Why Do Prop Trading Firms Offer Discounts?

I remember my time living in Singapore when every purchase involved bargaining for a discount.

I learned then to never buy at retail prices and to ask for a discount. With the growth of the internet that allows the users to compare prices, discounts and coupons seem more to be the norm than the exception.

Prop Trading Discounts

This is true in the prop trading world where it would be rare not to see a promotion with a discount.

However, this is just part of the story

Not like buying on Amazon

Buying a prop challenge is not like buying an item on Amazon. On Amazon, there are usually free returns. With a prop challenge, you need to buy another one as there are no free returns. Prop firms are counting on you failing, trying again and again until you pass or give up.

3 tries and you are out

While I am not privy to the inner workings of any prop firm, I remember my contact at a forex broker telling me many years ago what they expect.

What they expect is for a client who funds an account to replenish funds lost a total of 2 more times before giving up. In other words, three tries and you are out.

Using the same logic for prop trading accounts, they count on traders trying to pass a challenge three times before giving up.

Prop firms count on it. They need the money earned from failed challenge attempts to fund the rest of their business, including funded accounts.

Do discounts tell us something?

The answer is yes. Not all prop firm discounts are the same. I have seen discounts as low as 10% and as high as 90%. As a result, not all prop firms should be treated the same.

The larger the discount, especially if it is excessive (e.g. 50% or higher), the more anxious the prop firm seems to be to land a client. It is likely counting on a trader failing and then paying for a new challenge again and again.

On the other hand, a smaller discount (e.g. 10-20%) by itself does mean a prop firm is on your side but does suggest it is not “desperate” for business and may be a more legitimate player in the industry.

Are you looking to open a prop trading challenge?

Let me be clear. I am not making a judgement on the prop industry. Its popularity comes from knowing the downside risk (limited) vs. the potential of a big reward if you are able to pass a challenge and then trade a funded account profitably.

However, if you are looking to take a prop trading challenge, don’t get lured by an excessive discount. It is hard enough to pass a prop challenge. You want to feel comfortable you will be paid your share if you make a profit from trading a funded account.

Do your due diligence. Use the discount factor as one way to weed out the questionable firms. Investigate a prop firm before signing up. One way is to look for words like powered by xyz broker, such as Hantec Trader (powered by Hantec Markets and FXIFY (powered by FXPIG)

In the end it is fine to compare and look for a discount but remember, cheaper is not always better. This is true in consumer retail and in the prop trading business as well.

Why Do Prop Trading Firms Offer Discounts?

Why Do Prop Trading Firms Offer Discounts?