Evaluate the current Propfirm models

 

Before I started learning about trading, funding programs for traders were not as popular as they are now, so most people had to trade with their personal accounts. Trading with your own money, as you may know, is incredibly challenging. Even before considering psychological factors, systems, or capital management, most of us who come from "humble backgrounds" start with very little capital—just a few hundred or a few thousand dollars. Suppose you begin with $5,000 and manage to achieve a 20% annual return; it would still take 30 years to earn your first million dollars. That's why most people go all-in, trading with a "high risk, high reward" mindset, aiming for 20% monthly returns. This approach often leads to losing everything.

Nowadays, traders are in a much more favorable position as funding firms are popping up like mushrooms. Starting with just a few hundred or a few thousand dollars, one can already begin building a career. If you can consistently generate a 20% annual profit, managing tens of millions of dollars is achievable—not in 30 years, but potentially in just 5-6 years. Instead of trading with a personal account (where losses are almost inevitable), you can use that money to join these firms. The opportunity to grow your capital is significantly faster. Later, when you’re managing a few million dollars, you can simply aim for 20% annually, living freely and without bearing much risk.

Currently, there are three types of funding models. I’ll share an objective view of each model and their sustainability to help everyone choose the right path.

The FTMO-style model: These firms allow traders to keep 80-100% of the profits they earn. This type of funding model can be considered the best for traders in terms of short-term costs. Most new companies in the industry follow this approach. Some reputable firms in this category include FTMO, the5ers, E8 Markets, and others.

Although this model is beneficial for traders, it is highly risky for the funding firms. Without effective risk management, these firms can easily go bankrupt. In 2023, many firms of this type collapsed. Due to the short evaluation periods, these firms struggle to identify truly professional traders. Many participants approach the challenges with an "all-in" mindset, using tricks or loopholes to quickly pass the evaluation without possessing any real trading edge. If the firm lacks a system to filter out such participants, their profits won’t come from executing trades in the real market but instead from collecting challenge fees from unsuccessful traders. In reality, 99% of these firms currently rely on this method to generate profits.

This creates a conflict of interest: if the trader wins, the firm incurs losses; if the trader loses, the firm profits. These firms often employ various tactics to prevent traders from making profits, such as increasing costs, widening spreads, causing slippage, restricting certain trading styles, and enforcing numerous hidden rules. If these measures fail and they face insolvency, the firms may default on their obligations.

These firms cannot sustain themselves long-term unless they find truly professional traders and push trades into the real market. The more discounts and promotions they offer, the higher the risk of collapse. Currently, in my opinion, FTMO is one of the few firms in this category that can operate sustainably. This is due to their longevity, strict risk management systems, and infrequent use of discounts. FTMO appears to have built a significant base of professional traders who generate long-term profits. As a result, they can push trades into the real market and earn profits from those trades. Evidence of their ability to push trades to the real market is that they still hold a license from MetaQuotes, whereas most other firms in this category have been banned. This reduces the conflict of interest between the firm and the trader, allowing both sides to win together.

You may consider starting with this type of funding model because the cost is highly favorable compared to the initial capital required. Based on a max drawdown of 20%, the maximum capital you can access with FTMO initially is equivalent to $200,000 on a personal account, potentially reaching $1M after scaling up—although this can be quite challenging. In the long term, there are better options.

The second model: Funding firms like the5ers: These firms offer low-cost programs that allow significant capital scaling. They also have fee-based challenges, but these are divided into multiple stages. After passing each stage, your allocated capital increases. Their scaling rules are easier compared to FTMO. If you proceed steadily and cautiously, you can scale up to $29M. Based on a max drawdown of 20%, this would be equivalent to managing around $4M on a real personal account. Additionally, they offer fixed salary programs, such as $10,000/month, which is a unique feature among funding firms. This model focuses on long-term progression and gradual funding, allowing them to better filter out professional traders compared to the first type. As a result, it has less conflict of interest with traders, offering better trading costs and conditions to help traders generate profits. However, the downside of this model is that it involves too many stages, so the time required to scale up to the maximum capital is very lengthy.

The third model: Darwinex-style funding, specifically its Zero model, which requires traders to pay a monthly fee (or no fee at all with the standard model), without any evaluation stages. Instead, traders need to demonstrate their long-term trading performance, which serves as the basis for capital allocation. Although the profit share is relatively low at 15%, this model has a standout feature that makes it a great choice for building a long-term trading career: the potential to access unlimited capital.

When traders achieve strong long-term trading metrics, in addition to the capital provided by the firm, these firms can open the trader’s account for external investors to contribute additional funds. Since they have developed robust and accurate evaluation systems for traders, many investors trust these platforms and are willing to risk their capital with skilled traders. Because this model does not require scaling up through multiple stages, the capital increase from investors can happen very quickly. This type of fund also imposes no restrictions or rules—traders operate as if they were trading a personal account. The only requirement is to ensure the ability to generate long-term profits. With this, traders can theoretically access unlimited capital allocation. The 15% profit share may seem low, but it aligns with the global standard for professional fund managers, who often manage billions of dollars. Think about it: who would be willing to invest their capital for just a 10% return while taking on 100% of the risk?

There is no conflict of interest between the fund, investors, and traders in this model. Everyone can win together. This is the type of fund that can be trusted for long-term growth. Its model is currently the most sustainable in the funding industry.