.

 

Net benefit for futures traders

We can conclude that traders get no quantifiable benefit in the form of more buying power, unless you trade commodities with higher margin requirements than stock index futures. Since all of the trading firms practically offer the same or worse commissions than retail FCMs, there is also no benefit in terms of lowering your operating costs for all trader types.

 

US stocks remote prop trading

 

UPDATE: The prop trading model for US Stocks may also very well be redundant for stock traders outside of the U.S. See the table below for our selection of No-PDT-Rule brokers that provide direct market access and extend up to 30:1 leverage to active traders with ultra-low volume-based commissions and an initial deposit requirement as low as $1000. Contacts us for even lower commissions for trading US stocks when joining the CEED.trader.group.

 

No PDT-rule brokers for US stocks


Qualify for a prop account trading U.S. stocks
  • Leverage
  • Minimum deposit
  • Commission/share tier 1
  • Commission tier 2
  • Commission tier 3
  • Platform fee/month
  • Market data/month
  • Incentives
  • Trading platform(s)
  • Registered in
299 PER MONTH


Get started with approaching trading as a business
  • 10:1 | 20:1
  • $300 | $1,000
  • $0.02 | $0.0066
  • $0.0035 > 200k shares/month
  • negotiable > 500k shares/month
  • $60
  • Included
  • No platform fee > 200k shares/month
  • Aurora
  • British Virgin Islands
29 PER MONTH


Better algo order flow analysis = better trading results
  • 6:1 (> 30:1 with track record)
  • $5,000
  • $0.0035 (sign up for CEED.trader.prep for even lower fees)
  • $0.0030 > 250k shares/month
  • $0.0020 > 1m shares/month
  • $29.95
  • $22 for NYSE, Nasdaq, ARCA Level 1
  • -
  • Hammer | Sterling Pro | Lightspeed
  • Bulgaria (EU)
$299 PER MONTH
billed quarterly


Qualify for a prop account trading U.S. stocks
  • 10:1
  • $3,000
  • $0.0050 ($1 minimum per trade)
  • $0.0040 > 80k shares/month ($1 minimum per trade)
  • $0.0030 > 300k shares/month
  • $39
  • Included
  • No platform fee > 300k shares/month
  • ROX® Premium
  • Cyprus (EU)

 

 

Conclusion

 

The business model for remote prop trading both stocks and futures is pretty much dead in the water if you know about the alternatives and properly structure your approach to growing your own account. In isolated cases, it may still make sense to go through a trading challenge and qualify for third-party capital but you need to carefully weigh the pros and cons of becoming a remote prop trader and whether it objectively makes sense in your specific situation.

 

Please share this post with other traders who may find this information useful.

September 1, 2021

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