With the rise of prop trading firms, many traders now have access to significant capital without risking their own money. Unfortunately, the surge in popularity has also led to an increase in scams and prop firms that create more barriers than opportunities. Here’s a guide to spotting red flags and identifying trustworthy firms that truly support traders.
1. High Fees Paired with Difficult Passing Criteria
Some prop firms charge high fees with the promise of large funding amounts, but their challenges are designed to be nearly impossible to pass. By setting excessive targets or requiring perfect trading performance, these firms can make it difficult for traders to succeed, collecting fees without ever actually funding accounts.
How to Spot It:
Look for firms with clear, achievable targets. A fair challenge should include transparent profit targets and manageable drawdown limits that allow skilled traders a reasonable path to success. Avoid firms that set the bar unreasonably high relative to the fees they charge, as they may be more interested in profiting from challenge fees than seeing traders succeed.
2. Use of Trailing Drawdowns
Trailing drawdowns—where the drawdown limit moves with your peak balance—are a common feature in some prop firms, but they’re notorious for limiting trader flexibility. With a trailing drawdown, as your balance increases, the margin for error tightens, making it easy to get disqualified after a profitable streak. This setup can add pressure, forcing traders to be overly conservative or risk breaking the rules after making gains.
How to Spot It:
Check if the firm uses a static or trailing drawdown. Legitimate firms often use static drawdowns, giving traders a consistent risk limit from the starting balance. If a firm uses trailing drawdowns, make sure the terms are clear and that the rules won’t constrain you after a profitable run.
3. Short Time Limits to Pass the Challenge
Another tactic some firms use is imposing tight time limits to complete the challenge. These limited timeframes increase pressure on traders, often leading to rushed or risky trades that can quickly derail an otherwise solid strategy. Firms with tight deadlines know that the added stress can lead to more challenge failures, pushing traders to pay for reattempts.
How to Spot It:
Look for firms that offer flexible timeframes or no time limits for completing the challenge. An unlimited or reasonable time limit allows you to trade at your own pace and adapt to market conditions. Be cautious if a firm sets an unrealistic timeframe for meeting profit targets, as this can be a way to encourage costly reattempts.
4. No Community or Networking Options for Traders
Legitimate firms understand the value of building a community where traders can share insights, strategies, and support. Discord channels or other community platforms allow traders to network, learn, and grow together. Firms without any community engagement tools can feel isolating and may signal that they are less invested in trader development.
How to Spot It:
Check if the firm provides community spaces, like a Discord channel or other networking platforms, where traders can connect. A firm with an active community often indicates that they care about trader success and are invested in their long-term growth.
5. No Option for Retries After a Challenge Failure
Some prop firms don’t offer traders a chance to retry the challenge if they fail, requiring them to pay the full challenge fee again for every new attempt. Lack of retry options can add a financial burden on traders and reduce their chances of succeeding in the long run.
How to Spot It:
Look for firms that offer retry options at a reduced cost or unlimited retries as an add-on. Retry policies show that the firm wants to give traders a fair chance to improve and pass the challenge, rather than making each failure a financial setback.
6. Poor Trust Pilot or External Reviews
Reputable firms will typically have verified, positive reviews on trusted platforms like Trust Pilot. Scam firms, on the other hand, may have poor ratings, vague testimonials, or suspiciously positive feedback that looks fake or unverified.
How to Spot It:
Check platforms like Trust Pilot and social media forums for genuine reviews from real traders. A good rating reflects a firm’s commitment to customer service, reliability, and success. Watch out for firms with poor or no ratings, as well as reviews that seem overly generic or posted in clusters.
7. Slow or Unreliable Payouts
Reliable, timely payouts are essential to a prop firm’s credibility. Some firms, however, create obstacles or delays in the payout process, making it difficult for traders to access their hard-earned profits. Long waits or unreliable payouts are common red flags that a firm may not be operating in good faith.
How to Spot It:
Read reviews or forums to see other traders’ experiences with payouts. Reputable firms often have a defined, fast payout policy, usually within a specific timeframe like 48 hours. If a firm’s payout terms are unclear or have frequent delays, it’s best to proceed with caution.
8. Firms That Depend on Challenge Fees Instead of Copy Trading Successful Traders
Some firms rely entirely on challenge fees as their main source of revenue, rather than investing in successful traders and using their strategies through copy trading. These firms have little incentive to help traders pass, as their business model depends on repeated challenge purchases rather than on sharing in traders’ success.
How to Spot It:
Look for firms that reinvest in successful traders by copy trading their strategies, which indicates a genuine commitment to trader success. Firms that highlight their profits from copy trading—rather than from challenge fees—are more likely to work with traders over the long term and share in the upside of successful trades.
How MDTC by IFT Trader Challenge Is Different
At the Million Dollar Trader Challenge (MDTC), we understand the frustrations that traders experience with restrictive and unclear prop firm practices. Here’s how MDTC stands apart:
- Affordable Fees with Realistic Passing Criteria: MDTC offers a $1M account for a $597 refundable challenge fee, providing substantial funding without high barriers. Our terms are transparent and designed to give traders a fair path to success.
- Static Drawdowns for More Flexibility: MDTC uses static drawdowns rather than trailing ones, allowing traders to operate with a consistent drawdown limit based on the initial balance, so you can maintain control without tighter constraints after every gain.
- No Time Limit on the Challenge: At MDTC, there’s no set timeframe for passing the challenge. We allow traders to work at their own pace, making it easier to follow strategies based on market conditions instead of arbitrary deadlines.
- Active Discord Community: MDTC provides a Discord channel for traders to connect, share insights, and learn together. This fosters a sense of community and allows for networking and support among fellow traders.
- Unlimited Retry Option: MDTC offers an option for unlimited retries, helping traders refine their strategies without the financial stress of paying for each new attempt.
- Strong Trust Pilot Rating and Verified Payouts: With a 4.6 rating on Trust Pilot and $15M paid to traders last year, MDTC has a proven track record of reliability and success.
- Fast 48-Hour Payout Guarantee: MDTC stands by a 48-hour payout guarantee, ensuring you receive your earnings promptly. If there’s a delay, traders receive 100% of their profit share.
- Revenue from Copy Trading, Not Fees: MDTC doesn’t rely on challenge fees to stay profitable. Instead, we partner with successful traders, copy trade their strategies at higher leverage, and share in the upside. This model aligns our interests with traders, as their success benefits us both.
By prioritizing transparency, fair terms, and trader support, MDTC by IFT Trader Challenge provides a supportive environment where traders can thrive without facing unnecessary barriers.
