Something that is kind of a ‘thing’ in prop trading is launching accounts where you only pay a large fee if you pass the initial challenge.
The basic model is that you pay a low fee, then if you pass the challenge, you pay the ‘real’ fee to get access to a funded account.
In some ways this resembles an instant account with a guard rail. However, the small fee adds an element that makes it slightly different.
The account that is being advertised most in the UK on Google is from FTUK.
The account is structured so that…
- You pay $9 for a $100k account
- You pay $672 as an ‘activation fee’ if you pass to the funded stage
Currently FTUK defaults this as the first challenge you see and uses other e-commerce style techniques to push you towards using it, ahead of the other challenges.
Why?
- The better the ratio of fee to account size the more the unwashed mas….I mean traders will buy
- The ‘activation fee’ is almost double the fee for the prop’s $100k one step account ($672 vs $366.75)
- The profit target is 4% compared to 10% in the one step account
- The initial profit split in the $9 account is 60%, compared to 80% in the one step account
When you combine these things it means that you will get way more $9 sales and are likely to have a higher pass rate compared to the ‘real’ one step challenge.
The pass rate will probably be slightly offset by a larger number of gamblers, given how cheap $9 is.
Imagine the following as a result…
- You get 10x the number of buyers for the $9 account.
- The pass rate is 7% for the one step challenge and 10% for the $9 account.
- Successful trader rate is 1% for both.
Results?
So revenue is higher and net income is higher. Is this scenario happening? I would say the exact numbers are likely to be wrong but the overall trend is accurate.
The obvious ‘problem’ in this case is that the challenge is not actually better for the end user, just for the prop firm.
The end user ends up paying more in fees and less in payouts, despite the ostensibly ‘lower’ $9 fee.
An interesting alternative method, which does not have this problem, is one being offered by PipFarm.
This was launched a month or so ago and operates somewhat similarly. In this instance, you pay a lower fee for a higher account size.
However, your payout is then reduced, on a percentage basis, to compensate. Importantly, there is no activation fee.
PipFarm’s offering also bases your payout on the risk you take – the more risk you take on, the more your profit share is reduced.
This one is slightly more interesting because there is more alignment between the prop firm and the end trader.
For the prop, the model is still sustainable because of the way payouts are structured.
For the end trader, they may get a lower percentage of their profits but these are still higher in real terms than what they’d get by buying a ‘regular’ challenge for the equivalent fee.
