Do you think prop firm challenges offer a good reward/risk ratio to traders? - page 2

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Yashar Seyyedin #:

Agree. Exactly!

But you could ask it this way: Do prop firms offer a good reward/risk ratio to gamblers?

I don't believe that they do.


Since prop firms have a strict DD limits,

I believe that for the so-called traders/gamblers, the chances for passing the challenges are low.

I think this is also the main business model of the prop firms.


So, in my opinion, prop firms offer good risk/reward ratio for traders,

But poor one for gamblers, as their chances of passing are very low (again, this is just my own personal opinion).

 
AMI289 #:

But poor one for gamblers, as their chances of passing are very low (again, this is just my own personal opinion).

Let's not assume people are total traders or total gamblers.
For example a real trader needs several months to add up and reach the profit target. Here he/she goes for a half gambling solution.
Even if you take a 2:1 reward/risk on a totally randomly chosen trade you expect to pass challenge after three failures. This takes you a few days to pass challenge(not verification included). It's much better than six months of waiting.
Not to mention that a 1.5% profit split compensate the failures.
 
Yashar Seyyedin #:
Let's not assume people are total traders or total gamblers.
For example a real trader needs several months to add up and reach the profit target. Here he/she goes for a half gambling solution.
Even if you take a 2:1 reward/risk on a totally randomly chosen trade you expect to pass challenge after three failures. This takes you a few days to pass challenge(not verification included). It's much better than six months of waiting.
Not to mention that a 1.5% profit split compensate the failures.

I see your point mate.


Well, in that case, it depends.

If the trader increases their risk, in order to pass the challenge,

But after passing the challenge, they goes back to their lower risk, so they reduce their chance of breaching the DD limits,

Then yes, I believe that prop firms offer a good risk/reward ratio,

But if the trader keeps their increased risk, after passing the challenge, because they want to quickly compensate for their failures,

Then no, I don't think prop firms are the right solution for those traders, as I believe it is likely that their increased risk, which already failed several challenges, will cause them to soon also breach the limits of the funded account.


You can think of prop firms a bit differently.

You pay $1,000 and get $200,000 account.

You can think of it as leverage.

You deposit $1,000 and now trading with 1:200 leverage.

Is leverage a bad thing?

Well, it is a double edged sword.

It acts as a magnifying glass.

If you know what your doing, it can increase your profit, than if you would just trade with your $1,000,

But if you're gambling, it could make you lose a lot of money real fast.


You can think of failing 3x $200,000 challenges as just blowing 3x $1,000 accounts with a leverage of 1:200,

But if you trade responsibly, you can get decent profits from a $1,000 with 1:200 leverage.

(Not to mention that in case of a funded account you get a 'double leverage', meaning you have the hypothetical 1:200 leverage, as in the above example, but also the $200,000 account has its own leverage, which potentially can increase your profits even more).


That's just my point of view of that mate.

Hope it makes sense.

 
Yashar Seyyedin #:
I am wondering if you believe loosing three challenges is worth wining one... Considering when you win you have access to a large account size.

Considering their average rules and requirements by a mathematical point of view, no. You have more expectancy with a personal account.

 

Absolutely yes, if you know what you're doing. Most traders don't. And even if they kind of do, they don't know how to do it within the context of prop firms.

I was already a profitable/alpha trader in crypto and stocks. It's taken me 10 months to figure out how to be consistently profitable within the prop firm context.

  1. As others have pointed out, some prop firms offer free or discounted retakes/resets (usually have to request reset before breach). 
  2. Most either refund your audition fee or have a small profit share or some other bonus on completion.
  3. Almost all have no time limit, or at least the option for that as an upgrade.

Given no time limit, the main reason people fail challenges is either not knowing what they're doing, taking too big risks, or overtrading / being in too big a hurry. If you know how to be a consistently profitable trader, start small. Trade microlots. Get yourself some padding and gradually dial up. If you get into drawdown, scale down. Recover. Start another challenge at zero and keep working the challenge in DD.

Learn the industry. Learn the impact of the different drawdown types and limits. If you're careful, you can have it cost you nothing, net, because you never fail a challenge and you get your audition fee refunded. The only "loss" is the opportunity cost of the profit if you traded that audition fee yourself. And how much are you going to make in 2-3 months on, say, $100?  Probably not even close to the $10K account that will get you.

One of the other mistakes people make is going for too big challenges. Do $10-25K challenges rather than $100K challenges, at least until you get used to it. As soon as one passes, you're earning money. Just like you reduce your risks by trading multiple assets, multiple timeframes, multiple strategies, you also reduce your risk with prop firms by running multiple accounts with multiple firms.

 
AMI289 #:
accounts

Agree and disagree. I think we should count on prop firms as a business model rather than just a leverage offering company.

 

I am recognizing different pattern in comments and votes.

The votes are close but the comments are oriented against the gambling side of the issue.

This for me indicates that people who agree to take gambles on prop challenges are afraid of being judged by those who pretend otherwise.

Guys and girls! Let's stop judging people! 

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