Turn cTrader into your prop firm’s growth engine
‘Nothing is true but everything is possible’ could be the mantra for the online trading industry as a whole but it feels like it has been accentuated 100-fold with prop trading.
This makes it much harder to do analyses because you can’t say what is true and what is false so much of the time.
To give a simple example of this, recently an affiliate called Nutty Bar Trading (sigh..I know) took all the public data around pay outs from US futures prop firm Topstep.
Unlike some firms, Topstep purports to publish every pay out it makes via its Discord channel. All Nutty did was take it and put it into a spreadsheet. Simple but smart.
Topstep CEO Michael Patak responded to this by claiming the data is ‘way off’, although it’s hard to see how that could be the case – it’s literally just adding up basic numbers his company is publishing. I would agree that they’re way off because Topstep only made about $30m in 2021. Those figures would suggest they have seen revenue growth of 28-fold in the intervening period.
To top that off, Patak separately claimed that Topstep paid out over $31.5m in one week during February, suggesting that the published figures above are too low, rather than too high.
Whatever the case, one sign that the figures are at least somewhat to reality is the gigantic increase you see in payouts in the run up to the end of the year and the subsequent crash in January.
Topstep clearly got hit by metals trading, something we can see from the fact they put massive rule restrictions in place for funded traders just over a month ago. Those were clearly designed to batten up the hatches and reduce payouts – fair enough.
Topstep was also not unique in being hit by the rise in gold. Rival US firm Apex banned all metals trading last month and we’ve seen similar steps taken by other prop firms throughout the industry.
As we’ve said many times before, the problem with prop is what to do when payouts start to go up. Brokers can at least go and hedge but prop firms can’t really do the same thing.
From speaking to a few prop execs, you get the impression that the sector experienced the same sort of high stress, cigarette smoke inducing problems that the brokerage space did from gold going up.
As a result of that, three firms I have spoken to are now in the process of introducing caps on payouts. This is done as a percentage of the account size. So if you get a funded account worth $100k, for example, you are capped at getting a payout of 5% of that account.
As a result, and even if the marketing is different, prop firms may start to look a lot more like the model that Eightcap operates. As noted in the past, Eightcap’s product is structured more like a fixed-odds account. You pay for a challenge and set a multiplier on the fee, which is your maximum payout figure.
Many people will scoff at this but I think the model is much better. When you have a fixed payout figure as a prop, it means you can better manage your risk. It is also better for the trader as, at least in theory, the prop can be more lenient in the terms that it offers.
The flip side of this is that firms will be able to use this against each other in marketing. It will be easy for them to say that they have no limits on payouts and use that as a means of bashing their peers.
Some companies do seem to be doing this already. For example, E8 Markets and Maven have not restricted instruments or put caps on payouts.
But when you actually look at their activities then you can see they are using other methods to achieve the same goal. Maven, for example, appears to have extremely low payout figures relative to peers. They have also put in place rules that would make it more difficult to get a payout.
E8 is more interesting because they seem to just arbitrarily reduce payouts to successful traders. I guess this is also a strategy?
As all of this suggests, prop feels a bit like trying to nail down jelly. There is no silver bullet solution. If you cap payouts, you get competitors dumping on you. If you make rules harder, you get the same thing. And if you use more nefarious means to achieve your goals, clients end up complaining.
