Whether or not you realize it (and want to accept it), the prop trading game has evolved and changed. It is ever changing. The futures prop space is seen as ‘young’, but it has quickly matured. This specific space has grown multiples YOY and payout numbers have exploded since 2020. Honestly, the only way for this to happen is for firms to go boom and bust. It might be a bit cynical of a take, but there is some truth to it. I came from the crypto industry, so I have some understanding of what a rapidly developing industry looks like. There has to be winners and losers. There have been some big winners and big losers. Not just pertaining to firms, but traders as well.
There are many firms that have went under. Firms that have exploded on the scene and rapidly taken market share from established firms. This is what a competitive industry looks like. On one end of the spectrum, it is best for the trader. More competition, more power in the hands of the consumer to vote with their money. And that’s how it has played out. Prop traders have been blessed with many different firms, pricing models, trading models, payout models, and it’s provided a lot of opportunity to said group of traders. Where this can be problematic: it’s possible to pick a ‘loser’. The same expression about used cars being ‘lemons’ applies here. Essentially, it is asymmetric information. You might ask, rightfully so, “why does this matter”?
Let’s go back in time to when TopOne Futures launched. TopOne launched with a very friendly model, so friendly in fact it almost felt too easy to where almost anyone could get a payout. It was meant to take market share quickly and establish themselves as a new futures firm on the block. It worked. And taking advantage of the opportunity to get a payout did too. Many of those who were quick to seize the opportunity also won. People late to the opportunity might have gotten fucked and screwed over. I believe they did enforce retroactive rule changes and did screw over a portion of traders, but this came later. A lot of those who were quick to the opportunity made a very lucrative return on capital invested.
Now, I don’t want to provide only one account of the continuum. Because there is a continuum in my head. The pendulum can swing the other way. On the other side, lets bring up Fast Track Trading. FTT was one of the prop firms (really before my time in Futures Prop space) that was one of the ‘losers’ that shut down. Their models were fairly leaning towards the trader in terms of friendliness. Their rules and payout models were friendly. If we exclude the misappropriation of funds and reckless management (which did play a large role in shutting down), over time they would have needed to make rule changes and adjustments to their models.
The rules you learned to beat last year are already being rewritten. the ‘edge’ you perfected six months ago might be obsolete tomorrow. this book gives you the system to beat the game as it exists today. this chapter is to warn you that the game will change.
The rules change over time. The edge is not permanent. it will decay and change forms. It will decay for one simple reason: you are playing against the house and the house doesn’t like to lose. They can’t afford to lose. If they lose, they go out of business. Thus, they have to make money.
The Prop Firm Game: You vs. The House
You are not the firm's partner. It is not a mutual symbiotic relationship like how it is portrayed. you are a line item on their risk-management spreadsheet.
The relationship is purely adversarial. you win (a profitable edge). they patch it (a new rule).
- You master the "sprint" eval? They add "minimum trading days."
- You hit home runs on news? They ban news trading.
- You pass with high-frequency scalps? They add a "minimum trade duration" rule.
- You hit a big winner? They add a "consistency rule."
They are a business. It is an insurance model. They can not physically be in the ‘best interest of the large sum of traders’. the casino's number one job is to protect the house. your job is to find the cracks in their model. this is a constant, evolving game of cat and mouse.
The Future of the Game: What's Coming Next
You stay ahead by anticipating tomorrow's game. here's what i see coming.
Regulation
As the industry grows and the figures get bigger, it’s inevitable there will be changes to the industry. This was first really evident and ‘inevitable’ when Topstep announced their interest in establishing a SRO (self regulating organization). Topstep would only announce something in this category if they were not concerned about future regulation in the industry. Attempting to put their name in the hat and self regulate (likely self deal to their benefit) would be positive for them.
So, we come to the conclusion that regulation of the industry is inevitable. ‘Playing the sim game’ will be harder and harder. It will not be as profitable as it once was. Payout caps have gotten smaller. Payout multiples have shrunk. We see more expensive accounts like (S2F models) that are big money generators for firms despite their low difficulty. We have seen caps on funds moved to live. All of these are historical changes that have been implemented. In the future, we should move to a very similar model to CFD firms. Timelines have been getting longer. A ‘run’ on most firms takes a while, time wise. It will take over a month, maybe two, maybe even three or four (Apex). This will only continue to develop. For example, Topstep now requires 30 profitable days IN your live account vs winning days carrying over. Add in passing the eval, getting 4-5 payouts at minimum every 5 trading days. And 30 profitable days in live, you are looking at multiple months for you to get fully paid out. I also think there will be a cut back in multi accounting (multiple evals / multiple funded accounts). We will not see firms popping up, in a future regulated environment, with 20 accounts. I wouldn’t be surprised to see Apex lower their max accounts as well as other firms move to 1-3 ‘max’ accounts.
Also, a pretty small ‘cosmetic’ change is removing the “headline” marketing number and replacing it with the actual DD. Seeing the promotion going from $150,000 account to $4,500 will be a sign of regulation and maturity to the industry.
Regulation is known to have adverse effects on smaller firms competing. I suspect the same in this case. When bigger players attempt to consolidate their market share while also attempting to guide in leading in regulation, it is an attack on the smaller players. For the smaller players to survive and compete in market share, they have to offer a niche or differentiation in products/models that would be heavily pushed back against bigger players. You can essentially run into situations where the monopoly / oligopoly runs the industry and engages in the regulation to its benefit.
Where does this all lead: worse off for the trader. The walls are closing in as it feels. It has been rumored many times that the walls would close in. But, it is happening gradually over time and will only accelerate over the course of time. Now, that is not to say that I have a pessimistic view of the future of the industry. I recognize what has changed and what will continue to change. This game has changed and will keep changing and evolving.
How to stay ahead
We have seen return to capital compression and payout cap compression. The multiples have shrunk. It is much more difficult to land in the ‘right tail’ of the prop model. To keep winning, you have to be smart. I always recommend expanding your horizons and allowing yourself to diversify streams. Like I said many times, use prop firms as a tool. They are just a part of your “portfolio”. They are one piece. They can’t be the only piece. Be smart in your deployment and investment of capital. Try to model out potential returns and choose / optimize for asymmetric bets. This comes after a certain point in your prop career for what its worth. Recall Chapter 26 when I talked about this in more detail. If you are lost here, what I am essentially saying is have a plan B. and probably a plan C and plan D.
There’s this really simple breakdown of my entire philosophy of this industry and I think really sums up prop firms and it’s this:
1 Recognize you are playing a game -> 2 Understand the rules of the game -> 3 Use the rules to play the game -> 4 Level up to unlock scaling -> Repeat Step 3 until you beat all ‘levels’ -> 5 Quit the game and play new games
PART VI: LONGEVITY, SCALING & PHILOSOPHY