Cryptocurrency is becoming increasingly popular amongst traders, with many seeking it as an asset.

However, due to the high risks involved, only a few traders have the risk appetite and capital required to venture into crypto trading. This is where crypto prop trading firms come in. Like general prop trading firms in the trading market, crypto proprietary trading firms are quickly becoming essential players in the crypto space.

We have evaluated the growth of crypto prop trading firms, spotlighting the best in the market and breaking down their impacts, features, functions, processes, revenue stream, pros and cons, and more.

An Overview of Prop Trading Firms and Their Impact on The Crypto Industry.

What is a Prop Firm?

Proprietary trading firms (often called “prop trading firms”) are financial institutions that use their capital to trade a variety of asset classes, such as stocks, options, commodities, currencies, and more.

The traders at these firms aim to generate profits while trading on behalf of the company. Prop trading firms provide opportunities for independent traders and offer numerous benefits beyond the trading floor. They are beneficial both for experienced traders and those new to financial markets.

What are Crypto Prop Trading Firms?

A good analogy is to describe crypto prop trading firms as links between Wall Street’s trading floors and Silicon Valley’s crypto innovation labs. These firms provide traders with a significant advantage in the form of capital. Traders can leverage the firm’s capital to engage in trades without investing money. In exchange, the firm receives a part of the profits earned.

Access to a prop trading firm’s capital can exponentially expand a trader’s potential as it lifts their financial limitations. With this edge, even small-time traders can use large amounts of capital to increase their trading capacity and earn larger profits.

In addition to capital, prop trading firms offer valuable resources such as sophisticated trading tools, research, and mentorship. These resources can be pivotal in navigating the volatile waters of the crypto markets.

How Do Prop Firms for Crypto Work?

Proprietary trading firms usually offer traders capital and access to a demo account that accurately simulates real-life market conditions.

The firm then replicates the trades by using a mix of automated and discretionary decision-making to execute actual trades, allowing them to earn a profit or incur a loss without exposing the trader to any risk. Although prop trading seems like a lucrative opportunity for traders, it involves a rigorous evaluation process known as a “challenge”.

The process requires traders to pay an upfront fee as the prop trading firm assumes a considerable risk by allowing traders to use their capital. The evaluation determines whether the trader possesses the necessary skills and knowledge to trade with profitability and responsibility.

Benefits of Working with a Crypto Prop Trading Firm

• Leverage for More Profits
• Autonomy
• Learning Curve
• Access to Technology
• Reduced Risk
• Unique Compensation Structure
• Risk Diversification

● Leverage for More Profits
It can be challenging for highly skilled cryptocurrency traders with limited funds to expand their trading operations. For instance, generating significant returns on a $200 account can be difficult, especially if they avoid taking high risks.

However, crypto prop firms may provide these talented traders opportunities to become professional traders and earn substantial profits.

● Autonomy
Crypto prop firms usually establish their risk management protocols to prevent unexpected losses. However, traders are generally given a significant level of freedom to manage the funds allocated to them as they see fit.

● Learning Curve
Collaborating with experienced traders and professionals presents an exceptional opportunity for learning and networking.

● Access to Technology
Accessing technology for trading purposes can be expensive, as various costs include data feeds, professional charting software, live news feeds, and expert insights.

High-end tools like Bloomberg terminals also require significant investment. However, proprietary trading firms provide access to all these technological resources, which enables traders to make better-informed decisions without incurring individual costs.

● Reduced Risk
When traders receive capital from a prop firm, they can assume less financial risk. This is because the prop firm provides the trader with the necessary funds to make trades, which helps reduce the risk the trader would typically face if they had to use their capital.

● Unique Compensation Structure
Proprietary trading firms often have a compensation structure directly linked to traders’ performance. If traders perform well and generate profits, they are rewarded accordingly.

This compensation model ensures that the traders’ interests are aligned with the firm’s success and motivates them to strive for profitable trading consistently.

Moreover, it presents a significant opportunity for skilled traders to earn a substantial income based on market success. This incentive structure can be a powerful motivator for traders to perform their best.

● Risk Diversification
Crypto proprietary trading firms provide traders access to various financial instruments, from stocks and options to commodities and currencies. With that, traders can diversify their portfolios across different asset classes. This diversification helps mitigate the negative impact of poor performance in a single asset or market and enhances the risk-reward profile of trading strategies.

Risks Associated with Crypto Prop Trading Firms

• Crypto Market’s Volatility
• Counterparty and Fraud Risks
• Dependence On The Crypto Prop Trading Firm

● Crypto Market’s Volatility
One of the major concerns associated with working with crypto prop trading firms is the possibility of facing high financial losses. Even if one employs effective risk management and trading strategies, there remains a chance of significant losses due to the highly volatile nature of the crypto market.

● Counterparty and Fraud Risks
There is a risk of default in contractual obligations due to counterparty risk. This occurs when individuals and companies are unable to make their debt payments.

● Dependence On The Crypto Prop Trading Firm
Due to the absence of clear regulations governing the cryptocurrency market, there are limited safeguards against dishonest or misleading management practices. Additionally, the cryptocurrency market is still relatively new, and prop trading firms are in the early stages of development.

As a result, traders may need to implement effective risk management strategies such as ongoing risk assessment and monitoring, loss prevention and mitigation, and more.

Top Prop Trading Firms for Crypto

• Crypto Fund Trader
• FTMO
• Myfundedfx
• SurgeTrader
• The Trading Pit

Crypto Fund Trader
Crypto Fund Trader is a prop firm that provides capital to professional traders and shares their profits. Funded traders can trade across multiple markets and still make a profit. Crypto Fund Trader funds talented traders with up to $200,000, out of which they can earn 80% of the profits. Other features include:

• One-time registration fee
• The Funded Trader Programs have either one or two phases for traders’ evaluation.
• Supports 46 cryptocurrencies, including Bitcoin, Polkadot, Bitcoin Cash, and Dogecoin
• 1:100 crypto leverage

FTMO
FTMO, established in Prague in 2014, is a leading prop trading firm that allows its traders to trade with the top 10 cryptocurrencies, including Bitcoin, Ethereum, and Litecoin. The firm provides extensive online resources and instructive webinars to help traders grow. Check out other features below:

• No trading period limits
• Free trial account
• 24/7 customer support
• Up to 90% profit split
• Registration fee is refundable
• Trading platforms include MetaTrader 4, MetaTrader 5, cTrader
• Maximum capital of $400,000
• Up to 1:3 crypto leverage
• Available cryptos include Bitcoin, Ethereum, Litecoin, XRP, Monero, Dash, Dogecoin, Cardano, Polkadot, and Neo.

Myfundedfx
Traders interested in crypto and forex prop trading can check out MyFundedFX. The prop firm offers up to $600,000 in capital and 80% profit sharing.

MyFundedFX has no minimum trading day requirement, and traders have unlimited time to reach targets. The platform offers simple trading rules for different styles, such as swing and news trading, and has a two-step challenge process that includes evaluation and funding phases. Here are other features of this platform:

• Refundable registration fee of $50
• Supports 20 crypto coins, including Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Ripple, Stellar Lumens, Avalanche, Polkadot, Chainlink, Solana, and Uniswap
• 100:1 crypto leverage

SurgeTrader
SurgeTrader is a reputable trading company that offers a variety of trading instruments. With over 600 reviews, the company has a commendable 4.6 Trustpilot rating. They offer an impressive range of trading options, including stock market indices, forex, metals, oil, and more than 20 cryptocurrencies. Their perks include:

• A large number of cryptocurrencies are available
• Real-time trade analytics
• Speedy payout process
• Up to 90% profit split
• Trading platforms include Eightcap M4, Eightcap M5
• As much as $1,000,000 in capital
• 2:1 crypto leverage
• Supported cryptocurrencies include Bitcoin, Dogecoin, Polkadot, EOS, Ethereum, Shib, Tezos, etc.

The Trading Pit
The Trading Pit offers Real Futures, CFD trading, and Forex (CFD’s) Challenges, including pairs like BTCUSD and ETHUSD. They plan to introduce Real Crypto Trading Challenges in early 2024, with a standard account margin of 50%, professional accounts at 35%, and trading amounts ranging from 0.01 to a maximum of 10. Some of the perks this platform offers are:

• Trading platform options, such as MT4, MT5, Bookmap, Quantower, R | Trader
• No time limits
• Several educational and mentorship resources
• Up to 80% profit split
• Offer a full registration fee refund
• $5,000,000 as maximum capital
• 1:2 crypto leverage
• Supported cryptocurrencies include Bitcoin, Litecoin, Ripple, Ethereum, Cardano, Polkadot, Chainlink, Bitcoin Cash, and EOS.

How Do Crypto Prop Firms Make Money?

Prop firms earn most of their revenues from profits generated by their traders.

The traders usually have a profit-sharing agreement with the firm. Also, some smaller firms make money by offering education, capital allocation, office space, or technology, but this is typically a minor part of their revenue.

Finally, some crypto prop firms may charge traders a subscription or membership fee and may require them to complete a challenge before receiving funding.

Factors to Consider When Choosing a Crypto Prop Trading Firm

● Track Record: Check the crypto prop firm’s history, including its achievements, failures, and accolades. Analyze their performance during previous market downturns, internal crises, and regulatory challenges to assess their ability to manage crises.
● Compensation Structure: Make sure the profit-sharing agreement is transparent with no hidden clauses. Create a clear bonus structure based on high performance and penalties for losses or sub-par performance.
● Capital Allocation & Leverage: Check if your preferred crypto prop firm provides increasing capital as you achieve success milestones, as ample capital provides greater trading leverage.
● Risk Management Capacity: Check if the firm offers sufficient risk management tools for the volatile crypto market, including automated stop-loss, real-time analytics, and hedging capabilities.
● Learning Opportunities: Verify that the company offers education and training resources such as seminars, interactive courses, or direct mentorship.
● Technology & Infrastructure: Is the firm’s trading platform reliable, fast, and efficient? Can it integrate with third-party tools? Ensure the crypto prop firm has secure data measures, including advanced encryption and a proven security track record.

How do you join a crypto prop trading firm?

1. Find suitable crypto prop trading firms by conducting thorough research and evaluation based on reputation, track record, education, and community engagement. Look into customer review forums or connect with current or former traders for insights.
2. Understand and examine the evaluation process of your trading firm. Each firm may have different requirements, and failing to meet them can lead to penalties and account closure.
3. Constantly improve and showcase your skills. Backtest your strategies, stay updated on market trends and showcase a consistent record of profitable trades.
4. In your application, provide all necessary information, such as trading history, performance metrics, and requested documentation.
5. During interviews, confidently and enthusiastically discuss your trading experience, strategies, and goals to boost your candidacy.

Frequently Asked Questions (FAQs)

Is prop firm trading illegal?

Prop trading firms are legal and operate under their respective countries’ laws. Traders should ensure the firm they choose complies with local laws.

Can you make a living with prop trading?

Yes, you can. Proprietary trading firms, or prop firms, can offer traders the chance to use the firm’s capital to trade, which may lead to larger positions and greater profits.

Does FTMO have crypto?

FTMO offers trading in the top ten most valuable cryptocurrencies. This list includes Bitcoin, Ethereum, XRP, Litecoin, etc.

How are prop firm profits taxed?

The tax laws vary by country or region, so it’s best to seek guidance from a local tax expert. Alternatively, you can use crypto tax software to help with potential tax-saving options.