Prop trading firms help aspiring traders access trading markets and hone their skills without needing to invest a significant amount of money. That said, prop trading firms seem too good to be true, hence many questions surround them: How does it work? Where does the money come from? How do prop trading firms make money? Can you really profit from it? Has anyone got funded?
In this article, we will look deeper into how exactly prop trading firms work and how they make money.
A prop trading firm, or proprietary trading firm, is a financial institution or a commercial bank that uses its capital to generate profits, unlike traditional forex brokers that earn commissions by trading on behalf of the trader.
Prop trading firms provide motivated clients with the necessary funds to trade in various financial markets, including forex, stocks, commodities, and more. In return, traders agree to split the profits between themselves and the prop firm.
As previously stated, prop trading firms use their own capital to engage in various trading operations. Here is a breakdown of how prop trading firms actually work:
Prop firms give traders a good opportunity to get access to simulated capital they couldn’t otherwise access. Meaning traders are not required to contribute large amounts of savings to get access to financial markets.
The financial market is now saturated with many prop trading firms, however, most of them are following the same business model. Prop firms are typically quite elusive and not reluctant to disclose how they are making a profit or the sources of liquidity for their funded accounts.
So, how do prop trading firms make money? Being one of the industry members, we want to provide an interesting insight into how prop trading firms usually make money. In general, there are three business models that prop trading firms use to make money: the profit split model, the challenge fee model, and the membership fee. Now we will dive into each of these models to give you a better perspective of the prop trading industry.
The challenge fee model is the most common business model for prop firms. In this model, prop firms require traders to pay a fee to participate in a challenge. Upon successfully passing the challenge, traders receive a funded account, and the fee is refunded. However, SIEG Fund does not operate this model due to its inherent problems.
Firstly, prop trading firms profit from traders failing, which creates a conflict of interest. It is in the best interest of these firms for traders to fail the challenge. Consequently, many prop trading firms implement strict rules, knowing that most traders will fail.
The Profit Split model is the business model that SIEG Fund operates. In this model, it is in the best interest of a prop firm to have profitable traders, as we only get paid from successful trades. After the trader passes the evaluation challenge, profits are split, meaning that if a trader fails to be profitable, it doesn’t generate any revenue for us. This is where the difference between the challenge model and the profit split model lies. It is in our best interest to grow and retain profitable forex traders. Additionally, our traders use real capital, not simulated accounts as many prop firms offer.
The issue with this model is that many unskilled forex traders fail to stick to a comprehensive trading strategy. Therefore, SIEG provides comprehensive educational materials to help traders gain the skills required to operate in the forex market.
The last business model utilized in the prop trading industry is the membership fee model. In this model, traders are required to pay a monthly or annual fee. Failure to pay leads to termination of the contract between the firm and the trader. We insist that traders cautiously consider the impact of membership fees on their income.
We have covered how prop firms operate and how they make money. Now, another question that traders are always asking is “Where does the money come from?”, “Are forex prop firms legit or scam?”.
As we mentioned before, challenge-based prop firms are cash-rich from traders' failed challenges. They usually build revenue from small trading operations and have no institutional backing. On the other hand, prop firms, like SIEG Fund, that purely make their income from profitable traders, are mostly funded or invested by venture funds.
SIEG Fund has received substantial investment from a private equity fund that holds our capabilities in high regard. They are particularly impressed with our technical support, evaluation system, internal and external risk management skills, and the background of our day traders. Additionally, they appreciate our use of advanced tools to improve user experience, trading performance, strategies, and skills. Recognizing the strength of our business model and talent acquisition methods, the equity fund is committed to providing financial support to our business and offering funds to our SCT (Sieg Certified Trader) program.
By choosing SIEG Fund you not only align with a company that is backed by substantial financial institutions, but also dedicated to innovation, security, and the success of its traders.
One of the standout features of SIEG Fund is its generous profit split policy, which offers traders an unprecedented 90% profit share during the live trading stage. This level of profit sharing is rare in the industry, especially without requiring traders to first scale up their accounts.
Most trading platforms typically offer high profit splits only after traders have proven their consistency and profitability over time, usually in a scaled-up stage of trading. This means traders must start with smaller accounts, achieve certain profit targets, and meet specific risk management criteria before they are eligible for such high profit splits. However, SIEG Fund breaks this mold by allowing traders to access the 90% profit split from the outset, providing immediate financial incentives and a significant boost to their potential earnings.
SIEG Fund offers a transparent and efficient payout process, ensuring that traders receive their earnings promptly and without hassle. Upon reaching the target, the back-office team swiftly reviews the trader's account and completes the Know Your Customer (KYC) verification. Once these steps are completed, the payout is processed within 24 hours, providing traders with timely access to their funds. Additionally, traders enjoy flexibility with their withdrawals, as they can request payouts every two weeks. This streamlined process underscores SIEG Fund's commitment to transparency and trader satisfaction, ensuring that financial rewards are both accessible and reliable.
At SIEG Fund, we maintain a high standard of regulatory compliance, with a dedicated compliance team that continuously monitors industry regulations to ensure adherence. For certified traders, we guarantee that all collaborating brokers strictly follow regulatory requirements and possess the necessary licenses. This commitment to compliance provides traders with confidence and security, knowing that their trading activities are conducted within a legally sound and regulated framework.
SIEG Fund employs a strict risk management strategy to safeguard traders' capital and ensure disciplined trading practices. This includes a daily maximum drawdown limit of 3%-5% and an overall maximum drawdown limit of 6%-10%. Traders are required to set mandatory stop-loss levels on their trades, and the dealing room monitors trades 24/5. Additionally, any trades with lot sizes significantly deviating from a trader's average will be flagged and reviewed. This comprehensive approach ensures that trading activities are conducted in a controlled and secure environment.
The prop trading realm can be intricate and confusing. But once you understand how it works, you can forge your trading career path and develop your skills.
At SIEG Fund, we value our partnership with traders and build a strong network with the same goal for success. We give all the required tools and conditions to foster your trading journey and make it as easy as possible.
If you are ready to trade with us, choose one of our challenge accounts that best meets your needs. Join our team and start trading now!
