In the ever-changing world of financial markets, prop firms are vital. They help new traders by giving them money, tools, and technology to trade. These firms have adapted to new technology, like electronic trading algorithms, which use computers to trade automatically. In this guide, we’ll talk about the top prop firms that use Expert Advisors (EAs) to trade and what makes them special.
What are prop firms?
Proprietary trading firms, often called prop firms, have grown to become important players in finance. They let traders use the firm’s money and resources to trade. In simple terms, prop traders use the firm’s cash to make trades in various markets. They aim to make profits not just for themselves but also for the prop firm. This way, both the trader and the firm benefit from successful trades.
Proprietary trading covers various strategies, like studying the big picture of the economy (fundamental analysis) or analyzing charts and patterns (technical analysis). Traders working for prop firms can use different methods and approaches to the markets. They might dig deep into factors like the economy, company basics, or market trends to find good trading chances. Alternatively, they might use advanced tools and charts to help them make decisions.
While Prop firms operate in various markets, Forex prop trading firms focus on the Forex market. These firms allow traders to enter the Forex markets using the firm’s money. In Forex trading, you buy and sell currency pairs, so traders in Forex prop firms can use their skills to navigate the currency markets and make money from changes in exchange rates. By combining their trading knowledge with the firm’s support, traders aim to make profits while helping the prop firm succeed.
How much do prop trading firms earn?
The revenue of prop trading firms varies based on their profit-sharing agreements and any additional charges they impose. Typically, these firms earn a percentage of the profits made by their traders, which can range from 20% to 50%. This means that when a trader makes a profitable trade, a portion of the gains go to the firm as compensation for providing the trading capital and resources.
In some cases, prop trading firms offer more favorable profit-sharing terms, like a 90:10 split, where the firm takes only 10% of the profits, and the trader keeps the majority. This approach motivates traders to excel and be profitable. However, these higher splits may come with specific conditions, such as achieving certain profit goals or meeting performance benchmarks.
Apart from profit-sharing, prop trading firms may require traders to cover certain fees or expenses. For instance, some firms may ask traders to pay for training programs or coaching to enhance their trading skills. These fees can vary and are usually separate from the profit-sharing arrangement.
It’s essential to understand that the actual revenue and profitability of prop trading firms depend on several factors. These factors include the number and success rate of their traders, overall market conditions, and the firm’s operational costs. Successful prop trading firms with a diverse group of profitable traders have the potential to earn substantial revenue from their traders’ profits. However, it’s crucial to remember that not all traders are consistently profitable, and the firm’s revenue may fluctuate as a result.
What are EAs (Expert Advisors)?
Forex prop trading firms frequently incorporate Expert Advisors (EAs) into their trading strategies to boost efficiency and leverage algorithmic trading. EAs are specialized software programs designed to work on trading platforms like MetaTrader 4 (MT4). They execute trades in financial markets based on predefined rules and criteria.
EAs assist prop traders by continuously monitoring the markets, analyzing price movements, and spotting trading opportunities based on specific conditions and indicators. These conditions are set by the trader and can involve technical indicators, chart patterns, or fundamental data. By coding these rules into the EA, traders can automate the process of identifying potential trades, reduce manual work, and speed up trade execution.
Once an EA identifies a suitable trading opportunity, it can take various actions. Some EAs may alert the trader, providing signals for manual action. This allows the trader to review the information and make decisions based on their judgment. Other EAs can execute trades automatically. When the predefined conditions are met, the EA can open positions, set stop-loss and take-profit levels, and manage the trade based on the programmed rules.
Using EAs offers several benefits for prop traders. Firstly, EAs can operate 24/7, continuously scanning the markets for opportunities. They eliminate the need for constant manual monitoring, enabling traders to seize opportunities even when they’re not actively watching the markets. This automation reduces the risk of missing profitable trades.
Additionally, EAs can remove the impact of emotions on trading decisions. By strictly following predefined rules, EAs execute trades based on objective criteria, reducing the influence of human biases and emotions. This can lead to more disciplined and consistent trading, which is essential for long-term success in the markets.
However, it’s essential to remember that developing and using EAs requires careful planning and testing. Traders should have a solid grasp of algorithmic trading principles and the ability to program or customize EAs to match their specific strategies and risk management rules. Regular monitoring and periodic adjustments may also be needed to ensure EAs perform optimally under different market conditions.
Advantages and Disadvantages of Using EAs
Advantages of Using EAs
Emotion-Free Trading: EAs eliminate the impact of emotions on trading decisions. They execute trades based on predetermined parameters, removing the possibility of impulsive or emotion-driven actions. This promotes more disciplined and objective decision-making.
Increased Trading Speed: EAs can analyze and process information much faster than humans. They can assess multiple factors and make decisions within fractions of a second. This rapidity enables timely trade execution, seizing market opportunities that manual traders might miss.
Reduced Stress: For traders who rely on Forex trading as their main source of income, EAs can lower stress levels. EAs handle day-to-day trading tasks, allowing traders to focus on other aspects of their lives or explore additional opportunities. This helps alleviate the mental strain associated with continuously monitoring the markets.
Backtesting and Optimization: EAs can undergo backtesting using historical data to evaluate their performance under various market conditions. This enables traders to assess and fine-tune their strategies before applying them to live trading. Backtesting helps identify strengths and weaknesses, refine parameters, and enhance overall trading performance.
Disadvantages of Using EAs
Inability to Respond to Real-Time News: EAs operate according to predefined rules and parameters, lacking the capability to react to real-time news events. They might miss important market-moving news or fail to adjust strategies accordingly. Traders who stay actively updated with news and make decisions based on current events can have an edge over EAs in such situations.
Lack of Flexibility: EAs are programmed to work within specific boundaries, strictly following predefined rules. They may struggle to adapt to unforeseen market conditions or sudden trend changes. Traders, however, can use their judgment and instincts to react flexibly to market shifts, potentially seizing unique opportunities or avoiding significant trading mistakes.
Technical Complexity: Developing, programming, and optimizing EAs demand a certain level of technical knowledge and expertise. Traders without coding or algorithmic trading know-how may encounter difficulties when creating and customizing EAs. Additionally, ongoing monitoring and upkeep are necessary to ensure the EA performs in line with the trader’s objectives.
Over-Optimization and Curve Fitting: There’s a risk of over-optimizing EAs based on historical data, which can lead to curve fitting. Curve fitting happens when the EA’s parameters are excessively tailored to historical data, resulting in poor live trading performance. Traders need to strike a balance between optimizing the EA’s performance and ensuring it remains robust and adaptable to evolving market conditions.
Best Forex Prop Firms that Allow EA Trading
Funded Next
FundedNext is a newer prop trading platform that distinguishes itself by providing a generous 15% profit split right from the evaluation stage. Traders have the potential to increase their account balance by 40% every 4 months, provided they maintain consistent profitability.
Additionally, the platform offers the convenience of Android and iOS mobile apps for trading and assigns a dedicated account manager to assist traders. One noteworthy feature is their impressive profit split option, which can go as high as 90%, making it particularly trader-friendly.
FTMO
FTMO, established in 2014 and based in Prague, Czech Republic, is a Forex proprietary trading firm offering access to a wide range of instruments, a maximum account balance of $2,000,000, profit splits of up to 90%, an affordable entry cost starting at €155, and compatibility with popular trading platforms including MetaTrader 4, MetaTrader 5, and cTrader
Funded Trading Plus
Funded Trading Plus, founded in 2021 and headquartered in London, UK, is a Forex proprietary trading firm offering access to a diverse range of trading instruments, a substantial maximum account balance of $2,500,000, profit splits of up to 90%, an affordable starting cost from $119, and compatibility with popular trading platforms like MetaTrader 4 and MetaTrader 5.
Audacity Capital
Audacity Capital is a company that backs professional Forex traders while equipping them with valuable trading tools. Their offer includes a 50-50 profit-sharing arrangement, and for every 10% profit target attained, they double the trader’s account size, thus increasing the funding limit.
Traders also benefit from a supportive learning environment, which allows them to engage with fellow prop traders and access enhanced trading assistance. Audacity Capital supports a variety of trading platforms and stands out by not requiring an evaluation process for traders to secure funding.
Lux Trading Firm
Lux Trading Firm is a funding provider for experienced traders, offering funding of up to $2.5 million. Traders’ accounts are upgraded as they achieve 10% profit targets. The profit-sharing arrangement with Lux Trading Firm can go up to 65%. Traders have access to several trading platforms, including MetaTrader 4, Trader Evolution, and TradingView.
What sets Lux Trading Firm apart is its comprehensive support system. They offer personalized mentoring, live trading rooms for interactive learning, automated investment analytics to aid decision-making, and valuable risk management advice. To ensure transparency and trust, all professional live accounts have their results audited by KPMG, providing an extra layer of assurance for traders.