Are prop firms a scam? An honest answer

Are funded accounts a scam? How the model really makes money, why almost everyone fails and the warning signs of a bad firm.

The short answer: the model isn't a scam, but it's designed so most people fail, and some specific firms are.

Both at once. Let's take it step by step.

How a prop firm makes money

This is the whole story. A firm has two revenue streams:

1. What it charges for challenges. Each attempt has a price, and most people fail and buy again. 2. Its share of the profits from those who pass and get paid.

If 90% fail, the first stream is huge and the second almost irrelevant. That's the real business of most firms, and they don't hide it: it's in their numbers.

That doesn't make it a scam. A gym also makes money from people who sign up in January and never show. But it's worth knowing which side of the statistic you're being put on.

Why so many people fail

It's not just about being a bad trader. The rules are built so a mediocre trader fails fast:

Drawdown that chases your balance. You win and the floor rises with you, so you never build a cushion. Explained with numbers in EOD vs static drawdown.

The consistency rule. Even if you hit the target, if one day is too large a share of your total profit, you don't get paid. This is the one that knocks people out when they request the payout, just when they thought they'd made it.

The time limit. A month to make 6% pushes you to force trades that weren't there.

Size. A 50,000 account lets you trade sizes you'd never trade in your own account, and that changes how you decide.

None of these rules is abusive on its own. Together, they make most people fail.

Signs that a specific firm is a problem

Here there are big differences between firms:

• They don't pay or delay payouts without explanation. The ultimate sign.
• They change the rules mid-evaluation.
• The terms aren't clear on the website and you have to dig through a forum.
• They close accounts for "prohibited trading" defined so vaguely anything fits.
• They're new and offer conditions nobody else offers.
• Their good reviews are all from the same month and new accounts.

How to check before paying

1. Look for screenshots of paid payouts, not testimonials. One proof of payment is worth more than twenty reviews. 2. Read the full terms, especially drawdown, consistency and what they consider prohibited trading. 3. Check how long they've been around. Bad firms last months. 4. Start with the smallest account. If they fail you, they fail you small.

What really separates those who pass

It's not the firm. It's that almost nobody knows what's happening to them until the account is blown.

Those who pass usually have three things:

• They know their floor today, not day one's.
• They trade 50,000 the same as 5,000. Size doesn't change their decisions.
• Similar days. They don't chase the big day, because the big day is what consistency knocks them out with.

All three can be measured. Most people don't measure them.

In short

• The model isn't a scam, it's a business with a very high failure rate built into the design.
• Some specific firms are, and you spot them by how they pay.
• Buying more attempts fixes nothing if you don't know why you blew the last one.

That last point is what we try to solve: a journal that tells you the exact day and reason you blew the account, so the next challenge isn't the same mistake under a different name.

If you're about to buy one, first read how to pass a prop firm challenge.

TradiBook by

WHO WRITES THIS

Alejandro Santiago

Funded account trader and trading coach: he reviews other traders' trading and helps them stop blowing accounts. That's where TradiBook came from. He didn't build it to sell a product: he built it because he needed to track his own accounts and no tool measured what mattered to him. Building it for his case, it ended up fitting anyone who trades funded accounts, because the problems are the same: the floor that moves, the accounts lost along the way and the plan that isn't followed.