Prop Trading in Forex: A Gold Mine for Scammers

An ordinary workday, your phone rings, and an unknown number appears on the screen. "Hello! I represent financial company XXX..." You have already opened your mouth to send the caller, as usual with offers from shady firms, on a long romantic walk, but then he says that "you will be given capital for trading."

That is all. You are hooked. You listen to "Basilio the Cat" with extreme attention and realize that success is close) At last, someone has recognized all your potential and is ready to give you millions to manage. Your hour has come!

But what is really hidden behind the offer from the "kind uncle"? A lot of firms have now appeared advertising so-called "prop trading" in the forex market. Today we will look at the standard scam schemes used by these guys who lure trusting Pinocchios onto the Field of Miracles.

If you look in Wikipedia for the meaning of this phrase, you will find a fairly harmless definition. This is what they call a broker who trades instruments mainly with its own funds and receives a basic share of profit from speculative gains on securities and derivatives deals, rather than from "client spreads," account maintenance fees, and so on.

In fairness, it is worth noting that such firms honestly providing trading capital do exist. If you are interested, I recommend reading the book "One Good Trade." True, trading in such firms is done in the stock and futures markets. And abroad.
In Russia, as usual, everything was twisted and turned into a scam.

At some point in the financial market sphere, a certain Great Schemer appeared who came up with a simple plan for the relatively "legal extraction of funds." The idea was brilliantly simple: arrange things so that clients would put money into a brokerage account themselves, hoping that "millions" would be added on top. If you are an active trader, then you have undoubtedly encountered many calls from various forex dealers who were hunting for your money one way or another. Usually, you answer all their offers to open an account with "No," because dozens of such firms that collected money from clients and later vanished into oblivion come to mind. But what happens if one fine day the phone talks begin not with a request for a deposit, but on the contrary, with an offer to entrust money to you for management?

Every trader dreams of money received into trust management. These dreams are based on the idea that whichever way you look at it, the trader gets nothing but advantages from such management: there is no need to worry about a triggered stop order after all (he is not trading his own money), they will give a lot of money right away (this is exactly what colorful trader dreams look like), and most importantly, it is a treat for vanity, because for a trader, trust management is like an award recognizing his merits. Think about it and feel the sweet sound of the phrase: "I have 100500 million under trust management."

In short, after receiving such an offer, your morning drowsiness will vanish instantly or your ordinary evening fatigue will be removed at once. And before you know it, in tense silence you will already be listening to the very attractive terms of the deal. Of course, you will be blinded by such unheard-of luck, and that will make you think that somehow you need to prove that you are that one and only trader who can be trusted with a decent sum. And since the firm is solid, it simply needs to be sure of your good intentions, but they are ready to take your word for it, even despite the many-year statement (results of your trading) you have compiled, complete with signatures and seals from your broker.

If they were scamming you the way they scam grandmothers, under the pretext that the state had supposedly sent them aid and it was simply necessary to pay 13% in taxes from that (not yet received!!!) amount, then you would definitely know what to do in such a situation; you would one hundred percent not "fall for it." But in fact, that is exactly how they begin to scam you. They tell you that a certain insignificant amount is required from you, and it must be deposited in order to open an account with a large sum, after which you should trade and thereby prove that you are the best. Are you listening carefully at that moment? Of course not; at that moment you are already choosing the "yacht of your dreams," complete with lifeboats and photo models to go with it. And it is precisely at that moment that you are stuck.

You will not get unstuck soon, because all the video content and the simply published "letters of thanks" from lucky people on the website of the benefactor "prop firm" will strangely repeat your dreams. There they are, those who "went through it and made it," those who "received 100500 million" into management, here are their yachts and photo models. And it will not even occur to you to "google" an image search to understand where those photos came from, or at least to answer for yourself why those lucky people whose "true stories" are so thickly posted on the "prop firm's" site do not, in this day and age, have their own Instagram?

At the end of the 20th century, the idea of such a "scam," where the trader himself gleefully and repeatedly brings money to an open brokerage account, was called "prop." Many craftsmen adopted the methods of the "wild 90s" for "working over" the public and shaking them down for cash, inserting the "trust-management bait" into the formula. It is with this "bait" that they catch forex traders, taking their funds and giving them in return not the promised sums, but only hope.

Psychologically, the blow is struck correctly, because the caste of traders consists of people who blindly carry money even just for their own personal ephemeral dream, topping up and draining deposits again. They do this even though they are perfectly familiar with the statistics about the 90% who "blow up" in the market. And here that dream has been shaped, visualized, and served up on a silver platter. What is more, the "prop firms" do not seem to be asking for money, but on the contrary, they are offering it; only you need to provide a little for "technical expenses."

And what expenses? Usually they ask for support of the platform's operation, since prop firms usually have their own, "innovative" one, although after MetaTrader 4, this innovation smells like the shape of a village outhouse hastily "thrown together in a field," but do "future oligarchs" really care about that? The trader will not even be troubled by constant freezes, requotes, spikes, and non-market quotes. The "future oligarch" will rise above the users' "whining" that they stirred up on the forum about how they were supposedly unfairly thrown out of the contest and that some gap was non-market, after which stop losses were hit, and so on.

What is the whole point of these "prop firms"? That the trail the trader has worn down to them should never grow over. So how, after all, do they get the trader to make another contribution?

The thing is that "prop firms" run a contest with different stages and conditions, with loss and profit levels, and at the same time everything is limited in time. You fail the contest, and the money you paid is burned. Want to keep taking part in the attraction of unheard-of generosity? Pay the amount again, and maybe they will cut you some slack. So that the trader does not come off the hook, he will be motivated, namely by being told the story of "the little engine that could," and they will even show a real person; what more is there to say? Any self-respecting scam always has psychologists in service, because without them, nowhere.

A separate topic is the "adjacent market." It brings in considerable income. Here the trader is offered training, and granted systems to obtain that very "grail for earning a yacht," and on top of that, they will hold lectures on the topic: "making money in the market is as easy as pressing two buttons," but all this is for money, and of course under the pretext that studying goes better when you pay. Moreover, much more money is spent on training than your first deposit contribution was.

But the fire of greed and avarice flares up in us, while in our usual everyday human state it is only a lamp, yet once someone settles in our soul a "belief in Golden Mountains," it bursts into a blaze, burning away sound judgment and prudence.

The business of "prop firms" brings in decent income, so specialists are involved who develop "offers you cannot refuse" on a psychological level; also, to give the trader even more confidence in the correctness of his decision, many authoritative opinions are posted on thematic forums saying that "prop firms" are good, that they are an incentive to strive for profit, and that loss limits serve to cultivate "trading discipline." None of the traders object. Prop is a kind of test. If you took an IQ test and got, say, 40, would you brag? Or would you be outraged that the test was rigged and the number could not be that low? You would tell no one, but you would take the test again, and then again and again. Revanchism is also one of our negative qualities.

First, you have to pay money. Why do "they need it," while you are the one paying, where is the logic? If you are looking for talented traders, then you should invest. Everyone knows that our personal data leaks to other companies and then "murky" firms that are also brokers start calling us. So if a broker set out to search for "talent," it could find trading statements with positive equity by the same system as personal data, and that is not even counting PAMM accounts, which are in plain sight and where there is no need to search for a statement at all, only to learn the personal data.

Second, the contest is limited in time. If a loss limit is stipulated, then why stipulate a profit amount? The desire not to reach the loss limit will force you to act many times more conservatively, and at the same time you will never be able to reach certain profit parameters. Because, based on all the conditions, the prop firms calculate these parameters and build them into the terms.

Third, the "prop" trading terminal. Why not MetaTrader, and why should "prop firms" reinvent the wheel, spending money on their own software? I do not think this needs explaining.

An objection like: "they undertake to teach you to work profitably and only then give you money" does not withstand any criticism at all. If the prop firm had genuinely working algorithms, how hard do you think it would be to write a robot rather than look for beginners who, like all mortals, can make a mistake?

Fourth, there are prop firms that really add their money to yours. That is, if you deposited one hundred dollars, they gave one thousand, and you trade on "their money." This is the most classic scam. You trade until your hundred disappears. After that, the account will be blocked. At the same time, the "prop firm" stays where it started (and it did not even have any money of its own, because you were simply trading with enormous leverage, and if all operations were carried out in the "prop firm's" terminal, then perhaps your orders were not sent to the market at all?).

In general, you could make a movie about these guys with a plot like "The Wolf of Wall Street". By the way, firms of this kind still exist to this day, as does the scheme by which they make money by offering "penny" stocks with their especially high compensation. Prop firms do not even give stocks in return.

At the same time earning money from all sorts of adjacent-market things (training, paid software, and so on), using the accumulated experience of Forex bucket shops, they play against you on their own kitchen terminals. And contests exist only because if they took all your money at once, you might cry out, "Help!" and then the cry would attract attention. Is it not better to "lead" the poor trader to a blow-up, because then he can be blamed with something like "You're the fool yourself," and moreover, in 9 cases out of 10 you will agree with that statement and bring your money again.

In essence, there is no sense in prop firms at all, because kind uncles handing out money on the internet do not exist. Were you not taught in childhood that if an unfamiliar uncle offers you candy on the street, you should not take it? Of course, you are already an adult, and that innocent "uncle's candy" on the internet will turn into a loss of money for you. Only in such a case you will become a simple donor for some time, contributing funds again and again, without even thinking to draw analogies with MMM and other money-luring firms. "You are not like that, they are not like that..."

PAMMs could serve as an alternative to all this. They will open an account for you, investors will contribute money, the terms are yours, and there are no contribution limits. All that remains for you is to trade, while attracting investors with your results. Do not forget to develop your PR skills, because attracting an investor is difficult, but possible. Our "PAMM Manager" course can help you with this.

Do you not know how to trade? There are many dealing centers ready to teach you for free and provide personal managers. There are also genuinely trading philanthropist traders who publish their methods in open access; they are also hard to find, but again quite possible (there are some on our forum).

No money for start-up capital? That is also solvable. There is a system of no-deposit bonuses; of course, you have to look for which firms really let you withdraw them from the account, but if you are a beginner, then at first you will still be blowing up anyway, and the first bonuses will be "for practice."

If you are an established forex trader who has worked in the market for a long time, then you certainly know that a trade can be successful only when it goes on your terms, the entry is made at the level you chose, and the profit is defined based on your own considerations, while the stop with the expected losses was also chosen by you personally. Now imagine for a minute your trading where someone tells you what to do, where you enter, and you constantly lose money on these trades; as a consequence, the minus grows, but they keep telling you that just one more trade and everything will be fine, that one will definitely cover all losses and fulfill all your dreams. Nonsense, is it not? That is exactly what it is, because the strategy of prop firms is to "lure and drain (into their own pocket)."

Look for what suits you personally, always invest money only on your own terms, take care of yourself and your funds, do not engage in self-deception, critically and honestly assess your trading abilities, and remember: "It is better to be than to seem."

Respectfully, Alexey Vergunov TradeLikeaPro.ru