In the world of prop trading, success is elusive for many. According to FPFX Tech's data, exclusively seen by Finance Magnates, a mere 7% of investors manage to turn a profit. Among those who do succeed, the average earnings are modest: just 4% of their allocated capital.

Traders Use 2.2 Prop Firms on Average

Prop trading is dominated by men, who make up 78% of all trader-funded firms (TFFs) clients. This type of investment is most popular among Gen Z and Millennials, who together account for over 60% of all clients.

The data comes from FPFX Tech, a fintech that specializes in providing technology solutions for prop trading firms, offering software-as-a-service (SaaS) solutions. It covered a total of over 300,000 accounts belonging to 100,000 traders from 10 different prop trading companies.

“According to the data in the survey, 14% of traders passed the challenge and obtained a funded account. Of those, about 45% achieved a payout (7% of all traders) in their funded account, with the average payout being 4% of the plan size (or account value),” Justin Hertzberg, one of the founders and CEO of FPFX Tech, commented for Finance Magnates.

How much can traders earn? Most often, these amounts oscillate around 4% of the funded accounts' size. If a prop investor gained access to an account worth $100,000, which is relatively large, they would typically earn $4,000.

Considering that a single account spends an average of $800 on challenge purchases throughout its entire activity cycle, typically taking three different challenges, the average profits are not high at all.

What is more, according to FPFX data, one in ten traders uses more than one prop firm. Information from 100,000 investors indicates that on average, they trade with 2.2 companies.

The US Still Dominates the Prop Trading Market

Although many prop trading firms do not offer their services to US clients, especially after the MetaQuotes crackdown in February this year, American investors still form the backbone of the industry.

According to FPFX Tech data, they account for 20% of all traders active in the industry. The UK ranks second (10%), followed by India (4%). The rest of the ranking consists of several countries, including many from the Old Continent, which have a 2–3% market share.

However, as Hertzberg admits, there is currently dynamic growth in the number of investors from Asia, Africa (mainly Kenya and Nigeria), LATAM, and Eastern European countries. “Over the next 90–180 days, we expect to see significant growth rates out of the Middle East,” adds the CEO of FPFX Tech.

He bases the forecasts on the planned launch of new operations in the company's pipeline, which are set to start later this year. As Hertzberg emphasizes, these operations focus on several countries in the Middle East that have not been targeted by other firms from the industry so far.

Prop is the Future of Retail Trading

Asked for his opinion on whether prop trading could be the direction in which the retail industry will develop, Hertzberg predicts that it is its future.

“It shifts leverage concerns and risk management to the institution and away from the individual trader,” said Hertzberg. “This gives the trader a greater opportunity to achieve outsized results when compared to their own personal buying power.”

He predicts that prop trading's popularity will grow, as will the technologies behind it, and FPFX Tech wants to “lead the charge” by developing new features for the industry.

Hertzberg is also convinced that the TFFs should be regulated, ensuring that operators have sufficient experience, net capital, compliance controls, defensible marketing, and appropriate disclosures in terms of how they operate. Regulatory actions this year already suggest the industry is heading in that direction.

As exclusively reported by Finance Magnates, ESMA started discussions a few months ago on regulating prop trading. A similar view was expressed by CySEC Chair, Dr. George Theocharides, who stated that “prop trading will fall under robust regulation at some point.” At the same time, the Czech market watchdog confirmed that the activities of prop trading firms “may be subject to MiFID” regulations.

“The rash of recent prop firm halts, failures, suspensions, etc. is a direct result of prop firms being undercapitalized and poorly managed,” added FPFX CEO. “Especially as it pertains to risk management, which is the most important and most neglected driver of prop firm success and profitability.”

It's worth comparing this data with the results of another survey conducted by prop firm PipFarm, also exclusively reported by Finance Magnates last month. Although the sample size was significantly smaller (450 respondents) and focused on just one prop firm, the differences in results were substantial. The average amount spent on challenges exceeded $4,200 (compared to $800), and the number of profitable traders reached 41% (compared to 7%).