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If you have no life like me then there’s a good chance your social media ads are an endless stream of marketing material related to this industry.
“Keep 100% of your profits”, “Are you a trader?”, “Build wealth tax free…” etc etc
But over the past 12 months or so I have started getting hit constantly, mainly on YouTube and Facebook, with adverts that go something like…
“Hey bro, looks like you failed your prop trading challenge again. But what if I told you I could pass your challenge for you…”
And then they go on to market a service about how they’ll pass a prop challenge for you and do a profit split with you.
Some of these are just scams. But others are ‘legit’, assuming such a phrase can be used to describe someone who is committing quasi-fraud.
Indeed, there are fully-fledged operations where you send your details, they log in and genuinely pass the challenge, and then give you a split of any payouts.
To give some idea of how prevalent this is, about two months ago I went on Facebook and counted six adverts for this sequentially. And if you watch our recent video with prop founder James Glyde, you can also learn about how upwards of 80% of payouts PipFarm made in 2024 were to fraudsters.
There are a few reasons that props are being hit so hard by these scammers.
Firstly, a lot of props were set up by newcomers, kind of like brokers were 15 years or so ago. The result is that many owners were simply not aware of the potential problem, didn’t factor it into their decision making, and didn’t know how to stop it.
Another is that simulated trading lends itself to ‘scammier’ behaviour. The ability to hit a stale price, for example, is something that brokers would be familiar with, if they are booking a trade. This would be the case for all prop trades.
The prop structure also means that actually modelling how to profit as a trader is not super hard.
You can work out quite quickly what your costs are going to be and thus how much your outgoings are. The leverage multiple you get from a funded account – for instance, paying $50 to get a $5,000 account with leverage – means the money making potential is also higher than it arguably would be with a broker.
Finally, the reason this is such a problem for props goes back to something we looked at previously. Brokers can offset positions or hedge sharp trades. Props can’t.
Fraud will always impact this industry but the interesting question is whether anyone can actually do anything to prevent this happening to the insane extent that it has.
“While there are many patterns used by abusive clients, the most common is account arbitrage when a client opens several accounts with the firm and places corresponding orders with each account so that one account will win and the other one will lose, securing a winning account at no risk and low cost,” said Irina Olyaeva, Product Owner at Spotware.
“We are currently working on functionality enabling our clients to identify such abusive patterns, the first one coming in the next release would enable prop firms to identify accounts run from the same ip/device as potential arbitrage accounts, with more features coming in consequent releases.”
The main problem that I found writing this is that, unsurprisingly, no one wants to reveal how they’re doing it because otherwise I’d write about it, then the scammers would read it and the preventative measures wouldn’t work anymore. D’oh.
The biggest hint we got was with the team at Maven Trading. When we spoke to CEO Jon Alexander a couple of weeks ago, he noted that their historical data has helped them to prevent fraud. One other prop executive that I spoke to recently gave a bit more detail.
Although you might focus on actual trading activity, other factors are arguably more important. For example, how long does it take a client to place a trade? What do they do once they’ve signed up – access their account or leave it? Like the cTrader point above alludes to, are they using a weird IP address? James also discusses some of these factors in the interview.
This reminded me of a meeting I had many eons ago with the founder of a payments company called Simplex.
He talked about how when a potential client entered the Simplex checkout portal, they would look at more than 100 different data points to figure out if fraud was going on. It was as granular as ‘how does their mouse move on the screen’ and ‘how do they type in entry fields’.
I don’t really get how you could have that many data points for a payments page but then maybe it ends up like some market making strategy. You examine a huge number of seemingly random actions and, for whatever reason, those correspond with the client being a fraud X% of the time.
The problem for most props is that (1) they probably have no idea where to start, in terms of capturing these data points, and (2) they probably don’t want to spend their time building the technology needed for it.
An opportunity for a reader perhaps?