Trader Scouting and Prop Firms Overview and Comparison

From Volatility.RED
Revision as of 21:13, 25 August 2021 by Jack (talk | contribs)
Jump to navigationJump to search

Scouting programs have grown in popularity in recent years and many are holding themselves out as full fledged prop firms. Let's dig into what they are, where they fit in this industry, and their advantages and disadvantages.

A trader scouting program is one that evaluates potential traders (for a fee) to qualify them for trading a firm's capital on behalf of the firm. These evaluations come in different shapes and sizes, but generally they aim to prove the trader can manage risk and be consistent in their approach to the markets.

Many of these companies call themselves "prop firms," and while not technically incorrect, it's important to not the distinction between various types of prop firms and scouting programs:

Traditional prop firms

  • These are companies that have fully aligned their interest with their traders. The firms will typically pay a base salary, and bonus traders out at their discretion (based on performance but not strictly tied to it.) They typically require you to work on a trade desk, on a trade floor, in major financial centers around the world.​
  • These firms typically only hire fresh grades from top schools, or established institutional traders. For this reason, these firms are often inaccessible to retail traders looking to get into the institutional side of the industry.​
  • When people on the institutional side of the industry talk about 'prop firms' they typically mean this class of company.​
  • Examples include Jump, First New York Securities, Wolverine Trading, and Optiver (to name a few.) These days, most traditional props also are heavily involved in electronic market making or exotic markets.​
  • The firm's main source of revenue comes from trading operations and trading profits.​

Depository prop firms / first loss / broker-dealers

  • A depository prop firm is one where the trader's interests are far less aligned with the firm. The trader isn't backed by the firm and has to put up a risk deposit. The trader also doesn't get a base salary, and will likely be charged a fee for using a spot on a desk each month.​
  • Should the trader lose money, they lose their own money first. This transfers the risk from the firm to the trader, and in return the payout percentage the trader gets from these firms is much higher than elsewhere (70%-95%.)​
  • Examples include T3 Trading, Bright Trading, and WTS (to name a few.)​
  • The firm's main source of revenue comes from marking up transaction fees and charging for training courses. Despite all this, many traders will go with a depository firm for access to institutional grade access to the markets (DMA, professional software and platforms, etc..)​

Scouting firms

  • As mentioned in the beginning of this article, a scouting firm operates more like a service than a firm and evaluates traders for potential funding. The trader doesn't have to put up any risk capital, but they do have to pay an evaluation fee.​
  • There is no barrier to entry to these scouting firms; if you pay for an evaluation, you have the same chance of getting funded as anyone else and it's entirely dependent on your performance.​
  • Scouting firms are typically marketed toward retail traders, and as such, they focus on tools and software commonly found at retail brokerages. Unlike traditional prop firms, or some depository shops, these firms are typically virtual and do not have a trade floor to physically join.​
  • Some scouting firms will go further and offer guidance, training, mentorship, etc.. once you've passed their evaluation. Often these are the firms that hold themselves out as "prop firms" instead of just a trader scouting program.​
  • Examples include the firms listed in the table below.​
  • The firm's main source of revenue is the evaluation fees, and these fees can be substantially more than they make from profitable traders working for them. ​

With that said, when it comes to forex trading, the most accessible of the three categories above are scouting firms. There are many advantages here for retail traders:

  • Access to capital / backing
  • A risk system and risk monitor
  • Mentors or supervisors who encourage positive trading habits
  • Downside is just the evaluation fee and your time commitment

The above points will especially make a scouting program attractive to novice traders who are just starting out.

Scouting firm comparison

Below you will find the 4 of the most popular scouting programs and their offering for comparison:

Note: Any field with "Entry" and "Max" refers to the entry level evaluation package as compared to the highest end evaluation package. These come at different price points.

The 5%ers​
Trial Account Max Buying Power / Leverage 100:1 Entry: $200k
Max: $500k
100:1 6:1 (with 30:1 'aggressive' programs also available)
Trial Account Size Entry: $10k
Max: $100k
Entry: $2k
Max: $5k
Entry: $25k
Max: $100k
Entry: $6k
Max: $20k
Funded Account Size Entry: $10k
Max $100k
Entry: $2k
Max: $5k
Entry: $25k
Max: $100k
Entry: $24k
Max: $80k
Challenge Period 30 Days, but 2nd round verification required with stricter conditions No Time Limit (3 month inactivity timeout,) but 2nd round verification required with stricter conditions No Time Limit (3 month inactivity timeout) 6 Months (or less)
Profit Share 70% 100% of first $5k, 80% thereafter 60% 50%
Overnight / Over-Weekend Positions Weekday overnights permitted, NO weekend positions Weekday overnights permitted, NO weekend positions Weekday overnights permitted, NO weekend positions Overnights and weekends are permitted
News Trading / Restriction Some news releases are restricted for trading none none none
Minimum Trading Days 10 days none none 20 days
Daily / Weekly / Position Loss Limit Entry: $500 (Daily)
Max: $5,000 (Daily)
Entry: $1,300 (Weekly)
Max: $3,300 (Weekly)
Entry: $500 (Weekly)
Max: $2,000 (Weekly)
-1.5 % max loss per position (!)
Maximum Loss Limit Entry: $1,000
Max: $10,000
Entry: $1,300
Max: $3,300
Entry: $1,000
Max: $4,000
4% Absolute drawdown (not trailing)
Profit Target Entry: $1,000
Max: $10,000
Entry: $2,000
Max: $5,000
Entry: $2,500
Max: $10,000
Entry: $375
Max: $1,400
Refundable Fee Yes no no no
Platforms MT4, MT5, cTrader MT4 MT4 MT4
Cost Per Month: cell 2 cell 3 cell 4 cell 5
Notes If you do not pass the challenge, but didn't violate any risk rules, your next challenge is free TopStepFX also has a scouting program for futures trading called [TopStepTrader] Stop loss orders must be attached to every position and pending limit order Live account evaluations and earning from evaluation carry forward into your funded account.
Cost Per Attempt: Entry: €155
Max: €540
n/a Entry: $199
Max: $350
Entry: $275
Max: $875
Cost Per Month: n/a Entry: $125
Max: $275
n/a n/a

And finally, my own thoughts and recommendations on the above companies:

They are all marketing heavy, which is fine, but it's important not to get caught up in flashy numbers. When a scouting program advertises $100k of buying power in forex, that's just 1 standard lot, and at 100:1 leverage, that would imply you're trading a $1000 sized account. Perhaps the evaluation fee would be worthwhile for the risk system, structured environment, and training...but judging these programs on just the account balance alone might make some look a bit skimpy.

There's a lot to be said about having accountability and risk controls when you trade, and these programs all enforce it. You may not find value in the profit split or account size (especially if you're well off and already have funds to trade,) but trader scouting program might just be what gives you the structure you need to find consistency. Simply put, some people just need a stronger framework applied externally to excel in the trading world, and there's nothing wrong with that.


The profit split is the most favorable with [TopStepFX] at 80%, and a huge plus is how your first $5,000 of profit is 100% your own. As a trade off here, [TopStepFX] goes by the monthly subscription model, and if it takes you more than a month to pass their evaluation, you might be spending a bit more than you expected before earning anything in return


Traders4Traders has ok conditions but the 2nd worst profit split available. Their offering compliments an array of paid courses, coaching, and programs. However, the cross selling here is a bit heavy.


The 5%ers offer something a little different than other programs, as you are trading a live account during your trial. The risk controls on your trial account are strict to reflect the real money in play, and don't expect to be able to lose more than you've paid for your trail, but forcing good risk management isn't a bad thing.

I've highlighted The 5%ers "low risk" plans in the comparison table. Pay attention to the leverage offered, as the account balances might sound high upfront, but the leverage is set lower so your total buying power might equal what other firms offer with smaller account sizes. In the end, your max risk, targets, and buying power are the metrics that matter when comparing.

While the profit split is lowest of the group at only 50%, the upside at The 5%ers is how their evaluations are done on live accounts and any profits you earn during the evaluation gets rolled into your funded account once passed. Also, unlike other firms where you can increase your account risk by retaining earnings in the firm, this firm will increase your account based on performance (and quite aggressively at that; a funded trader could see 2x the capital allocated to them after 10% returns on a funded account.)


FTMO is a strong candidate here as their payout is the 2nd highest of the group at 70% and they offer additional trading platforms like MT5 and cTrader. Further, FTMO provides trader workshops, webinars, community interaction, and some coaching. Their main drawback is the restriction of trading during most high impact news releases.


Personally, if I was going to seek funding through a scouting program, I'd break my choice into two categories:

If I was looking for a structured way to learn with training, community, and webinars: I'd likely go with FTMO or TopStepFX for their more comprehensive offering and better payouts. New traders should lean in this direction.

However, if I was looking to manage a larger account to scale an existing strategy, The 5%ers fits really well here.