Only 7% of 300,000 Prop Trading Accounts See Payouts

Prop trading, while enticing, remains a challenging arena for many participants. Data from FPFX Tech, shared exclusively with Finance Magnates, reveals that only 7% of investors achieve profitability. Even among the successful, the average return is modest, amounting to just 4% of their allocated capital.

Average Use of 2.2 Prop Firms Among Traders

The majority of prop trading participants are men, constituting 78% of the client base of trader-funded firms (TFFs). The popularity of prop trading is particularly pronounced among younger generations, with Gen Z and Millennials making up over 60% of all clients.

This data, provided by FPFX Tech, a fintech company specializing in technology solutions for prop trading firms, covers over 300,000 accounts held by 100,000 traders across 10 prop trading firms.

Justin Hertzberg, co-founder and CEO of FPFX Tech, explained that 14% of traders successfully pass the challenge and secure a funded account. However, only 45% of these traders (equivalent to 7% of all traders) manage to secure a payout. On average, these payouts amount to around 4% of the account size or plan value. For instance, if a trader gains access to a $100,000 account, they typically earn around $4,000.

Despite the potential rewards, the financial commitment is substantial. An average account spends approximately $800 on challenge purchases, often requiring three attempts, which significantly diminishes the overall profitability.

Moreover, it’s common for traders to diversify across multiple firms. FPFX Tech's data shows that one in ten traders use more than one prop firm, with the average trader working with 2.2 firms during their trading activities.

The US Leads the Prop Trading Market

Despite restrictions on some firms offering services to US clients, largely due to the MetaQuotes crackdown earlier this year, US-based investors continue to dominate the industry. They represent 20% of all active traders, followed by the UK (10%) and India (4%). A number of other countries, particularly in Europe, contribute smaller market shares of 2-3%.

However, Hertzberg notes significant growth potential in regions such as Asia, Africa (especially Kenya and Nigeria), Latin America, and Eastern Europe. Looking ahead, he expects the Middle East to experience rapid growth within the next three to six months, supported by FPFX Tech’s planned expansion into these underserved regions.

Prop Trading: The Future of Retail Trading?

When asked about the future of prop trading in the retail space, Hertzberg is optimistic, describing it as the way forward. He highlights how prop trading shifts risk and leverage concerns away from the individual trader and onto the institution, allowing traders to potentially achieve greater results than they could with their own resources.

He anticipates further growth in the popularity of prop trading, along with advancements in supporting technologies. FPFX Tech, according to Hertzberg, is committed to leading the industry with innovative features tailored to this evolving market.

Additionally, Hertzberg emphasizes the need for regulation within the TFF sector, stressing that operators must have adequate experience, net capital, compliance controls, and responsible marketing practices. Recent regulatory efforts, such as discussions initiated by ESMA and comments by CySEC Chair Dr. George Theocharides, signal that the industry is moving towards a more regulated environment.

According to the FPFX CEO, many recent failures among prop trading firms stem from inadequate capital and poor risk management, a critical yet often overlooked aspect of prop trading success.

Interestingly, these findings contrast with a separate survey by PipFarm, another prop trading firm, which was also reported by Finance Magnates. This smaller survey of 450 respondents indicated a much higher rate of profitability (41% compared to 7%) and higher average challenge spending ($4,200 compared to $800).

Source: Finance Magnates FPFX Technologies